US consumer debt is approaching a record 20% of GDP, and
millennials owe most of it.
Millennials — 21 to 34-year-olds — hold an estimated $1.1
trillion of the country’s $3.6 trillion in consumer debt,
according to UBS, as rising student and auto loans outweigh
a drop in mortgages.
And all that rising debt is coming with rising default
risks. A UBS evidence lab survey found that 52% of people worried
about defaulting on any loan over the next 12 months were in the
21 to 34 age group.
That’s not good news considering those same individuals are meant
to be the largest source of spending on big-ticket purchase items
like houses and cars over the next year (see the chart
There is already evidence that millennials are
changing their spending habits on smaller items
where, according to Lindsay Drucker Mann of Goldman
Sachs Research, millennials are willing to search
for the lowest price on an item or patiently wait for the right
deal to pop up.
“We see areas where millennials are willing to spend, but
overall, they’re not levering themselves up to make their dollars
go further; they’re being much smarter and much more conservative
about their balance sheets,” Drucker Mann said on a
episode of Goldman Sachs’ “Exchanges at
Goldman Sachs” podcast.
Concerns about student loans, of course, have come up
before. In early April, New York Fed President William
Dudley said that “continued increase in college costs and debt
burdens could inhibit higher education’s ability to serve as an
important engine of upward income mobility.”
But auto-loan debt is another matter. A growing amount of
auto loan debt is coming from leasing, with 32%of
millennials opting to lease in 2016, up from 21% in 2011,
according to a January report from Edmunds. Among households
making $50,000 or less, millennials made up 21% of lessees (the
largest of any age group).
Should delinquent car payments become an issue because
already-squeezed millennials choose to pay student loans
first, lower-credit-score applicants could have a hard time
financing car purchases. If that happens, automakers could be
And if big-ticket purchases begin to slow down, economic
growth expectations may need to adjust.