By Mashum Mollah
Most Americans have different types of debts during their lifetime. Some common ones include student loans, car loans, mortgages, credit cards, and personal loans. The total amount increases each year as consumers continue to take on more loans.
According to a recent survey conducted by Northwestern Mutual, the average debt of American consumers is around $38,000 not including mortgages. That amount is $1,000 higher from last year’s number. Fewer people also responded to not having any debt in 2018 as compared to the previous year.
While most Americans know the dangers of accumulating debt, many take on more loans year after year. Mortgages and credit cards are the main financial burdens of these consumers, followed by car and student loans. This information was based on a survey with 2,000 correspondents from all over the United States.
Gen Z and Younger – $22,000:
For consumers between the ages of eighteen and twenty-four years old, the average debt is $ 22,000. Top sources of this age group’s financial burdens are student loans and credit cards. Student loans are considered good debt because of their tax benefits and low cost. The bad news is that plastics are considered bad debt because of high-interest rates.
Financial experts advise not taking out student loans that are more than one’s estimated salary in the first year after college graduation. If you think you can earn $60,000 in the first year, don’t take out more than that amount.
Millennials Older than Gen Z – $42,000:
Millennials between the ages of twenty-five and thirty-four owe an average of $42,000. Most of their financial burdens come from credit card usage, followed by student debts and mortgages. Experts attribute this to the increase of expenses consumers face at this stage of their lives. Overhead costs grow each year and disposable income decreases at the same time. This group faces this problem even if their salaries improve during the same period.
Gen X – $39,000:
Consumers between the ages of thirty-five and forty-nine belong to Gen X. Their number one financial worry is mortgage loans, followed by credit card debt, car loans, and college loans. Today, Gen Xers want to get rid of their financial burdens and start saving up for their retirement by the time they reach the age of forty-five.
Most people start their professional careers during their early twenties and set to retire by their mid-sixties. By their forties, they are at the midpoint of their careers and want to make sure they are free from financial burdens. That way they can start building up their nest to enjoy later in life.
Baby Boomers – $36,000:
Consumers who are fifty years old and older share the financial burdens of Gen Xers. As they near their retirement age, they try to repay all their debts as soon as possible so sometimes they try to take help of online service to find lender like https://nation21loans.com. However, most of them still have mortgages, credit cards, and car loans to pay back.
The good news is that they have fewer liabilities than Gen Xers. The bad news is that the majority of them don’t have a lot of savings. Around 30 percent of Baby Boomers have $25,000 or less in their retirement funds. That’s why they work longer than most generations today.
Common Debts:
Student loans are common among all age groups, from Gen Z to Baby Boomers. In 2015, people over sixty had eight times the total amount of leftover education debt than the same age group in the previous decade.
Credit card balances are another common debt shared by all consumers, no matter what their age is. As of 2018, the Federal Reserve stated that the total credit card debt amassed by American consumers is more than $1 trillion.
Due to the high debt American consumers face, many find it hard to save up for retirement. In a survey taken in 2017, only a third of middle-class Baby Boomers from the ages of fifty-two to seventy were considered financially independent.
Reasons Why American Consumers are Struggling with Debt:
There are several reasons why consumers in the United States continue to accumulate debt year after year. The top answer, according to a survey, is low income with 44 percent of correspondents saying they don’t make enough money to pay for their expenses.
Expensive education and the high cost of living tied for second place with 20 percent. These might be the reasons why college loans remain a financial burden for people nearing their retirement. They need to use their money for their daily expenses instead of paying back their education debts.
The survey also showed that an income gender gap exists. Women complained more about having low income compared to men. Almost half of the women surveyed reported struggling with debt because of income that was insufficient for their needs.
What’s surprising is that older generations are struggling in managing their debt because of low income as well. In the past, people reached their peak earning stage in their late forties to fifties. However, older adults today between the ages of forty-five and fifty-four said low income caused their financial burdens.
One reason for the low income amongst Americans is income stagnation. While the hourly wage increased after the Great Recession, wages were not adjusted for inflation and that’s why consumers still suffer from financial burdens.
Eliminating Debt:
A third of US consumers want to get rid of their credit card balances. Of all the generations surveyed, Gen X has the highest overall balance with an average of $7,100, followed by Baby Boomers with $6,400, and Millennials with $4,200. Gen Z has the least amount with $1,200.
After card balances, consumers want to pay off their college loans. Mortgages come in third, followed by medical bills and auto loans. When it comes to gender, women want to get rid of their credit card balances first, while men are more concerned with repaying their student loans.
After paying off or reducing debts, most consumers want to save up for their retirement. At present, only 42 percent of US consumers have less than $10,000 in their retirement funds because they use some of the money to pay their financial burdens.
Baby Boomers are most likely of all generations to save for their retirement after getting rid of their debt. Millennials choose to invest and travel after becoming financially independent. Starting a family was the least common option for people who answered the survey.
The Future of Debt in America:
Most respondents reported being hopeful about becoming debt-free in the future. However, the men were more confident than the women. 76 percent of male respondents stated they could repay all their borrowed money compared to just 67 percent of their female counterparts. Baby Boomers are pessimistic about their finances, with a third of them saying they can’t escape their financial burdens.
Mindset is one of the most important factors in getting rid of debt. If you can’t convince yourself you can pay off all your financial burdens, it will be difficult to stay motivated to achieve your goals. It is important that you find ways to reduce costs, earn more, and stick to a budget to get out of your own debt trap.
If you find yourself having a hard time saving for the future, chances are you have too much debt. The closer you get to your retirement, the more aggressive you should be in paying off the money you borrowed.
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