That Chanel handbag might be to die for, and perhaps you truly couldn’t have lived without that all-inclusive trip to Cancun.
But the credit-card debt that those purchases helped to build could be following you to the grave.
Ohio State University researchers say younger Americans appear to be taking on more credit-card debt than the generations before them and are proving to be slower in paying it off.
“If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” said Lucia Dunn, an OSU professor of economics. “Our projections are that the typical credit-card holder among younger Americans who keeps a balance will die still in debt to credit-card companies.”
The study, written by Dunn and Sarah Jiang of Capital One Financial in McLean, Va., used data from monthly surveys to look not only at the amount of debt that consumers carried but also at the speed at which they paid it off. They wanted to determine how different generational groups approached credit-card debt.
They concluded, for example, that the credit-card debt for people born between 1980 and 1984 would be $5,689 higher than their parents’ debt was at the same age, and $8,156 higher than their grandparents’.
Factor life expectancy into the equation, and the study suggests that the debt might become as certain as death and taxes.
“They will go to their graves with credit-card debt,” Dunn said. “It does raise some concern about where we’re going with credit-card debt in this country.
“The good news was that we were able to determine that raising the minimum required (monthly) payment is a very effective way to fight this,” she said. If the minimum payment is increased by 1 percent, for example, people tend to pay back 1.9 percent.
Higher required payments could telegraph more effectively that debt is not trivial, she said.
“It’s hard to expect banks on their own to want to raise their minimum payment,” she said.
“The banking authorities are going to have to step in.”
Bill Hardekopf, CEO of the credit-card comparison website Lowcards.com, said parents need to teach their children how to handle money.
Previous generations, he said, “drilled it into you: ‘Hey, you don’t carry debt.’ ” But he suspects that philosophy fell by the wayside as credit cards became the accepted means to buy what one otherwise couldn’t afford.
“We as parents need to do a much, much better job of helping our children become financially literate,” he said. “That starts at an early age.”