A recent study revealed that younger Americans unwilling to change their spending patterns are more likely to die with credit card debt.
The study, which was co-authored by Lucia Dunn, an economics professor at Ohio State University, and Sarah Jiang, the manager of credit and business strategy at Capital One Financial, found that younger generations may continue to accrue credit card debt after age 70 and die owing money on their credit cards, Business News Daily reports.
“If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” Dunn said, according to Business News Daily. “Our projections are that the typical credit-card holder among younger Americans who keeps a balance will die still in debt to credit-card companies.”
American consumers born between 1980 and 1984 carry on average of $5,689 more in credit card debt than their parents, born between 1950 and 1954, and $8,156 more than their grandparents, born between 1920 and 1924, at the same stage of life.
The study also found that younger Americans’ payoff rate is 24 percentage points lower than that of their parents’ and approximately 77 percentage points lower than their grandparents’ payoff rate.
“Most data sets available to researchers only contain one side of credit card behavior—borrowing,” Dunn said, Business News Daily reports. “We have data on how they pay off credit cards as well, which gives us a more complete picture of their debt situation.”
Dunn said that higher credit card debt among young Americans is affected by several factors.
“Credit is more readily available now, and there have been changes in interest rates and less stigma attached to having credit card debt, which may all make younger people today more willing to go into debt,” Dunn said, according to Business News Daily.
Additionally, the researchers said that one possible solution to the problem is to raise the amount of the minimum payment required every month. The study found that increasing the minimum payment by one percentage point increased the average payoff rate by 1.9 percentage points.
“Raising the minimum payoff rate can have a powerful effect on how people actually pay off their credit card debt, much more so than you might expect,” Dunn said, Business News Daily reports.
Data from the survey was compiled from two monthly surveys, including the Ohio Economic Survey conducted between 1996 and 2002 and the national-level Consumer Finance Monthly, which began in 2005.