Prior to the recession, a lot of us binged on things we had no business buying, like big houses and second cars and smaller luxuries affordable only with credit card debt. In the process, Americans – and young Americans in particular – became an impressively (and historically) indebted lot.
In retrospect, this wasn’t such a sustainable masterplan. But there are already signs that Millennials – if not their parents – are starting to seriously offload that debt. A report released today by the Pew Research Center reveals that households younger than 35 have shed substantial debt since the start of the recession. And that has largely occurred as they’ve backed away from owning two big-ticket items cherished by their parents' generation: cars and houses.
What’s most notable about the Pew study is that young Americans seem to be offloading debt at a much higher rate than older generations. Back in 2001, the typical household headed by someone younger than 35 held about $18,000 in total debt. That figured soared by 2007 to $22,000. As of 2010, in the most recent data available from the Federal Reserve Board’s Survey of Consumer Finances, the median young U.S. household owed only $15,000, with an expanded share of it now coming from student loans instead of consumer debt.
Between 2007 and 2010, median young household debt fell by 29 percent. Households headed by adults aged 35 and older, on the other hand, saw a decline in debt of just 8 percent. The share of young households now holding any debt (78 percent) as the lowest it’s been since government data was first collected on this question in 1983:
Behind these numbers are a pair of trends we’ve been aware of for a while now. Fewer Millennials are now owning and driving cars. In 2007, 73 percent of households headed by an adult younger than 25 owned a car. By 2010, that figure was down to 66 percent.
Meanwhile, among the under-35 cohort, the share of households owning their primary residence fell from 40 percent in 2007 to 34 percent in 2011. In 2011, 3 million homeowners who had recently moved became renters instead. This chart from the report shows how the shape of American homeownership has changed in only a decade, as younger households now more often opt to rent: