Pew Research • Young adults are using credit cards less but continue to invest in education.
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Florida-native Jacob Stewart graduated from George Mason Law School in 2011, but finding employment took nearly a year.
"I had been looking and looking for jobs," Stewart said. "We moved here because the economy in Utah was better than in other places."
Stewart, who turned 30 on Thursday, is married with three children age 4 and younger. He assumed they'd be living in a house by now. But with $180,000 in student debt and a lower-than-expected salary, Stewart said his family is holding off on buying a house while they pay down student loans.
"The plan is, once we can save up enough for a down payment, we'll buy," he said. "So far, that hasn't been possible."
Stewart's experience reflects findings of a new study released Thursday by the Pew Research Center. It shows fewer adults younger than 35 are buying homes, owning cars and incurring credit card debt. And more young adults are moving in with family instead of living independently.
None of this really surprises Scott Schaefer, professor of finance at the University of Utah. He said shying away from debt is normal in a recession.
"People are willing to take on debt when they think their future income is going to be higher," Schaefer said. "In a recession, there is a lot of job loss and that's pronounced among the young. The reduced expectations of future earnings are motivating people from taking on debt."
It appears debt is a dirty word for many young adults. The Pew study notes that "the share of younger households holding debt of any kind fell to 78 percent, the lowest level since the government began collecting such data in 1983." The Pew conclusions are based on data analysis from four government sources: Survey of Consumer Finances, American Housing Survey, American Community Survey and the Consumer Expenditure Survey.
When it comes to buying a home, the Pew study found that 34 percent of younger households owned their primary residence in 2011, a dramatic drop from 40 percent in 2007. Schaefer attributes the decline, in part, to the availability of easy credit prior to the recession.
"It was very easy to get a mortgage in 2006," Schaefer said. "It's pretty hard to get a mortgage right now. In fact, it's hard to get one now without 20 percent down. Since young people are having a harder time coming up with the down payment, that alone will reduce home ownership."
Young people are also putting less debt on plastic. The Pew study shows just 39 percent of young people carried a balance on a credit card in 2010 compared with 48 percent in 2007.
"People are more willing to borrow when they expect the future is looking better," Schaefer said. "When people expected the future to look worse, they started saving more and spending less. This reduction in credit card debt is a manifestation of that."
This doesn't mean young people are averse to all debt. The Pew study notes young households are still investing in their education. In fact, borrowing for school was the only type of debt that grew for young adults during the recession. The study shows that in 2010, 40 percent of young adults had student debt, up from 34 percent in 2007. But while more young households are taking out student loans, the amount of those loans is less. According to the survey, student debt for younger households totaled $13,410 in 2010; in 2007, it was $14,102.
Schaefer explains that universities fill up when the job market is weak, attendance financed by and large by debt.
"Three years ago, our classrooms were just packed," Schaefer said. "If you don't have good job prospects, that encourages people to go back to school. It's not surprising to see a big increase in student loan debt because there have been big increases in tuition. That's the kind of thing that pushes up loan debt."
Interestingly, the Pew study shows not as many young adults are going into debt for cars, with 66 percent of households headed by those younger than 25 owning or leasing at least one vehicle in 2011.
Stewart, the young attorney, eventually landed a job at an asset protection firm in Orem and has been working there for the past eight months. He notes that two of his coworkers have bought homes recently.
"Our hope is in next couple of years we'll buy a home, if everything goes well," he said.