The Average Member of Generation X Still Carries A Heavy Debt Burden

ST. LOUIS – Thanks to rapid increases in the value of assets and modest decreases in debt, overall household wealth continues to grow, and real average household wealth now exceeds its prerecession peak by 2.6 percent.

But the latest issue of In the Balance, a publication of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, shows these facts don’t tell the whole story of American families’ financial health. Indeed, the overall trends of record growth in family asset holdings and net worth conceal important differences between individuals and families of different generations.

The average member of Generation X (born between 1965 and 1980) today owes about 60 percent more debt (adjusted for inflation) than his or her counterpart of the same age did in 2000. No other generation’s average debt burden increased that much between 2000 and 2014.

The authors, William Emmons, senior economic adviser at the Center, and Bryan Noeth, policy analyst at the Center, calculated the average inflation-adjusted amount of debt owed by age of the individual or family head at three points in time—2000, 2008 and 2014. They then compared the amounts of debt owed at the same age in different years. For example, they compared the amounts of debt owed by people who were 44 years old in each of these three years: 2000, 2008 and 2014.

Members of Gen X were the most aggressive borrowers of any generation between 2000 and 2008, according to the analysis. The average member of Gen X carried more than twice as much debt (inflation-adjusted) into the Great Recession than they would have had they simply matched the life cycle debt profile of 2000. The average member of all other generations increased debt between 2000 and 2008, too, but none as much as the members of Gen X.

Deleveraging of the average family balance sheet occurred among all age groups between 2008 and 2014, with members of both Gen X and Gen Y (born after 1980) leading the way.

But the balance-sheet deleveraging seen to date has not altered the generational pattern established before the recession. As previously mentioned, the average member of Gen X in 2014 carries about 60 percent more debt (adjusted for inflation) than their counterpart of the same age did in 2000. But cumulative income growth of the average family in Gen X between 2000 and 2014 was much lower, implying an increased debt burden and pressure to reduce debt further.

Lending standards remain tighter than before the crisis. Therefore deleveraging may continue for some time. The legacy of the boom and bust in credit markets continues to affect household balance sheets, especially those of young and middle-aged families.

“Families that are reducing their debt are, by definition, not spending all of their income,” the authors wrote. “Given the evidence discussed here of widespread ongoing debt declines among younger families, overall economic growth will be dampened for some time.”