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June 07, 2011

  • News:  Debt Increases Young Adults' Self-esteem 

    Not long ago U.S. lawmakers took steps to protect young adults against predatory practices of the financial industry when they enacted the Credit CARD Act 2009. New laws prohibit lenders from issuing a credit card account to any individual under the age of 21 with a co-signer or specific proof that he can repay the debt. Lawmakers believe it was necessary to take these steps because many young adults are not knowledgeable on how to manage a credit card account or are aware of the damaging effects of falling too deeply in debt. A new study conducted by the Ohio State University gives this premise validity.

    Rachel Dwyer led the team at Ohio State University who surveyed credit cardholders between the ages of 18 and 34. Results of the study were published in the Social Science Research Journal and found that rather than becoming stressed out, young adults between the ages of 18 and 27 experienced a higher self-esteem when their credit card debt and student loan debt increased. In fact, as their debt grew, these young adults felt "more in control" of their lives. On the other hand, individuals between the ages of 28 to 34 reported that they are becoming stressed out over the amount of debt they have. Surprisingly, those young adults that grew up in lower economic conditions had the strongest effect on an increased self-esteem.

    Dwyer said that despite the allusion of control which can often motivate young credit cardholders to reach their goals, the way young adults perceive debt can be a problem. If the individual is not aware of or understand the dangers of falling into debt, they could fall into a spiral downfall of financial ruin. One could conclude from the study that financial education would help all cardholders manage debt and experience a healthier financial life. Other members of the team included Randy Hodson, Professor of Sociology at Ohio State, and Laura McCloud, an Ohio State graduate now at Pacific Lutheran University.

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