Is everything really that expensive? Has inflation led young adults to go into debt to afford everyday costs like rent, food, and transportation?
Not counting student loans, young adults in their twenties are experiencing their first feelings of being in debt. Whether it’s credit card debt, car loans, personal loans, payday loans, or any other kind of loan, young adults struggle with money. But why? What’s happening that they need to take out money in the first place?
Why are more young adults in a position to file bankruptcy than before?
It depends on several factors:
● Economic background
● Cost of living (housing, food, utilities, transportation)
● Limited financial literacy and knowing how money actually works
● Lifestyle and FOMO—fear of missing out
● Easy access to predatory lending and high-interest debt like credit cards and payday loans.
While we know the factors, the why still lingers. Even though personal bankruptcy may be an option for young adults to take control of their finances, we need to get to the main causes. Here are five reasons why most young adults in their 20s are in debt.
1. Their economic background gave them a rough start
Many young adults grew up with the reality of working-class families, where two parents held down full-time jobs just to make ends meet. Others only had one parent in the picture, and they had to step up early, taking on part-time jobs in their late teens just to help pay for the basics.
Adding on the lack of generational wealth or safety nets to fall back on, this unstable financial foundation is what sets the stage for 38% of future young adults. Not knowing the complexity of budgeting, saving, and managing debt follows them deeper into adulthood as they’re expected to follow the social norm of living and thriving on their own.
2. Things are really expensive nowadays.
You’ll hear this left and right—the cost of living is expensive; the cost of living has risen; inflation has increased to unlively percentages. But what does all of that even mean?
Essential items cost more than what people are making at work. Things like rent, groceries, gas, public transportation, and utilities are costs that keep going up. When inflation hit a high of 8% in 2022, young adults offered a yearly salary of $50,000 couldn’t keep up with the expenses—depending on where you live, no one could.
High living costs and the rapid increase in goods and services negatively impact those unable to afford it alone, often resulting in taking out credit cards and personal loans to cover the basic necessities.
3. It’s not common for schools to teach financial literacy.
As of now, financial literacy is not a mandatory requirement in the U.S. public school curriculum. In other words, if a high school student—or younger— doesn’t have a parent who works in the financial industry or has any exposure to financial literacy, they will never learn the ins and outs of budgeting, saving, and other important fields of the financial world.
Understanding finance is the bread and butter of exceeding as young adults grow older. As college students graduate and society pressures them to become functioning adults, the lack of financial literacy influences many young adults to make informed decisions about their money once they’re out on their own.
And the consequences become what we see today: young adults in their early and late twenties starting life with $6,000, $10,000, and even $20,000 in debt.
4. FOMO.
Social media has been a blessing and a curse ever since its debut in the early 2000s. As users ached to discover more of what the world had to offer, the need to have that offer grew greater and greater.
Buying the latest phones, backpacking to multiple countries in one trip, and attending a three-day music festival all fed the urge, “I want to do this too!”
The Fear of Missing Out hits every user where it hurts the most—their pockets. The never-ending scene of curated lifestyles and experiences keeps a consistent pressure for young adults to keep up with—often leading them to spend on experiences they can’t afford. Which results to our last why.
5. Easy access to credit
When the paper money isn’t there, credit cards and loans are.
Unfortunately, credit lines weren’t made for borrowers to make safe and sound decisions. On the contrary, it can be easy to take a loan or sign up for a new credit card. As new borrowers skim over the fine print, predatory lending firms catch them with high interest rates and minimum payment requirements, luring them in for the long-term consequences.
As credit becomes more accessible, young adults often don’t realize the weight of their financial decisions until it’s too late. This easy access to credit without fully understanding the long-term consequences is one of the most significant factors contributing to the debt crisis among millennials and Gen Z.
There isn’t one at fault here—just a complicated system. It’s easy to point fingers and dive straight into the if’s and but’s. But pointing fingers won’t get young adults out of debt. It’s time society acknowledges the importance of financial literacy and teaching young adults how to manage their money before it throws them out into the world of hard-to-meet expectations.
Affordable Debt Solution with Bankruptcy
If you have accumulated debt that is out of your control and you are struggling to make ends meet, there are options available such as filing for bankruptcy. Bankruptcy can help get you back on track and look forward to a promising financial future. Keep in mind that bankruptcy is not for everyone, and if you learn and grow to overcome your debt, then this is the debt solution for you.
Hines Law in Massachusetts is a bankruptcy firm that helps debtors in all stages of life seek the debt relief option that best suits them. No matter your age, if you have overwhelming debt, are facing foreclosure, and have collections harassing you, our bankruptcy attorneys are here to help. We have the experience, skill, and compassion to guide you through the bankruptcy process and get you on the road to financial recovery.