A common theme insideARM has been tracking for the past few years is the shrinking pipeline of consumer debt for the accounts receivable management industry. It’s been easy to point to the massive decline in credit card debt, once the reliable lifeblood of debt collectors, and warn of fewer accounts coming down the pipe from that sector (in fact, we did just that last year in an issue of Know Your Debtor).

But now there is more evidence that there could be less debt entering the third party collection system in coming years. From 2007 to 2010, the median debt of households headed by an adult younger than 35 fell by 29 percent, compared with a decline of just 8 percent among households headed by adults ages 35 and older, according to a report from the Pew Research Center.

Furthermore, the share of younger households holding debt of any kind fell to 78 percent, the lowest level since the government began collecting such data in 1983.

Compared to their older peers, those under 35 tend to own homes and cars at much lower rates, which partially explains the larger data trends. But even when looking within the young adult group itself, the shedding debt pattern is obvious.

For example, younger households have moved away from credit cards. In 2010 only 39 percent of them carried a balance, down from 48 percent in 2007 and 50 percent in 2001. And when young adults do carry a credit card balance, it is typically much lower. The median outstanding amount owed among younger households with card balances fell over the decade from $2,500 in 2001 to $2,100 in 2007 all the way down to $1,700 in 2010.

Car ownership has also decreased within the young adult group. In 2007, 73 percent of households headed by an adult younger than 25 owned or leased at least one vehicle. By 2011, 66 percent of these households had a vehicle. As for financing, in 2007 44 percent of households younger than 35 had vehicle debt. By 2010, only 32 percent had vehicle debt.

Unsurprisingly, the only credit market to see expansion in the under-35 demographic is student loan debt. In 2007, 34 percent of young households had outstanding student debt. By 2010, 40 percent of younger households had student debt. Interestingly, the median amount owed by households with student debt fell from $14,102 in 2007 to $13,410 in 2010.

It is easy to assume that once the economy truly recovers, consumers in this peer group will take on more debt. But certain lifestyle choices – such as living in areas not requiring a car – may enable a generation that is more debt-free than those before it. The ARM industry should plan accordingly.

This article originally appeared in the latest issue of Know Your Debtor, a free quarterly newsletter from insideARM.com and LexisNexis focused on the U.S. consumer environment.


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