Credit cards, with their high interest rates and exorbitant fees, have often trapped college students and other young adults in debt spirals that can be almost impossible to escape from.
However, the latest generation to hit young adulthood has learned some lessons that their older peers didn't -- and that's helping many of them avoid the credit-card trap.
Young adults have gotten a lot smarter about using credit cards, according to the most recent data from credit-score company Fair Isaac and its FICO Banking Analytics blog. Outstanding credit-card debt has fallen by nearly a third during the past five years, with the average outstanding balance among those 18 to 29 now standing at just $2,087 compared to $3,073 back in late 2007.
Moreover, a rising number of young adults don't even have credit cards at all.
In 2005, only about 9 percent of young adults went without a credit card, but that figure has jumped to about 16 percent, about double the rate among those 30 to 39 who don't have any credit cards.
Although legal restrictions that have limited the ability of borrowers under 21 to get credit cards have undoubtedly played a role in those figures, FICO notes that young adults are also increasingly using debit and prepaid cards as an alternative to credit cards, forcing them to keep their spending within the limits of their bank-account or prepaid-card balances.
The Impact of Student Loans
But before you celebrate the news too much, keep in mind that young adults are far from debt-free.
Even as outstanding balances on mortgage loans and credit-card debt have fallen for the population at large, student loan debt has continued to rise. Over the past five years, ballooning average student-loan debt levels have led to average indebtedness rising from $6,490 to $11,444. That dwarfs the less than $1,000 drop in average credit-card debt, showing the extent to which student loan debt has made it increasingly difficult for young adults to manage their finances successfully.
Still, even when you consider the impact of rising student loan debt, FICO found that overall, total indebtedness among young adults fell sharply, with a 17 percent decline amounting to nearly $7,000 less in total outstanding debt.
Falling mortgage debt has driven the lion's share of those declines, which is consistent with the "Generation Rent" effect, in which more young adults are choosing to rent homes rather than buy in the aftermath of the housing bust. A recent report from Pew Social Trends found that only 34 percent of households led by those younger than 35 owned their primary residence in 2011, compared to 40 percent just four years previously.
Keeping Debt Under Control
Even with the declines, today's average young adults still owe more than $32,500 all told, according to FICO. But what's particularly encouraging about the news is the fact that young adults aren't just fleeing debt generally. Rather, they're being strategic in focusing on debt financing that's most likely to produce tangible results in the future.
Student loan debt tends to carry more attractive interest rates than credit-card debt, and the investment in education should arguably lead to better earning potential in the future that could offset the costs that young adults have incurred.
With mortgage rates still historically low, it's unfortunate that more young people aren't taking advantage and buying homes. Yet with uncertainty on the employment front, foregoing the huge commitment of mortgage debt indicates a level of maturity that many in previous generations lacked -- and which helped create the problems that led to the housing crisis.
Looking forward, the true test will be whether young adults avoid the siren song of debt when their economic prospects become more secure. Only then will it be clear whether young adults were more prudent by choice or by necessity.
For now, though, their level of maturity in facing economic difficulties should serve as an inspiration to generations to come.
The Monster in the Closet: Economic Horrors and Scary Movies
Surprise! Young Adults Have Smartened Up About Debt
If you thought this classic horror movie was about a haunted house, see if this scenario sounds familiar: An idealistic young couple buys a home that sounds too good to be true. Once they're mortgaged to the hilt, problems start to crop up. They can't leave, they can't stay, and an unseen evil force starts to tear their family apart.
Filmmakers have used zombies to symbolize everything from faceless corporations to the inhumanity of the military industrial complex. In this early offering (and, to a lesser extent, in its remake), it isn't particularly hard to figure out the greater symbolism of a bunch of mindless, shambling zombies swarming into a shopping mall.
Speaking of mindless shambling, "Shaun of the Dead" used the same conceit to symbolize office work.
Everybody remembers Janet Leigh's death scene in the classic slasher flick. What they forget, though, is why she ended up in the Bates Motel in the first place: She was on the run after stealing a small fortune from her employer. As for the motel itself, it was facing hard times because the recently-unveiled highway drove away business.
For a funnier take on a similar story, you might try taking a peek at "Auntie Lee's Meat Pies", which manages to brilliantly combine cannibalism, serial murder and Pat Morita.
Forget ghosts and ghouls: Few things are scarier than asking the bank for a loan. But in this Sam Raimi-directed flick, the tables are turned as a young loan officer turns a deaf ear to a seemingly feeble gypsy woman trying to borrow some money. Needless to say, all hell breaks loose.
On the surface, this 1981 classic is the tale of super-evolved wolves preying on New Yorkers. Scratch a little deeper, though, and another story emerges: The tale of wealthy Manhattanites preying on poor people in the Bronx, then being themselves preyed upon by wolves. In other words, NYC in the 1970s was truly a dog-eat-dog world.
If you want another fix or two of class-based horror, check out "CHUD" and "Street Trash," both of explore the plight of New York's invisible homeless.
Sure, Stanley Kubrick's 1980 horror film is all about telepathic kids and haunted houses and elevators full of blood. But one of the first bits of fear and tension occurs in the hotel manager's office, where Jack Torrance, a recovering alcoholic who can't seem to hold onto a job, finds himself forced to beg for a gig as the winter caretaker of a resort hotel. Anybody who remembers the travails of searching for a job will recognize this truth: The nightmare isn't being trapped a haunted house -- it's having to grovel to get a job in a haunted house.
Angus Scrimm's Tall Man character is one of the more unnerving monsters in filmland: Not only does he steal the bodies of the dead, but he also steals the souls of towns. As Reggie and Mike travel cross country, it isn't hard to pick up his trail -- they just have to look for boarded-up stores, deserted streets and abandoned homes. Of course, for 1988 audiences facing the effects of outsourcing, the monster emptying out their towns was a little harder to explain.
For another take on the "monsters-as-suburban-economics" metaphor, take a peek at "Poltergeist." Between the unethical developer who didn't bother to relcoate a graveyard and the mindless TV that saps your soul, the Tobe Hooper classic manages to hit a host of cultural touchstones!
A whole subset of horror films is dedicated to rural families living off the land ... and the miserable travelers who happen across their path. It isn't hard to see why it might be an attractive premise: After all, there's no lack of people clinging to the bottom rung of the economic ladder, and it isn't hard to imagine that they may be one paycheck away from having to make their own clothes and hunt their own meat. What happens afterward ... well, that's where it gets really ugly.
If you want even more tips on living off the land (and curious teenagers), you might check out "The Hills Have Eyes," "Wolf Creek" and "Mother's Day." For a funny take on the same premise, try "Tucker and Dale Versus Evil."