How Different Generations Experience Debt

For the most part, generations are a social construct.  The line that divides a millennial and a “Gen X-er” is oftentimes up for debate and somewhat vague. But paying attention to these generational divides can be helpful. It sheds light on what trends are taking place amongst which age groups and it gives us an idea of how certain demographics are experiencing the world. 

When it comes to finances, each generational group seems to have experienced our fluctuating economy at different stages, resulting in a wide array of challenges. 

The objective truth is that a vast majority of people from every generation suffer from debt—but what are the generational trends in our spending habits?

Average American debt by age

According to a recent survey by Northwestern Mutual’s 2018 Planning & Progress Study, the average American is hauling around about $38,000 in personal debt, not including home mortgages. 

Credit card debt is a large source of consumer debt across the board for all generations, and while the numbers vary, the gaps aren’t too wide. Here is a breakdown of the average American debt by age:

  • Ages 18-24, Generation Z & younger millennials: $22,000
    • For a group of adults this young, it’s not surprising that the bulk of their debt comes from student loans (28%), but credit card balances follow right behind. Many experts believe that student loans are the lesser of evils when it comes to debt since they usually have low interest and there is a possibility of tax breaks. However, debt is still debt, regardless of the nitty gritty details. As a rule, it’s always best to take out less rather than more. Many experts agree that you should never take out more than you anticipate making in your first year after college. If you can expect your first year’s income to be $50,000, try to avoid taking out more than $50,000 in student loans. 
  • Ages 25-34, Older millennials: $42,000
    • As for this only slightly older age group, credit card balances are the number one  cause of debt, making up a quarter of the average debt older millennials are lugging around. The second leading cause of debt amongst older millennials is their student loans at 16%, while home mortgages are only 3% of the problem. This particular age group oftentimes catches a bad rap. While they are notably in the most debt, they also happen to be living in a sweet spot where student loans meet a decent quality of life with an ever-increasing price tag. The overall narrative with this group of consumers is that the cost of every day expenses is increasing without very much growth in the income department. Instead of sacrificing lifestyle habits, this generation shows a trend of racking up debt in order to afford it.   
  • Ages 35-49, Generation X: $39,000:
      • This is where mortgages start coming into play. For Generation X, mortgages are the leading source of debt, accounting for approximately 32% of the overall debt owed by this demographic. Credit card debt is next, followed by tied-in-ranking car loans and student loans—which both are only 7% each.
  • Ages 50+, Baby boomers: $36,000:
  • Baby boomers reside on the lower end of the debt bracket, but follow a similar trend as the slightly younger Generation X with mortgages being the leading source of debt, with credit card bills being next and car loans being last. While this generation has the second lowest amount of debt, they don’t have very much in savings—with only about $25,000 stashed, on average. 

To reiterate, the above statistics are referring to consumer debt that excluding mortgages. According to these numbers, older millennials are in the most consumer debt, but Generation X isn’t too far behind, followed closely by the Baby Boomers. 

Average income by generation

In recent years, millennials (ages 22-37) have actually seen an increase in their overall household income with the average being around $69,000 a year. As far as income goes, this is one of the highest averages this age group has seen since the year 2000. 

Meanwhile, Generation X households (ages 38-53) are sweeping in an average income of $85,800 per year, while Baby boomers (ages 54-72) are pocketing an average household income of $77,600 a year. 

As we’ve seen with the statistics on consumer debt, student loans seem to play a noteworthy role in our overall debt as a country. But, is the investment worth it? According to the Bureau of Labor Statistics on average annual income, here is a breakdown of earning potential in relation to education:

  • No high school diploma: $25,636
  • High school education: $35, 256
  • Some college: $38, 376
  • Two-year college degree: $41, 496
  • College degree: $61, 828
  • Advanced degree: $75, 452

Let’s say you were to operate according to the student loan rule that we discussed in the above section. With a starting salary of $61, 8289 after college, a student loan debt less than that would be considered manageable.