Which generation is taking on more debt? All of them.
The hype around Millennials’ ever-increasing debt is real, but they aren’t the only generation feeling the strain. LendingPoint’s latest Data Lab survey shows that Americans across the board are increasing their debt – but every generation
has a different reason.
And with uncertain economic times upon us, it’s important to understand how different generations are borrowing and how this could impact economic recovery rates in light of the Coronavirus.
We recently analyzed just over 5 million NearPrime loan applications received between 2018 and 2019 and found that the DTI (debt-to-income) ratio is on the rise among all generations – from Gen Z to Boomers – moving away from 0-10% DTI and growing up to 50% in some cases.
See below for more information.
What is DTI?
The debt-to-income (DTI) ratio compares an individual’s monthly debt payment to his or her monthly gross income or pay before taxes and other deductions are taken out. In other words, it’s the percentage of someone’s gross monthly income that goes towards monthly debt payments.1 A low DTI ratio indicates a healthy balance between debt and income, whereas a high DTI means you may be taking on too much debt and could be prevented from securing auto loans, personal loans, and even mortgages.
DTI is on the rise among every generation.
| DTI | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 |
| Gen Z | Gen Z | Millennial | Millennial | Gen X | Gen X | Boomer | Boomer | |
| 0-10% | 61.3% | 57.3% | 34.9% | 32.8% | 32.9% | 30.4% | 31.5% | 28.9% |
| 10-20% | 24.30% | 26.9% | 33.3% | 34% | 32.3% | 33.1% | 29.9% | 30.8% |
| 20-30% | 9.5% | 10.7% | 19.1% | 20.1% | 19.5% | 20.9% | 20.1% | 21.5% |
| 30-40% | 3% | 3.5% | 7.9% | 8.3% | 9% | 9.4% | 10.3% | 10.8% |
| 40-50% | 1% | 1% | 2.9% | 3% | 3.7% | 3.7% | 4.6% | 4.7% |
1 Investopedia, Debt-to-Income Ratio, https://www.investopedia.com/terms/d/dti.asp
If you look at the data above, notice that between 2018 and 2019, DTI between 0 and 10% decreased for every generation. At the same time, DTIs between 10% and 40% (sometimes even 50%) increased. This shows that, while at varying percentages, no one generation is alone when it comes to spending and every generation took on more debt in 2019. Let’s take a look at a few potential reasons why.
Gen Z and Millennials
In our last Data Lab, we found that Gen Z is taking out loans for more than just debt consolidation and is more comfortable using credit cards, loans, and other forms of debt to finance their wants and needs. In fact, the number of Gen Zers carrying credit card debt increased by 41% in 2019.
Nearly 80% of early-adult households are dealing with some form of debt, with adults between 18 and 34 years holding about $2 trillion total. These generations are also dealing with an exorbitant amount of student debt. With 44 million borrowers nationwide owing a collective $1.5 trillion to the federal government, student loans are now the second highest consumer debt category.
And as Millennials struggle to buy a home or even save for retirement, they have to find creative ways to achieve their goals – like relying on personal loans for anything ranging from debt consolidation and medical expenses to weddings, cars and vacations.
Gen X
Gen X takes the cake when it comes to personal debt, accumulating $36,000 on average (excluding mortgages), more than any other generation. And that’s understandable – at this stage in life there’s a lot going on. Gen X is still raising children, or even helping out adult children while supporting their aging parents – not to mention dealing with lasting impacts from the 2008 financial crisis. “Their priorities are just all over the place,” Chantel Bonneau, a financial advisor with Northwestern Mutual, told CNBC. “They have so many financial masters they have to serve at the same time.”
Boomers
Boomers are the runner up when it comes to personal debt, with $28,600 on average. But a new survey shows that carrying debt into retirement is no longer a no-no. Nearly one in three current retirees are paying off some kind of loan including car loans, medical debt, and even student loans for their children and grandchildren.
Our newest generation is just starting to earn a living and Boomers are making money longer. However, the real questions are – how will those with higher (and growing) DTIs fare during this economic cycle? And will one generation be able to recover faster than another? It will certainly be interesting to analyze how this unprecedented economic climate will change the way each generation spends, saves and borrows in the near future.