COLUMN ONE : Generation X Pays Its Way in Plastic : Young adults are burdened by record debt fueled by student loans and credit cards. Some experts also blame attitudes shaped by a culture of borrowing.
As the first in his family to go to college, Michael Puccini was determined to make the most of his years at Chapman University in Orange.
So the lanky, freckled San Jose native became student body president, attended nearly every football game, was a campus radio broadcaster and double-majored in theater arts and public relations. But there’s one thing he wishes he had never done in college.
In the fall of his senior year, Puccini stopped by a booth in front of the student union and signed up for a credit card--and it changed his life.
By graduation, he had a wallet full of plastic and was $3,000 in the hole. Plus he owed $13,000 in student loans. Overwhelmed, he moved back home after a tearful phone conversation with his father.
“I had a lot of fun with credit,” says Puccini, 30, who has found work in Los Angeles as a public relations agent. “But I’m really paying for it. It’s kept me from doing a lot of things.”
More than any other generation before them, today’s young adults are emerging from school and beginning their careers weighed down by a heavy burden of debt.
And fresh data suggest this burden is growing.
A Southern Californian’s average credit card balance increased 20% from 1993 to 1995, according to the market research firm Claritas Inc. But for those in their 20s, the balance jumped 70%, to $2,159 as of Sept. 30.
Average total debt for this age group, excluding mortgages, stands at almost $11,000, compared to $6,600 two years ago. Young adults now carry nearly as much debt as other adults, even though they earn about half of what people in their 50s make.
“There’s been an explosion in the college [credit card] market in the last three or four years,” says Richard McKinley, president of RAM Research, a credit card industry research firm in Maryland.
Although those who went to college are likely to be deeper in hock because of student loans, statistics suggest that debt loads are rising for all young adults. In fact, people who entered the work force earlier are likely to have more credit card debt because their incomes enabled them to obtain higher credit limits.
The rising indebtedness among the young is part of an overall surge in consumer debt in Southern California this last year. Tempting credit offers coupled with economic optimism have spurred borrowing among many adults, prompting warnings from analysts who fear many are living on borrowed time.
Experts say younger borrowers are especially vulnerable because they are generally less prepared--financially and emotionally--to deal with big debt burdens. Money problems are keeping them at home longer, analysts say, and are affecting other aspects of their lives, such as marriage and careers.
“We are seeing more younger people,” says Gary Stroth, head of the Consumer Credit Counseling Service of Los Angeles County, which has witnessed a resurgence of clients of all ages in the last year.
For his part, Stroth blames the rising debt problem among the young mainly on the easy access to credit cards in college. “All you have to be is a live body on campus and you can get credit,” he says.
But other analysts think the problem lies more in upbringing and a change in the way many people view debt.
Says Karen Varcoe, who teaches consumer finances at UC Riverside: Young people have “grown up in an era of credit. They’re comfortable with borrowing.”
High College Costs
Valuing education, young adults have entered college in greater numbers than previous generations. But for many, it has come at a heavy cost. Because federal grants have declined while tuitions have risen, students and their parents have had little choice but to take on more debt.
Borrowing, meanwhile, has become easier in recent years.
Government loan programs have relaxed eligibility requirements and raised borrowing limits. The result: In California, total debt for college costs alone nearly doubled from 1990 to 1994, according to a recent report by Boston-based Education Resources Institute.
The report pegged the average debt level per graduating college student at nearly $10,000. For most, that means six months after graduation, they must begin monthly payments of about $250.
These payments, stretched over many years, represent a major financial hardship for two-thirds of borrowers, the report found.
The hardships are often compounded by credit cards, which have increasingly become the method of payment in colleges, says Ted Freeman, president of Education Resources Institute.
Part-time and continuing education students “almost entirely pay for their tuitions with credit cards,” Freeman says. “And that is the No. 1 growing population on campuses.”
Credit card debt typically carries an interest rate of at least double that of government-backed student loans. Federal loans also provide payment extensions when people lose their jobs; credit card companies don’t.
“I don’t think parents are aware of the [credit] trouble their children are getting into,” says Cathy Thomas, director of financial aid at USC. “More students are coming to us and saying their financial aid isn’t sufficient. They tell us they have no way of doing much else but cover credit card payments and rent.”
Thomas knows how easy it is for a college student to get credit. She says her 22-year-old daughter used a credit card responsibly during a year of study abroad. Since then, her credit line has been raised incrementally to $5,000 and she is constantly getting preapproved card offers. “It scares me,” Thomas says. “It’s too easy, it’s too simple.”
At USC, Thomas and others are developing a program to instruct students about personal finance management--which very few schools teach--and will be requiring bank-card companies that market on campus to provide basic information on credit usage to interested students.
“The solution is more formal training in homes and schools on the uses of credit,” says Joseph Weber, a bankruptcy attorney in Costa Mesa and author of “Credit Limits,” a soon-to-be-released book on credit problems. “As a society, we haven’t focused on these issues. They’re addressed haphazardly.”
Pitching to Students
Major credit card issuers such as Citibank and American Express have been marketing to students for a decade or more, believing that by reaching customers early they can build brand loyalty.
But in recent years, increasing competition and the general saturation of the credit card market have prompted bank-card companies to be more aggressive on campuses. “They’re turning over rocks looking for cardholders,” says McKinley of RAM Research, adding that high school students are now being targeted. “There are kids who are maxed out, and they’re not even 18.”
American Express visits more than 1,000 colleges a year and has offered as incentives vouchers for air travel and discount telephone calling cards. Spokeswoman Gayle Wasserman says American Express requires student applicants to read and sign a statement indicating they understand their responsibility.
“As a credit risk, they’re not that much different from people at large,” Wasserman says of American Express’ experience, though she didn’t know to what extent parents were bailing out their children.
Visa U.S.A. and MasterCard International, the clearinghouses for those cards, said they did not track delinquency rates by age. Citibank, the nation’s top card issuer, which is very busy on college campuses, refused to comment for this story.
Certainly, many young adults use credit responsibly, and access to credit at an early age has its advantages; it can help build a good credit history and come in handy during an emergency. And experts say more card issuers, worried about an upcoming generation of bankruptcies, are trying to teach students to manage finances.
Still, many young adults haven’t had such training or the experience of managing their money, experts say. And like everybody else, they face enormous pressures to spend and live life to its fullest.
Puccini, the Chapman alumnus, says his introduction to plastic was a Sears card with a $250 limit, which he reached within days when he bought a $230 ring for his then-fiancee, whom he never married. “I was foolish,” he says.
Market research has found uneven spending patterns among adults in their 20s, the so-called Generation X. On the one hand, analysts say they aren’t as free-spending as the baby boomers, and seem to be more informed about personal finance and concerns such as Social Security.
“More than the baby boomers, they are more attuned to the need to save earlier,” says Denise Lamaute, president of Lamaute Capital Inc., a Beverly Hills investment banker and financial consultant.
But she notes that Generation X is a group of people on both sides of the extremes--die-hard savers as well as profligate spenders.
“Do they have the capacity to save?” she asked. “As long as they are disciplined.”
Indeed, research suggests that twentysomethings aren’t frugal when it comes to some things. For example, they tend to spend more for furniture and clothes than other adults, and are more prone to spend money for entertainment such as movies.
“This is a very confusing world for them,” observes Tahira K. Hira, a professor at Iowa State University who has researched the attitudes of Generation X. On the one hand, she says, “they are more alert to financial concerns. They’ve experienced the cutbacks in grants and scholarships.”
But, she says, “because of the easy accessibility of credit, the media and consumer world pushing them . . . I see a lot of kids living beyond their means.”
What’s worse is that because many of them entered the job market when wages and opportunities have been stagnant, they don’t have the incomes or assets to support their consumption habits without getting into debt.
“They’re between a rock and a hard place,” says Mark Baldassare, a UC Irvine professor and pollster who has surveyed young adults in California. They feel they’re entitled to a middle-class life, Baldassare says. “Yet they don’t have the income capacity to do all the things they need to do.”
Moreover, experts say young adults today appear to be more casual about taking on debt because they’ve seen their parents, governments and businesses all get deep into hock.
At 24, Wendy Feliz of Monterey Park owes $20,000 in college debts as a student at New York University, where she majored in psychology. She says the credit card company canceled her card because she couldn’t keep up. Currently, Felix lives in an apartment with several friends in Brooklyn, where she’s working as a waitress to earn money to resume her schooling.
“Oh, debt,” Feliz says indifferently. “It’ll probably always be here. Everybody in America is in debt. It’s not like I’m a bad person.”
Returning to the Nest
Margaret Chee, a retired secretary in Los Angeles, says debts are why three of her sons, who are in their mid-20s, are still living at home.
“The debt keeps them down,” she says. “That’s what takes away their independence, because they’re tied to that debt.”
Chee, who is 68, marvels at what she thinks is the younger generation’s impulsive spending and nonchalance toward credit. “I use my credit cards and then I pay them off right away. If it’s a large item, I’ll pay it off in two to three months,” she says. “For the boys, well, it’s revolving around and around and around. . . . It’s a different mentality, it’s a generation gap.”
Chee recently asked her sons to pay a modest rent, and she helped one of her boys who needed a car by taking out a home-equity loan. Chee says she and her husband, a retired glazer, made modest salaries. But she worries that her sons won’t do nearly as well as they did.
“I think the young people, if they had a way of controlling their urges, they would live comfortably.”
Her youngest son, Chris, sees things differently.
“I have no choice in terms of economics,” he says. Chris, who is 24, works at a $12-an-hour job as a bookkeeper in a Glendale lock shop, trying to earn money to get him through that final year at Cal State Humboldt without getting deeper into debt. He’s already borrowed $10,500 in student loans.
Chris Chee’s major is business administration, and his long-term goal “is to be rich and wealthy and own a company.”
“I don’t want to be a salesman,” he says. “It would be nice to come up with a new product. I’m still trying to think of that idea.”
He had a Visa card until early last year. But after he hit the $700 limit--buying clothes, compact discs and a snowboard--the company didn’t renew his card. “I can manage other people’s money but not my own real well,” he says.
Chris Chee plans to look for a place of his own early next year. He says most of his friends live at home, which is not uncommon today.
The proportion of men in their 20s living in their parents’ homes rose to 35% in 1993 from 30% in 1977. For women, the figure climbed from 17% in 1977 to 24% in 1993, according to the latest Current Population Survey.
Chris Chee says he would like to avoid taking on more debt in the future. But he also calls his mother’s views on debt old-fashioned.
“She puts it high on the horse, way above my standards,” he says of his mother’s views about debt. “I take it day by day. . . . I have my car, I have my job. That’s my security.”
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Mounting Debt
Average credit card and student loan debt for Southern Californians ages 20 to 29:
1995*: $5,302
* through June
Note: Average per total household
Source: Claritas Inc.
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The Generation Factor
The most dramatic increase in debts have occurred for Southern Californians in their 20s, who now owe as much as older adults, even though their incomes pale in comparison.
Plastic Explosion
Credit card debts for those under 30 more than doubled in the last five years, outpacing all other age groups. Average credit card balances, by age group, for Southern California:
*--*
% increase from 1990 to 1995 1995* 20 to 29 144% $2,159 30 to 39 82% $2,521 40 to 49 93% $2,788 50 to 59 76% $2,604 60 to 69 53% $1,725 70 and over 25% $1,004
*--*
* Third-quarter data
*****
Graduating in Debt
Increasing tuitions and declining financial aid are forcing students to take out bigger loans to get them through college. Average federal student loan amount nationally:
1992: $2,875
1993: $3,163
1994: $3,424
1995*: $3,573
* Third-quarter figure. Reflects amounts borrowed under Federal Family Education Loan and Federal Direct Student Loan programs. Excludes other state and private college loan programs.
*****
Total Debts Rise . . .
Average household debt in Southern California, by age group (excluding mortgages):
*--*
% increase from 1990 to 1995 1995* 20 to 29 58% $10,978 30 to 39 51% $12,036 40 to 49 45% $13,048 50 to 59 13% $13,150 60 to 69 19% $8,232 70 and over 12% $3,513
*--*
* Third-quarter data
. . . Some Incomes Don’t
Average household income in Southern California, by age group:
*--*
% increase from 1990 to 1995 1995* 20 to 29 -0.4% $31,006 30 to 39 9.7% $48,923 40 to 49 3.5% $53,911 50 to 59 12.9% $55,562 60 to 69 13.7% $42,686 70 and over 8.0% $27,863
*--*
* Second-quarter data
Credit card data excludes department store and oil company cards.
Sources: Claritas Inc., Education Resources Institute.
Researched by DON LEE / Los Angeles Times
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On the Brink
* SUNDAY: A new wave of consumer debt buildup threatens the Southern California landscape.
* MONDAY: Mortgage lenders push easier loans to a new class of high-risk homeowners.
* TODAY: Young adults struggle to cope with their escalating debt burdens.
