Recently, my team did some analysis of consumer credit risk trends and behaviors over time, focusing on debt breakdown by age. Since there was tremendous interest when I blogged about similar research last year, I wanted to share some of the latest findings.
Compared to the prior year, we continue to observe slight deleveraging across the total population. The average total debt for consumers in October 2012 was $80,812. In October 2013, that number inched back 3.1% to $78,274.
Breaking out those debt numbers by age, we observe a clear relationship in the relative change of deleveraging: the older the demographic, the smaller the observed reduction in debt.
For young consumers, the continued decrease in outstanding debt is being driven by lower average outstanding mortgage debt and lower average credit card debt. These debt categories yielded a reduction of 13.3% and 8.1%, respectively. In both timeframes, student loan debt still accounts for a little more than one-third of their total outstanding debt.1
The “credit card-less” rate for young consumers is relatively high compared to other age groups and has been growing over the last several years. Looking at the 18-29 age group, 19.9% do not have a credit card in October 2013. This is dramatically different to the 2.3% of the 60+ group.
As I noted last year, this trend is likely due to two main influences. First, repercussions of the CARD Act may be making it harder for young consumers to get credit; for instance, the Act mandates that consumers under 21 need to show an ability to repay the debt or have a co-signer on the card. Secondly, it may be a reflection of changing attitudes toward credit, as many young consumers embrace the use of debit cards over credit cards, as well as mobile and other emerging payments.
Supporting this assumption that credit attitudes are changing, we see that young consumers are not searching for credit as aggressively. Looking at inquiries on file in 2013, only 53% of this group has a single inquiry on file, compared to 69% in October 2005. While the oldest demographic is not searching for credit as much, their drop-off is not nearly as great – from 33% in October 2005 to 30% in October 2013.
1 While the total outstanding student loan debt for young consumers has increased, a keen eye will notice that average student loan debt decreased slightly. This slight decrease was due to an enhancement to the data feed that resulted in slightly more credit reports available for the 2013 analysis. This resulted in more new entrants in this population, thus bringing down the average.