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Demographics of Debt

Demographics are a breakdown of statistics based on certain characteristics, such as age, gender and income. When it comes to personal finances, demographic information can be used to show how much debt certain groups of people have, as well as changes in debt levels and types of debt.

While some trends related to debt are the same as or similar to what they were one or more generations ago, this kind of financial breakdown shows has become telling in the past few years. It effectively shows the difference between where people stood before and during the Great Recession, and how people’s finances have changed since then. With this information, demographers have created a fairly comprehensive picture of the Great Recession’s economic impact on the debt load of American households.

Debt and Minorities

A 2001 survey by the Journal of Finance and Accountancy found that 27 percent of the 7,579 respondents carried credit card balances. The survey found only minor differences between races. About 28 percent of white respondents carried balances, similar to the 25 percent of Hispanics, 24 percent of blacks and 24 percent of Asians.

A similar survey of 2008 data delivered more detail about the amount of debt people were likely to carry as well as their typical assets: 87 percent of white households had assets, the highest of any race studied.

In addition:
  • Whites also had the most assets, with an average of $39,483 per household.
  • Hispanics were close behind, at about 86 percent, averaging $33,808.
  • African-Americans clocked in lowest, $18,212 in assets. Only 78 percent of African-American families had assets.

A similar trend prevailed regarding the amount of monthly income individuals and families dedicate to debt payments, including mortgage debt. Whites were again the best off, dedicating 47 percent of their monthly incomes to debt obligations. African-Americans needed to use 53 percent of their incomes for debt payments. Hispanics were the worst off in this category and spent 56 percent of their incomes on debt payments.

A third study, conducted by the national research organization Demos, compared data from 2008 and 2012. This study surveyed about 2,000 low- and middle-income households, half of which had credit card debt. It found that African-Americans, Latinos and whites all successfully reduced their credit card debt in the four-year period. This could be an indication that American families are recuperating from the recession. However, bankruptcies — which can discharge credit card debt — also soared during this period.

The study found that whites had an average of $7,315 in credit card debt, a reduction of 29 percent. Latinos had $6,066 on their cards, a reduction of 33 percent. African-Americans had the smallest reduction, at 17 percent. However, this took their credit card debt down to $5,784, still significantly lower than the debt of other demographics.

Debt and Age

The 2012 Demos study also found changes from 2008 to 2012 regarding age groups with credit card debt. It found that older Americans on average have the highest credit card debt: people aged 65 or older typically carry $9,300 on their cards, less than a 6 percent reduction from 2008. Demos suggested the high balances were likely because the recession reduced savings and forced those in or near retirement to cut back.

Each younger age group had less credit card debt than those of older age groups. Survey respondents below 65 all managed to reduce their credit card debt significantly.

Those aged 55 to 64 carried about $8,200 on their cards, an 18 percent reduction from 2008. Americans 45 to 54 years old had similar numbers and improvements. Individuals in this group reduced their debt by 17 percent to an average of $8,400.

Americans 35 to 44 had steeper reductions, lowering their debt by nearly 40 percent to get below $6,200 per person.

Those aged 25 to 34 showed the best improvements and cut their credit card debt in half. People in this age group had an average debt of less than $5,200 in 2012, compared with more than $10,400 four years earlier.

The youngest surveyed, those aged 18 to 24, showed modest improvement but still had the lowest debt of any age group. Young Americans reduced their credit card debt by 15 percent, falling below $3,000 per person.

A 2012 survey conducted by the Federal Reserve found no significant difference in people’s ability to save based on age. In every age group, about half of survey respondents put money into savings.

Debt and Income

Those with higher incomes tend to take on greater levels of debt, as they can afford to make higher monthly payments.

In 2001, only 17 percent of unemployed individuals had credit card debt. Around 27 percent of those with part-time jobs had credit card debt. And full-time employees were most likely to take on credit debt, with 32 percent carrying balances.

Those with the lowest incomes took on the least debt. It’s worth noting that individuals in every income bracket reduced their credit card debt between 2008 and 2012. Individuals on the lower end of the spectrum decreased their debt loads by the largest percentages.

Individuals with annual salaries of less than $35,000 reduced their debt by 30 percent from 2008 to 2012. People in this category now have $5,400 in credit card debt. People in the next bracket up, making $35,000 to $49,999 annually, reduced their debt as well. Americans here have about $6,700 in credit card debt, down by more than one-third.

Those in the upper two categories — individuals making between $50,000 and $74,999 and those making $75,000 or more — both saw debt reductions of around 23 percent. However, they still carried significant amount of debt. In 2012, those in the $50,000-$74,999 category had $8,900 of credit card debt, while those making more than $75,000 carried $9,200 in debt.

Families that made the most were also able to save the most. Of earners who fell in the 90th percentile or above in terms of income, more than 80 percent put money away for the future. Contrastingly, of those in the 20th percentile or lower, only 32 percent contributed to savings.

Debt and Education

Education also plays a role in how much debt people are willing to take on. As education level increases, so does one’s likelihood of taking on credit card debt. This could be because of the strain of student loans or because people with more education tend to earn more and can therefore afford more debt.

The report from 2001 showed that 23 percent of those with only a high school education had credit card debt. In contrast, 31 percent of people with some college education or a degree had credit card balances.

Despite more debt, those with college degrees were more likely to save. In 2010, 62 percent of families run by college-educated individuals reported saving a portion of their income, according to a survey by the Federal Reserve. In contrast, about half of those with some or no college education added to savings, and only 37 percent of survey respondents without high school diplomas were able to save.

Again, this is likely the result of several factors. Those with higher education tend to earn more and therefore can afford to set money aside. Additionally, people with higher educations may have greater financial knowledge and skills.

Debt and Family Type

The 2001 survey in the Journal of Finance and Accountancy found significant and predictable differences in debt based on family type. About 21 percent of single people had credit card debt, 27 percent of married couples without children and 36 percent of married couples with children. Couples with children have greater expenses and therefore end up taking on more debt.

Couples without  children were the most likely to take advantage of their earning power and save for the future. More than 60 percent of people in this demographic put money aside.  On the opposite end of the spectrum, only 38 percent of single parents saved money.

Debt and Gender

Women tend to have more debt than men throughout their lives, beginning in early adulthood. Studies show gender income inequality coming into play in the first year after graduating from college.

Women take on the same level of student loans and personal debt to make their way through college. And while women attend college in larger numbers and earn higher grades than men, their earnings one year after graduation are lower than those of their male peers. Recent female graduates earn only 82 percent of what recent male graduates earn. The pay gap follows women throughout their careers, as raises tend to be based on previous salaries.

With lower earnings and less earning potential, women don’t have the financial resources to pay off student loans like their male counterparts. This can cause them to take on more of other types of debt as well, especially credit card debt.

No matter which categories individuals may fall into, there’s no formula for determining how much debt a person should have. Individual circumstances always vary, but there are signs that a person has too much debt, such as using more than 36 percent of one’s income on paying off debts and a mortgage.

Bill Fay

Author

Bill Fay

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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