These New Debt Statistics Should Shock Generation Y

It’s Friday!

Let’s put on the day’s trades, cover our week’s hedges, and then step back for a moment. A new report by SaveUp.com revealed some new findings that show a shocking trend in the nation’s consumer debt especially as it relates to Generation Y.

If you aren’t good with all of these different generations, Generation Y refers to the population in the age range of 13-33 while Generation X is ages 34-52. There are no exact ranges but this gives us a general idea.

Here’s what the study found. For Americans below the age of 47, the average total debt load was about $37,000, but the breakdown of the number is what should make heads turn.

For the Generation X population, an average of 60 percent of its debt came from mortgages and student loans. Because a home can appreciate in value and student loans will presumably lead to a higher paying job, these debts are considered “good debt.” (It could certainly be argued that there’s no guarantee that a home will appreciate in value and plenty of college graduates are unemployed but let’s put that aside for a now.)

The Generation Y population have 48.4 percent of their debt tied up in bad debt. Bad debt is anything that doesn’t have the ability to build wealth, such as credit cards.

Breaking it down by the numbers, Generation Y had an average debt load of $28,930. That included $12,140 in car loans, $7,538 in lines of credit and $4,113 in credit cards.

Only 29 percent of Generation Y are investing into IRAs, 401Ks and other vehicles that produce longer term wealth. The study pointed out that only 32 percent of Generation X is saving for retirement, but that represents close to 82 percent of their total savings.

The Takeaway

Generation Y is losing the debt battle at an alarming pace. Not only are they in debt, but too much of that debt will never produce wealth—in fact, quite the opposite. As investors, it might be time for Generation Yers to re-evaluate their investing strategy. Are they making long term investments in high quality companies expecting to capture an upward move in the stock along with dividend payouts?

Are they holding investments long enough to avoid paying the wealth-robbing short term capital gains tax? Is high risk, short term trading appropriate if they aren’t setting themselves up for a quality retirement? Are they paying 14 percent interest on credit cards yet only bringing in four percent from trading each year? (Four percent is likely a little too generous if statistics are correct)

If you haven’t done it already, set financial goals and align your investing strategy to fit those goals. Pay down debt before trading and don’t trade inside of your retirement accounts in most cases. If you have to take a break from trading, don’t worry. The markets will still be here when you return.