Why America’s Love Affair With Debt Isn’t Ending Anytime Soon

A new report finds an astonishing share of Americans hold some form of debt—and it threatens our mobility.
(Photo: Justin Sullivan/Getty Images)
Jul 29, 2015· 2 MIN READ
James F. Kelly is a writer who has worked for NBC News and The Nation. He lives in metropolitan New York.

Americans are borrowing more money than at any other time in the nation’s history. While rising wages once kept the seemingly ever-increasing standard of living within reach for many, today’s consumers are taking on massive amounts of debt to pay for the mainstays of the American dream: a home, a car, and a university education. These are some of the key takeaways from a new analysis by the Pew Charitable Trusts. The report, The Complex Story of American Debt, found that 8 in 10 Americans hold some form of debt, and nearly 7 in 10 Americans believe debt is necessary—although they’d prefer not to have any.

The study takes a look at how different generations, races, and ethnicities handle debt and how it relates to their financial well-being. One of the study’s main goals was to clear up what researchers consider a misconception about debt—that it’s all bad. “The typical American family’s debt levels are high, and that can cause financial problems—but that is not the full story,” said Diana Elliott, research manager for Pew’s study of financial security and mobility. “Our findings show that debt can also be an important component of overall financial health.”

Researchers say lower levels of debt are a sign of financial security for older Americans. But for younger generations, it’s more complicated. They argue that debt acquired for mobility-enhancing purposes—student loans or a home mortgage, for instance—is worth the risk, mainly because it may lead to long-term wealth. Americans with higher incomes and net worth were found to have more debt than their lower-income peers. The median income of the top third of Gen Xers, for instance, is nearly three times higher than the median income of low-debt Gen Xers. Debt is also distributed differently across racial and ethnic groups. The median debt of white households is more than double that of black and Latino households. It’s worth noting that in 2013, white families’ net worth was 13 times more than black families’ and 10 times higher than Latino families’.

Yet, it’s striking that researchers consider “sustainable debt” to be a good thing—especially because the study also indicates that most older Americans have failed to break free from the bonds of debt. Approximately 80 percent of baby boomers hold some form of debt, and 47 percent are still paying down their mortgage. Fifty-six percent of the so-called “silent generation”—people born between 1928 and 1945—have some form of debt, even though 90 percent of them are retired. A similar fate may follow for members of Gen X, who typically have more than $100,000 in debt.

Some say the rise of personal debt in American life has been encouraged by the absence of significant wage increases for most workers. “Debts accumulated on the basis of stagnant real wages,” writes Richard Wolff, an economist at the New School. “As the cost of the American dream kept rising while real wages did not, households borrowed.”

The most common forms of debt are home mortgages (44 percent), unpaid credit card balances (39 percent), car loans (37 percent), and student loans (21 percent), and Americans are conflicted over the role this plays in their lives. Sixty-eight percent said that loans and credit have expanded their opportunities, while 85 percent admit that people use debt to live beyond their means.

With housing prices on the rise and student debt projected to reach $2 trillion by 2025, America’s love affair with debt shows no signs of subsiding anytime soon. But with more presidential candidates supporting ideas such as student loan forgiveness and debt-free college, it’s clear the message is being heard that something drastic needs to be done.