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May 20, 2014

Deleveraging continues for youngest Americans

Younger Americans have been paying down their debts, gradually lifting the burden off their shoulders in the aftermath of the recession.

While people in many different age groups have been deleveraging, Americans between the ages of 18 and 29 have made the greatest progress, according to data provided on the FICO Banking Analytics Blog. This publication shows that between October 2013 and the same time in 2012, people in this younger age group slashed their debt by an average of 7.1 percent.

Alternatively, consumers between age 50 and 59 reduced their leverage by 1.9 percent during the period. Those in their forties cut their debt by 2.1 percent, while people between 30 and 39 saw their obligations decline 3.2 percent.

The FICO Analytics Blog covered similar research in the previous year, providing data showing younger Americans making sharp reductions in their average debt. This particular piece covered a larger span of time, which ranged between October 2007 and the same month in 2012.

During this period, people between the ages of 18 and 29 reduced their total debt by an average of 17.3 percent. Americans between 30 and 39 also made significant progress, pushing their liabilities down 20.8 percent.

Alternatively, those in their forties and fifties made far less marked reductions in lowering their credit outstanding, cutting it by 7.9 percent and 4.1 percent, respectively. Those in their sixties went in the complete opposite direction, increasing their outstanding debt by 11.9 percent.

Key drivers of these changes in debt
When it comes time to drill down and analyze the specific factors that have been driving these gains and losses in debt, the first FICO blog post noted that declining debt associated with mortgages and credit cards have been reducing the liabilities held by young consumers. These two categories dropped by 13.3 and 8.1 percent, respectively.

Many people in this particular demographic are staying out of the housing market altogether, and are delaying the move to purchase their first property. Of those who want to purchase real estate, most rely on the government to get the funding they need.

Many young Americans flee credit cards
In addition, younger Americans seem to be fleeing credit cards, according to data contained in the first FICO blog post. These figures showed that in October 2013, 19.9 percent of people in this group did not hold these cards. This contrasted with consumers who were 60 or older, where only 2.3 percent did not have this particular method of financing.

While younger Americans seem to be shunning real estate and credit cards, total outstanding student loan debt moved higher between October 2012 and 2013. Auto loans also moved higher during the period, as people in this demographic held an average of $4,386 in October 2013, compared to $4,226 in 2012.

These various developments could impact loan sales. The falling credit card and mortgage debt could hinder transactions that involve these types of credit. However, the recent uptick in auto debt could help strengthen loan sales that involve these balances.

Financial institutions that are interested in getting involved with these transactions might consider contacting Garnet Capital Advisors, which has significant experience in this space.