Featured Research

from universities, journals, and other organizations

Potential debt problems more common among the educated, study suggests

Date:
October 9, 2012
Source:
Ohio State University
Summary:
Before the financial crash of 2008, it was highly educated Americans who were most likely to pile on unmanageable levels of debt, a new study suggests. Overall, the percentage of Americans who were paying more than 40 percent of their income for debts like mortgages and credit card bills increased from about 17 percent in 1992 to 27 percent in 2008.

Before the financial crash of 2008, it was highly educated Americans who were most likely to pile on unmanageable levels of debt, a new study suggests.

Related Articles


Overall, the percentage of Americans who were paying more than 40 percent of their income for debts like mortgages and credit card bills increased from about 17 percent in 1992 to 27 percent in 2008.

But college-educated people were more likely than those with high school or less education to be above this 40 percent threshold -- considered to be a risky amount of debt for most households.

The association between more education and higher debt was true even after taking into account the fact that people with more education tend to have higher incomes.

In addition, people who reported being more optimistic about the future of the economy for the next five years were more likely to have a heavy debt burden, the study found.

"People who piled on debt may have been too optimistic about their economic future, but you can't blame that on a lack of education," said Sherman Hanna, co-author of the research and professor of consumer sciences at Ohio State University.

"People with college educations may have thought they were immune to any economic problems. But when people stop believing things might go bad, that's when they get in trouble."

Hanna and his colleagues also found that the debt crisis didn't just involve homeowners who took out bigger mortgages than they could afford. In fact, 35 percent of renters had a heavy debt burden in 2007, compared to 21 percent of homeowners.

Overall, Hanna said the research suggests that despite generally held assumptions, it wasn't just uneducated people, and not just homeowners, who precipitated the financial crisis by taking on too much debt.

"There wasn't just one group of Americans who were at fault," Hanna said.

"All types of households, renters and homeowners, educated and not, were taking on more of debt burden than they could bear. And lenders of all types -- not just mortgage lenders -- seemed to be taking more risks."

Hanna and his colleagues conducted two related studies, one appearing in the current issue of the International Journal of Consumer Studies and the other in the most recent Consumer Interests Annual.

In both studies, the researchers were interested in finding households that were paying more than 40 percent of their yearly income to pay off debt, including rent or mortgage, vehicle leases or loan payments, property taxes, credit cards, student loans and more. These were defined as households with a heavy debt burden.

"If more than 40 percent of your income is going toward debt, you're at a danger point, because if household income drops for any reason, it would be very difficult to keep up all your payments," Hanna said.

In both papers, the researchers looked at data from six rounds of the U.S. Survey of Consumer Finances held between 1992 and 2007, which included a total of 25,889 households. The SCF is sponsored by the Federal Reserve Board and asks detailed questions about families' balance sheets, pensions, income and demographic characteristics.

In the IJCS paper, the researchers found that college-educated people were more likely to have a heavy debt burden, even after taking into account not only income, but also income expectations, as well as their age and other characteristics that may influence debt burden.

"We just can't blame the lenders and say they were exploiting uneducated people who didn't know better. Many of those who got in over their heads were highly educated," Hanna said.

"There's plenty of blame to go around."

The percentage of households with a heavy debt burden increased from 1992 until 1998, but then dropped by 2001, when the United States went into a short recession, before rebounding again through 2007.

"Americans pulled back on their spending slightly during the slight recession of 2001, but after it was over debt levels continued to rise," Hanna said.

The Consumer Interests Annual paper found that the percentage of homeowners who had heavy debt burdens increased from about 15 percent in 1992 to 22 percent in 2007. However, the increase was even more dramatic for renters, going up from 20 percent to 35 percent during that same period.

"The percentage of renters who piled on debt really surprised me," Hanna said.

"It shows that the financial crisis wasn't all about housing speculation. There was too much debt in all parts of the economy."

In both studies, Hanna's co-authors were Yoonkyung Yuh of Ewha Womans University in Seoul, Korea; and Swarn Chatterjee of the University of Georgia.


Story Source:

The above story is based on materials provided by Ohio State University. The original article was written by Jeff Grabmeier. Note: Materials may be edited for content and length.


Journal Reference:

  1. Sherman D. Hanna, Yoonkyung Yuh, Swarn Chatterjee. The increasing financial obligations burden of US households: who is affected? International Journal of Consumer Studies, 2012; 36 (5): 588 DOI: 10.1111/j.1470-6431.2012.01125.x

Cite This Page:

Ohio State University. "Potential debt problems more common among the educated, study suggests." ScienceDaily. ScienceDaily, 9 October 2012. <www.sciencedaily.com/releases/2012/10/121009141746.htm>.
Ohio State University. (2012, October 9). Potential debt problems more common among the educated, study suggests. ScienceDaily. Retrieved December 21, 2014 from www.sciencedaily.com/releases/2012/10/121009141746.htm
Ohio State University. "Potential debt problems more common among the educated, study suggests." ScienceDaily. www.sciencedaily.com/releases/2012/10/121009141746.htm (accessed December 21, 2014).

Share This


More From ScienceDaily



More Science & Society News

Sunday, December 21, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

After Sony Hack, What's Next?

After Sony Hack, What's Next?

Reuters - US Online Video (Dec. 19, 2014) The hacking attack on Sony Pictures has U.S. government officials weighing their response to the cyber-attack. Linda So reports. Video provided by Reuters
Powered by NewsLook.com
Sierra Leone Bikers Spread the Message to Fight Ebola

Sierra Leone Bikers Spread the Message to Fight Ebola

AFP (Dec. 19, 2014) More than 100 motorcyclists hit the road to spread awareness messages about Ebola. Nearly 7,000 people have now died from the virus, almost all of them in west Africa, according to the World Health Organization. Video provided by AFP
Powered by NewsLook.com
Spokesman: 'NORAD Ready to Track Santa'

Spokesman: 'NORAD Ready to Track Santa'

AP (Dec. 19, 2014) Pentagon spokesman Rear Adm. John Kirby said that NORAD is ready to track Santa Claus as he delivers gifts next week. Speaking tongue-in-cheek, he said if Santa drops anything off his sleigh, "we've got destroyers out there to pick them up." (Dec. 19) Video provided by AP
Powered by NewsLook.com
Navy Unveils Robot Fish

Navy Unveils Robot Fish

Reuters - Light News Video Online (Dec. 18, 2014) The U.S. Navy unveils an underwater device that mimics the movement of a fish. Tara Cleary reports. Video provided by Reuters
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Science & Society

Business & Industry

Education & Learning

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins