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Why Do Millennials Have So Much Bad Debt?

Written by: Kristy Welsh

Last Updated: July 18, 2017

Though Americans of every generation carry bad debt, one generation seems to be at the top of the class. Millennials, those born between the late 70s and the early 2000's (also know as Generation Y), seem to be particularly susceptible to overwhelming bad debt. While some contend there is no "good" debt, mortgages and student loans are considered in this category. While Generation X tends to excel on the good debt front, Gen Y has far more in the way of "bad" debt, including credit cards, other lines of credit and car loans. The question is, why?

Constant Engagement

Parents of Millennials were particularly attuned to the importance of giving their kids every opportunity to further themselves — socially, intellectually and artistically. From play groups; to tutoring; to music, dance and art classes, Gen Y was raised to stay busy, not with just any run-of-the-mill activities, but those equated with social and/or cultural status. As adults, this may translate into a chronic need for Millennials to keep their schedules full of more engagements than they can afford, be it brunch, lunch and/or dinner with friends; near-nightly entertainment; or trips abroad.

According to a recent study by the Department of Agriculture, parents now spend over $40,000 more on each child compared to child rearing costs back in 1960. Of course you have to factor in inflation, but, two income families seem to spend a lot more on the "needs" of their children than they did when just dad went to work every day and mom stayed home to entertain and take care of the kids.

Instant Gratification

Using the Internet as children taught Generation Y-ers early on, what they want is just a mouse click away...right now. Instead of the prolonged shopping experience of planning a shopping trip, physically visiting different stores — perhaps over a period of days or even weeks to find the perfect (affordable) thing — Millennials may condense the same into less than hour's time online. This heightens impulse-buy behavior, as any sudden desire to have something can be realized immediately. Unfortunately, this deprives Gen Y of good-old-fashioned second-guessing that helps keep the best of budgets in check, as there may be no lag time between desire and realization. Add to that the tendency of Gen Y parents to provide for their kids' every want and whim, and it's no wonder Millennials tend to live above their means.

Tighter Job Market

Conventional wisdom has always held that a degree gives college graduates a leg up, particularly during tough economic times. But in the wake of The Great Recession, the experience of Millennials proves there is no guarantee in the job market. Since the number of qualified applicants far exceeds the number of job openings, Gen Y college grads are forced to take positions that may have no degree requirement at all, which almost always means earning far less than their education presumably deserves.

So, after spending four years in college to obtain a college degree, Gen Y-ers now have all of that student loan debt to contend with. Thinking they would be getting a job right after graduation making a nice income, when in actuality they are making just over minimum wage, makes it difficult to keep up with the monthly payments that need to be made on that now useless college education.

Continuing Education

To better themselves (and their position amongst the competition), Millennials tend to enroll in advanced degree programs. While this will hopefully translate into higher earnings down the road, today it means higher student loan payments. For many, it's tough enough covering student loan debt incurred via a bachelor's degree. Tack onto that a master's, then maybe a doctorate, and it's no wonder Gen Y is drowning in debt. While student loans may be considered "good" debt, as it's an investment in future money earned, often covering the cost of student loans means charging up credit cards (bad debt) to make ends meet.

So what is the Millennial Generation to do? Budget, budget, budget (i.e., spend less, save more). If you can't afford to cover it with cash by the end of the month, you can't afford to charge it today. While this may mean holding off on something you want now, you may be surprised at how much more gratifying it is to wait for something you want until you've saved enough to have it.