3/30/2005

Debt and Young Americans

This article, "Why young Americans are drowning in debt," was very insightful. It discussed three major factors that are contributing to the enormous debt that young americans are being faced currently with. The number one listed was the amount owed, on average, in college loans. They have reached record heights recently and look to continue to soar. One of the other major factors is credit card debts. The last major factor is how tight the job market is at this time. With all of these factors going on that are real-to-life for most young adults in the U.S., many think that they (we) may be the most indebted generation of young americans ever. Perhaps there should be a class or two required in high school that would help rising college students and even those who don't plan on attending school to see this reality before being hit by the train. If it is really this big of an issue, why don't we do something about it? If not, this trend will just continue to grow.

1 comment:

Dr. Tufte said...

I'd be in favor of a required personal finance class in college, and SUU like other universities is actually moving in this direction.

I am very dubious about this sort of article. There is very little mention of assets - yet the whole point of incurring liabilities is to acquire assets. If you don't discuss both, then I think there is something fundamentally biased about the discussion. There really is no reasonable reason why the society in which households have the most assets is also the one in which they have the most debt.

If I can take this in a different direction, the problem isn't debt, it's liquidity. Liquidity is the ability to turn non-money assets into money quickly and at will. The problem with the debt of consumers is that so much of it is spent on assets that are not liquid. Even something like clothing is an asset, but it isn't a very good or liquid one. To my mind the problem is that people are not using their debt to buy enough things with a reasonable rate of return (like education), or with a low rate of depreciation (like financial assets).