Outstanding AFCPE^sup ®^ Conference Paper: Debt Burden of Young Adults in the United States

Article excerpt

Factors associated with the borrowing behavior of young adults who are transitioning from financial dependence to financial independence were identified. Data used were from the 2009 Transition to Adulthood and its parental companion data set, Panel Studies of Income Dynamics. Results indicate that age, gender, race, and work status are associated with the debt burden of young adults. Conversely, closeness to mother and communication, parental resources, and human capital attainment are negatively associated with borrowing behavior. Financial independence was positively associated with both credit card borrowing and student loan debt of college students.

Key Words: college students, debt burden, financial independence, financial management, young adults


Young adults in the United States are struggling to establish their financial future. With the rising cost of higher education and high unemployment rates among young adults, growing debt continues to be an issue for young adults in the United States. According to the Consumer Financial Protection Bureau, student loan debts have surpassed the $1 trillion mark. Young adults graduated from college with an average of $25,000 in loans in 2010. In addition to student loans, undergraduates are carrying record high credit card balances with an average balance of $3,173 (Sallie Mae, 2009).

Other studies and reports have examined college students and debt issues. However, limited information is available about financial management of young adults who are not in college. More than half of young adults ages 18 to 21 do not attend college but have difficulty finding employment in the current economic condition. Many pile up student loans by attending private trade schools without graduating or finding employment. From April to July 2011, more than half of youth ages 16 to 24 were unemployed (Bureau of Labor Statistics, 2011).

The recent economic downturn, the rising cost of higher education, and the subsequent decreasing ability of parents to financially support their children's college education have created a problematic situation for contemporary young adults. Current literature on youth development describes 18 to 25 year olds as transitioning or emerging adults because they are in between adolescence and adulthood (Arnett, 2004). In the current environment, transitioning adults are faced with challenges arising from the following issues: financial and economic instability, the decision to become financially independent, interpersonal relationships, and cognitive and emotional development. Recent findings suggest that the transitioning adults are more likely to demonstrate risk-taking behaviors and engage in poor financial decision-making (Nelson, Lust, Story, & Ehlinger, 2008; Todesco, 2005; Worthy, Jonkman, & Blinn-Pyke, 2010). The objective of the current study is to determine how factors associated with transitioning to adulthood, relationship with parents, and related socioeconomic and demographic characteristics affect young adults' credit card debt and student loan borrowing behavior. The current research also examined the role of financial and emotional support from parents, who may themselves be struggling to meet the financial needs of their families, in the borrowing behavior of young adults.

This paper examined the determinants of young adults' credit card borrowing and student loan holding behavior, after controlling for several factors associated with emerging adulthood, of the participants. This paper provides a discussion of the factors associated with young adults' debt that will be of interest to policy makers, economists, and financial counselors. The primary findings of the study indicated that tremendous heterogeneity exists in the borrowing behavior of this group.

Review of Literature

The recent downturn in the economy provided numerous examples of how a lack of financial capability can impact family life (Jorgensen & Savla, 2010). …