FORTUNE – Since the Great Recession, countless Americans have shunned the idea of taking on more debt. Homeowners discovered that stretching to buy bigger houses would result in years of financial turmoil. Jobless college grads unable to pay down their student loans now wonder if their degrees are really worth it. And as Europe grapples with its own debt problems, Washington lawmakers struggle to find a way to reduce the U.S. deficit.
Indeed, many have learned a few harsh lessons. But debt isn't always a bad thing. More of it can reflect a healthy economy -- one where consumers, as well as lenders feel comfortable taking on more risks.
Young adults, however, haven't taken on nearly as much debt as their parents. It's uncertain if the trend will continue as the economy improves, but for now, those under 35 years old have shed debt faster than older ones, according to a report by Pew Research Center released last week. The study doesn't say if this is a good or bad development, but many signs suggest the drop means Millenials are more anxious than responsible about their finances.
It's a negative sign. The Federal Reserve's policies to keep interest rates super-low has spurred more home and car sales by getting consumers to borrow more, but it appears young adults have benefitted less from the central bank's bond-buying program.
Across households headed by people under 35 years old, median debt fell by 29% to $15,473 in 2010, compared with $22,000 in 2007, according to the report. That compares with a much smaller 8% drop at households headed by those 35 and older during the same period.
To be sure, the decline partly reflects a fall in home loans and purchases by young adults. This doesn't necessarily signal that younger people aren't able to afford a house, since many have been delaying marriage (which is typically followed by homeownership) for various reasons. However, the share of first-time homebuyers typically comprised of young adults has fallen. And young people are less willing to take on credit card debt and auto loans, suggesting they aren't in financial positions to commit to monthly payments. Compared with 50% in 2001, only 39% of young households in 2010 had credit card debt. When it comes to vehicles, 73% of households headed by an adult younger than 25 years old in 2001 owned or leased at least one vehicle. By 2011, that share fell to 66%.
What's maybe most perplexing is that student debt has increased while all other consumer loans fell. Still, roughly three-quarters of household debt for young adults comes from home loans; student debt makes up only 15%.
The study's results are similar to other research looking at the finances of young adults. In a 2012 Rutgers University survey of college graduates, 40% said student debt was making them delay large-scale purchases, such as a house or a car. Faced with big monthly payments, recent college graduates aren't earning as much as graduates before them. The median salary for those graduating between 2009 and 2011 was $27,000 -- $3,000 less than 2007. The difference is significant. It could mean having enough to help with a down payment on a home or spending money for everything from clothes and furniture.
For now, the no-debt Millenials have spawned a generation that rents most everything.
The Fed's bond buying spree has yet to help credit card borrowers.
FORTUNE -- Interest rates are the lowest they have been in decades. But there's little indication the customers of lender Capital One Financial (COF) are benefiting. In the company's most recent quarter, loans made by Capital One, which gets about half its revenue from credit cards, generated nearly $4 billion in interest income. That was $900 million more than MOREStephen Gandel, senior editor - Sep 24, 2012 5:00 AM ET
Policymakers are overlooking a huge opportunity to jumpstart consumer spending. Average credit card interest rates are still a high 14%.
FORTUNE -- Judging by how economists and policymakers appear to have locked in on fixing housing prices and mortgage burdens, consumer spending looks to be the best bet for jumpstarting the economy.
Policymakers are ignoring a huge opportunity on that front, failing to see another burden that caps the spending by the MOREBrendan Coffey, Contributor - Oct 28, 2011 10:28 AM ET
Do we have a credit-card robosigning scandal on our hands?
A report Friday suggests that the banks' contemptible failure to maintain proper records– exposed during the foreclosure scandals of the past year – hasn't been limited to their boom-and-bust mortgage businesses.
JPMorgan Chase (JPM) has dropped more than a thousand debt-collection suits aimed at people who defaulted on their credit cards, the Wall Street Journal reports. The decision to drop some suits in five MOREColin Barr - Jun 24, 2011 9:59 AM ET
If you're expecting a meaningful pickup in consumer leverage you may want to think again.
by Joshua Steiner, Hedgeye
Are consumers cutting debt, shifting debt from one loan to another, or just sitting out of the debt market for a breather? There are three pieces to consumer debt: mortgage debt, credit card debt and installment debt (auto loans and student loans). Taking a close look at each one, there's only one conclusion MORENov 10, 2010 3:27 PM ET
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