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Debt can be a good thing for young people—it can help them achieve goals that they couldn’t otherwise, like a college education…Young people seem to view debt mostly in just positive terms rather than as a potential burden.

Rachel Dwyer, assistant professor of sociology, Ohio State University

Professor Dwyer seems to be encouraging young people to take on more debt to feel empowered! A nationwide study she conducted with Randy Hodson, professor of sociology at Ohio State, and Laura McCloud, an Ohio State graduate now at Pacific Lutheran University, found many young adults actually feel empowered by their credit card and education debts rather than feeling stressed by them. Ms Dwyer did add that the results offer some worrying signs about how many young people view debt:

Debt can be a positive resource for young adults, but it comes with some significant dangers.

The more credit card and college loan debt held by young adults aged 18 to 27, the higher their self-esteem and the more they felt like they were in control of their lives. The effect was strongest among those in the lowest economic class. Only the oldest of those studied—those aged 28 to 34—began showing signs of stress about the money they owed.

Researchers examined data on two types of debt:

1. loans taken out to pay for college
2. total credit-card debt.

They looked at how both forms of debt were related to people’s self-esteem and sense of mastery—their belief that they were in control of their life, and that they had the ability to achieve their goals. Dwyer said:

We thought educational debt might be seen as a positive because it is an investment in their future, while credit card debt could be viewed more negatively

How debt affected young people depended on what other financial resources they had available:

• Those in the bottom 25 percent in total family income got the largest boost from holding debt—the more debt they held, both education and credit card, the bigger the positive impact on their self-esteem and mastery
• Those in the middle class didn’t see any impact on their self-esteem and mastery by holding educational debt, perhaps because it is so common among their peers that it is seen as normal, but they did see boosts from holding credit-card debt—the more debt, the more positive effects
• Those who came from the most affluent families received no boost at all from holding debt. Debt is not an issue for them. They have the most resources and options available to them.
• The oldest people in the study, those over age 28, were just starting to feel the stress of their debt.

Having education debt is still associated with higher self-esteem and mastery, compared to those who don’t have any such debt. That suggests they still see some benefits to investing in a college degree. But the amount of education debt mattered—having higher levels of debt actually reduced their sense of self-esteem and mastery. Dwyer said:

By age 28, they may be realizing that they overestimated how much money they were going to earn in their jobs. When they took out the loans, they may have thought they would pay off their debts easily, and it is turning out that it is not as easy as they had hoped. We found that the positive effects may wear off over time, but they still have to pay the bills. The question is whether they will be able to.

The study involved 3,079 young adults who participated in the National Longitudinal Survey of Youth 1979—Young Adults sample. The NLSY interviews the same nationally representative group of Americans every two years. It is conducted by Ohio State’s Center for Human Resource Research on behalf of the US Bureau of Labor Statistics.

The results suggest that debt can be an important resource for young adults that allows them to make investments that improve their self-concept. But the results may also have troubling implications for the future of young people. Dwyer summed up:

Debt may make young people feel better about themselves in the short-term, but that doesn’t mean it won’t have negative consequences in the long term.

Some young people from all social classes see education as important enough to get into debt for, but those from poorer backgrounds get the biggest buzz from borrowing money, and the rich kids get little or none. It seems hardly surprising. Just being able to get the money will make many such kids feel that their education is already bringing benefits. As the debt mounts and the benefits begin to seem less clear and further off, their enthusiasm wears thin.

Poorer students must stay realistic about their future. They will have to pay back their loans and borrowings, so they should not take on excessive debt, and must not try to compete with middle class and rich kids at university. Rich kids have no worries whatever happens. They are assured of a substantial allowance and nepotistic job opportunities from daddy and mummy so can get no buzz from borrowing a the odd few thousand dollars.