It may be a dirty word in some quarters, but debt is a fact of life for more and more Americans. And that may not be a bad thing.
That is the conclusion of a new report by the Pew Charitable Trusts, which examined debt through the generations. It found that 8 in 10 Americans are in debt in some fashion, most often because of a mortgage. And that debt is not limited to young people starting out life: increasingly, people are carrying debt into retirement.
For many Americans, their debt is a burden, but others view it as a necessity. Some 69 percent of the survey respondents indicated that while nonmortgage debt was a necessity for them, they preferred not to have it—but 68 percent said loans and credit cards had enabled them to make purchases or investments that expanded their opportunities. And in fact, Pew found that higher-income people with more assets tended to have more debt, but even so, they had healthier balance sheets than low-income, low-debt respondents.
"Americans have a love-hate relationship with debt. They know they need debt, but they don't actually want it," said Diana Elliott, research manager for financial security and mobility at Pew.
Some of the differences in attitudes about debt were generational. Gen X and millennial respondents were more likely to express negative views about debt than were older generations. They were less likely to say loans or credit cards increased their opportunities, for example.
"The silent generation was twice as likely as Gen X to say that debt has expanded opportunities in their lives," the study found.
Earlier Pew research found a substantial wealth difference between white, black and Hispanic households, and the new study found that differences in debt holdings were a factor. Median debt for white households, at $41,500, was more than double median debt for black and Hispanic households. And white families' median net worth in 2013, at $159,400, was 13 times that of black families and 10 times the median net worth of Hispanic families.
Differences along racial lines were also apparent in attitudes about student debt. When Pew asked Gen X and millennial student loan borrowers about any regrets regarding their student loans, just over half of the black and Hispanic respondents said they would finance college differently if they could do it over again, compared to 32 percent of white borrowers.
That difference could relate to the colleges they attended. Blacks and Hispanics are more likely to attend for-profit colleges, where completion rates are often relatively low. According to Education Department data, 15.2 percent of blacks attending college go to for-profit colleges, compared to 8.4 percent of Hispanics and 6.3 percent of whites. Pew did not measure sentiment by type of institution, but overall the researchers found that 38 percent of black Gen Xers and millennials were paying for degrees they did not complete, compared to 26 percent of whites in those age cohorts.
Student loan debt is a growing part of the debt load for many Americans, and it presents a special challenge for Gen X borrowers. One-third of the Gen X respondents have teenagers, and 83 percent of Gen X parents plan to help with college costs. But 26 percent of Gen X respondents have student loans of their own, with median debt at $20,000. Those with student loans have saved significantly less for their children's education: they have a median balance of $4,000 in a 529, compared to $20,000 for Gen Xers without student debt.
These respondents do not exactly have a realistic plan B for college costs. "Many Gen Xers are carrying student loan debt later into life when many have college-bound teenagers. These same Gen Xers, 9 out of 10, believe their children will receive a scholarship, grant, or both, but the reality of that happening is quite lower," said Elliott.
The result may be that children whose parents are still contending with student loans will wind up with more debt of their own, perpetuating the problem. "Although education debt may propel some Gen X parents to healthier balance sheets overall, the degree to which it prevents accumulation of sufficient liquid savings in time to help their children pay for college could fuel an intergenerational legacy of debt," the study found.
Love debt or hate it, it seems here to stay.