Study: Debt boosts young people's self esteem


Adults tend to feel stressed out when they build up sizeable credit card balances, but a new study suggests that this is not always the case with younger people. In fact, research by scientists at Ohio State University in the US indicates that many young adults actually feel a sense of empowerment and view their credit cards in a positive light.


Credit cards linked to higher self-esteem
Rachel Dwyer, assistant professor of sociology at Ohio State University, led a study among 18 to 27-year-olds to discover their attitudes towards credit card and student loan debt. Instead of finding a link between higher levels of debt and increased anxiety, she actually found that credit card and loan debt was associated with higher self-esteem.

The effect was particularly noticeable among the youngest adults and those from the lowest socioeconomic groups, perhaps reflecting the fact that without relying on credit, they would not be able to pay for their education and other items. It was only the oldest people in the 3,079-strong study group that tended to show signs of money-related stress.

Dr Dwyer, whose findings are published in the journal Social Science Research, explained in a news release that credit cards can be a "positive resource" for young adults. "Young people seem to view debt mostly in just positive terms, rather than as a potential burden," she observed. However, Dr Dwyer warned that debt also carries "significant dangers" if not managed effectively.

Reality of credit card debt hits around age 28
The US study indicates that, for the average young adult, the full implications of their credit card and loan debt starts to hit home by the age of 28. "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.," said Dr Dwer in the news release. "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."

Time to consider a balance transfer?
Fortunately, young adults whose credit card balances are subject to high rates of interest can take steps to limit their financial burden. In addition to looking at ways to reduce their monthly outgoings and boost their income, one useful move could be to compare credit cards and find one with a lengthy balance transfer period. An individual's outstanding credit card balance could then be transferred on to this new card, giving them some time to chip away at their debt without accruing interest.

However, people considering this route should bear in mind that 0% balance transfer cards usually charge a balance transfer fee, typically in the region of about 3%. This means that they only tend to be beneficial for those with large credit card balances that are unlikely to be paid off in the short to medium term.

See related:Brits' savings efforts hampered by unsecured debt; A record number of Brits are retiring deep in debt

Published: 15 June 2011