Despite Aggressive Deleveraging, Generation X Remains “Generation Debt”

August 28, 2014

Members of Generation X were the most aggressive borrowers during the years leading up to the financial crisis of 2007-09, according to the latest issue of In the Balance from the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.

Senior Economic Adviser William Emmons and Policy Analyst Bryan Noeth, both with the center, examined the inflation-adjusted amounts of household debt owed in the first quarters of 2000, 2008 and 2014 according to the age of the oldest person in the household. They found that, on average by 2008, members of Gen X (those born between 1965 and 1980) had accumulated about twice as much total debt at a given age as birth-year cohorts observed at the same age in 2000. Early members of Generation Y (those born after 1980) also borrowed aggressively.

Following 2008, the later waves of Gen X and the early waves of Gen Y deleveraged the most. In fact, Gen Y members reduced average debt even more in percentage terms relative to the 2008 benchmark year than did members of Gen X, even though they were very young during the housing boom and presumably had more limited access to borrowing than members of Gen X.

Over the full period studied (2000-14), the group with the greatest net increase in real average household debt relative to the life cycle patterns observed in 2000 was the one born in 1970. The average debt of these households was $142,077 in the first quarter of 2014 (that is, approximately age 44), or about 60 percent more than the inflation-adjusted household debt of the 1956 cohort in the first quarter of 2000 (also approximately age 44).

Overall, debt levels remain high relative to 2000 levels for most, lending standards remain tighter than before the crisis, and average real homeowners’ equity remains about two-thirds of its peak level in early 2006. The authors concluded, “Therefore, deleveraging may continue for some time, at least in the sense of returning toward historical benchmarks. Thus, the legacy of the boom and bust in credit markets continues to affect household balance sheets, especially those of young families.”

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