In-Debt-Ed

Before the financial crash of 2008, it was highly educated Americans who were most likely to pile on unmanageable levels of debt, suggests a new study, one of those that seems to turn conventional wisdom on its head.

Overall, the percentage of Americans who were paying more than 40 percent of their income for debts like mortgages and credit card bills increased from about 17 percent in 1992 to 27 percent in 2008.

But college-educated people were more likely than those with high school or less education to be above this 40 percent threshold, which is considered to be a risky amount of debt for most households.

The association between more education and higher debt was true even after taking into account the fact that people with more education tend to have higher incomes.

In addition, people who reported being more optimistic about the future of the economy for the next five years were more likely to have a heavy debt burden, the study found.

“People who piled on debt may have been too optimistic about their economic future, but you can’t blame that on a lack of education,” said Sherman Hanna, co-author of the research and professor of consumer sciences at Ohio State University.

“People with college educations may have thought they were immune to any economic problems. But when people stop believing things might go bad, that’s when they get in trouble.”

Hanna’s co-authors were Yoonkyung Yuh of Ewha Womans University in Seoul, Korea; and Swarn Chatterjee of the University of Georgia.

Hanna and his colleagues also found that the debt crisis didn’t just involve homeowners who took out bigger mortgages than they could afford. In fact, 35 percent of renters had a heavy debt burden in 2007, compared to 21 percent of homeowners.

Overall, Hanna said the research suggests that despite generally held assumptions, it wasn’t just uneducated people, and not just homeowners, who precipitated the financial crisis by taking on too much debt.

“There wasn’t just one group of Americans who were at fault,” Hanna said.

“All types of households, renters and homeowners, educated and not, were taking on more of debt burden than they could bear. And lenders of all types – not just mortgage lenders – seemed to be taking more risks.”

So it wasn’t all about supposedly big, bad lenders exploiting people who didn’t know better. As with most crises, financial or otherwise, there’s plenty of blame to go around.