Despite various warnings, many young adults feel empowered by credit card and student loan debt, suggests a recent national study by a team of sociology researchers examining the connection between debt and self-esteem.
The study, based on in-person interviews every two years from 1986 through 2004 with 3,079 young adults ages 18 to 34, concluded that young adults carrying personal debt reported a higher sense of self-esteem than did those without it. And credit card debt in particular contributed to a higher sense of self-esteem for some young adults, the study findings suggest.
“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,” Rachel Dwyer, the lead researcher and an assistant professor at Ohio State University, said in a press release. “Surprisingly, though, we found that both kinds of debt had positive effects for young people. It didn’t matter the type of debt, it increased their self-esteem and sense of mastery.”
The study drew upon multiple years of the National Longitudinal Survey of Youth, capturing attitudes among young adults, administered biannually by the Bureau of Labor Statistics.
Significantly, the researchers acknowledge that the study did not consider potential attitude shifts about debt following the U.S. financial crash that began in 2008. Nor did the study examine the effects of the Credit Card Accountability, Responsibility and Disclosure Act that went into effect in 2009, restricting credit card issuers’ ability to market credit cards to individuals younger than 21 without parental consent.
But incurring credit card and student loan debt in recent years has contributed to “positive social psychological effects” that might have been misleading for many young adults who may have equated debt with higher future earnings and income levels, leading to feelings of positive self-esteem, the study’s findings suggest.
“The core mechanism is basically an application of the cognitive consistency principle: ‘If they lend me money, I must be a future high roller,’” the researchers wrote.
Moreover, “young people seem to view debt mostly in just positive terms rather than as a potential burden,” Dwyer said in the release.
Self-esteem effects from debt varied according to the income levels of respondents’ families of origin, the study found.
Young adults from families whose income fell into the bottom 25% reported a higher sense of self-esteem from carrying both credit card and student loan debt, while respondents from middle-income families reported higher self-esteem particularly from carrying credit card debt.
Those from families whose income fell into the top 25% reported no significant difference in self-esteem from carrying either credit card debt or student loan debt, according to the study.
Carrying student loan debt appeared to be “normative” among middle-income respondents, and a “conscious investment choice” among lower-income respondents. Credit card debt particularly appeared to contribute to “a positive sense of control and self-worth among middle-class youth,” the researchers wrote.
Having education debt was viewed as “significantly positive” for the oldest respondents, “but as time passes the amount of education debt becomes a drag on self-concept, consistent with our expectation that debt becomes more burdensome over time,” the researchers wrote.
The researchers conclude that it is unknown how the financial crisis that brought the credit boom to an end will affect young adults. Besides the CARD Act’s restrictions, lenders since 2008 have significantly tightened lending requirements for new borrowers and restricted credit lines for existing customers, causing overall consumer credit card debt to decline.
The big question for society is whether young adults taking on debt during the credit boom will have a permanently “more sanguine” view of credit or whether they will be “deeply and keenly affected by the economic crisis that followed,” the researchers wrote.
It also will be important to assess whether the CARD Act will lower future risks for other young adults, the researchers wrote. “(Because) the parental permission provisions expire early in the transition to adulthood, at age 21, ... it is unclear how closely many parents will monitor these accounts,” they said.
