Debt can be a double-edged sword for many young adults who are taking their first steps toward their dreams of a prosperous future. With lower wages in the first years of their careers, fewer savings, and limited access to safety net supports, young people often have few options to create financial stability.
Taking on debt can offer young adults a way to invest in asset-building opportunities or navigate the uncertainty of new careers and educational endeavors. But high debt burdens and delinquencies can constrain young people’s current and future financial prospects.
For young adults to meet their day-to-day needs and take advantage of future wealth-building opportunities, they must have options that allow them to build a foundation of financial security. Our updated Debt in America data dashboard offers a snapshot of how young adults are faring financially across measures of debt and payment burdens. Policymakers can use these data to design programs and policies that ensure young adults have the resources they need to remain financially resilient.
One in six young adults experience challenges repaying debt burdens
In 2023, 16 percent of young adults ages 18 to 24 with a credit record had debt in collections, an indicator that suggests people are having trouble making ends meet. These young adults may be more than six months past due on loan or credit card payments and will likely see their credit scores decline, which may make it harder for them to access the affordable credit they need in the future.
The magnitude of these debt burdens—the median amount owed was $1,376—is high compared with median young adults’ salaries ($30,000 to $39,000 per year), which could make it hard for young adults to repay these debts quickly.
Young adults face challenges repaying auto loans and credit card bills, in particular. Seven percent of young adults with a credit record had a past-due auto or retail loan payment. Although cars can be essential for young adults to get to school or work, few have money available to pay for a car in cash, necessitating a loan. Auto delinquencies tarnish a person’s credit and can be a precursor to repossession, which would hinder young adults’ ability to get to and from key opportunities and resources.
We also find that 6 percent of young adults are behind on their credit card bills. Credit cards are the most common way to cover an unexpected expense when consumers don’t have savings available. Young adults who don’t pay their credit card bills in full incur interest on the balance carried over, increasing their debt burden over time and damaging their long-term creditworthiness. In fact, missing a credit card payment for more than 30 days can drop credit scores by up to 100 points.
Young adults may be experiencing trouble meeting their basic needs
Debt and credit data alone may not fully capture the financial pressures today’s young adults are facing. Recent data from the Urban Institute’s December 2023 Well-Being and Basic Needs Survey suggest that many young adults are struggling to meet their basic needs. More than one in three young adults reported household food insecurity, which is a symptom of financial uncertainty, as families are forced to choose how to allocate limited funds toward basic needs.
Given these challenges, it is not surprising that 33 percent of young adults who participated in the survey did not feel confident they could come up with $400 for an unexpected expense. With most unexpected expenses exceeding $400, these data suggest that many young adults may not be able to weather a financial emergency. In such circumstances, they may turn to other financial options, such as payday loans or Buy Now, Pay Later (BNPL) products.
In fact, 3 percent of young adults reported that they or someone in their family took out a payday loan in 2023. With short repayment periods and high interest rates and fees, it may be challenging for young adults to repay these loans. Seventeen percent of young adults reported that they or someone in their family used a BNPL option in 2023. Of those who used BNPL, about one in five missed a payment on these loans, likely accruing late fees and interest that increased their repayment burdens, potentially to unsustainable levels.
These payment behaviors indicate that young adults may not have access to resources or affordable financial products to meet their day-to-day expenses without sacrificing savings or taking on debt that can be costly to manage. Without better alternatives, young adults may undermine their ability to achieve financial stability early in life.
What do young adults need to establish and maintain financial stability?
To ensure young adults have the financial resources they need to manage financial uncertainty, policymakers can use these data to design policies and programs that do the following:
- Strengthen career on-ramps and expand safety net and income supports that provide young adults with resources to manage financial uncertainty, especially during tough economic times.
- Increase access to high-quality affordable financial products—including banking, credit, and loan options—that provide a safe alternative to high-cost, predatory, and other less regulated financial products so young people don’t need to take on unsustainable debt burdens during foundational years of their financial lives.
- Design early-life wealth programs (e.g., baby bonds and child savings accounts) to incorporate young people’s immediate financial needs by including additional income supports and personalized financial coaching. For example, the GRO Fund’s accelerated Baby Bonds program and Invest STL’s Rooted program both provide immediate cash assistance alongside investable sums of money to allow recipients to build wealth while managing their immediate financial needs.
A policy agenda that knits together income supports, safe and affordable financial products, and wealth-building opportunities can ensure young adults have the resources they need to establish financial stability and set them up for long-term financial success.
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