The younger you are, the more likely you are to die with credit card debt.
Those cheery findings come to us from a recent study co-authored by Lucia Dunn, an economics professor at Ohio State University, and Sarah Jiang, manager of credit and business strategy at Capital One. Using data from two monthly surveys – the Ohio Economic Survey from 1996-2002 and the national Consumer Finance Monthly, which started in 2005 – Dunn and Jiang found evidence consumers born between 1980-1984 had payoff rates 24 percent slower than their parents, and 77 percent slower than their grandparents.
According to Dunn, such patterns could become quite problematic as the population ages.
“If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” Dunn told Business News Daily. “Our projections are that the typical credit-card holder among younger Americans who keeps a balance will die still in debt to credit-card companies.
The numbers, when presented in basic terms, are frightening. Consumers born in the early 1980s average $5,689 more in debt than do their parents born in the early 1950s. Compared to their grandparents of the early 1920s, they’re burdened by an average of $8,156 more in debt.
Dunn says she believes higher credit availability is partially to blame for the concerning trend.
“Credit is more readily available now, and there have been changes in interest rates and less stigma attached to having credit-card debt, which may all make younger people today more willing to go into debt,” Dunn said.
So what can be done to help curb the trend towards an increase in debt for younger people? Dunn said raising minimum payment requirements is an underrated but effective method. For example, the study showed that rising minimum payments by 1 percent raised the payoff rate by 1.9 percent, as it adds motivation for consumers to pay off their debt sooner.
Raising the minimum payoff rate can have a powerful effect on how people actually pay off their credit card debt, much more so than you might expect,” Dunn said.
“They may see the increase in their minimum payment and start feeling uncertain about their future ability to pay off their debt,” she said. “That may encourage them to pay off even more than they have to, in order to bring their debt level down.”
To read more about Dunn’s and Jiang’s study, read the original piece in Business News Daily here.