• By
  • Neil Shah
  • CONNECT

 

Rachael Heffner, profiled in a Wall Street Journal article about student debt in June, rented a room in her parents’ basement with her boyfriend.
Catalin Abagiu for The Wall Street Journal

Young Americans are living with their parents in greater numbers, but don’t blame the economy or housing costs. Blame student loans.

The proportion of young adults aged 18 to 31 living with parents has hit 36% from 31% in 2005, and indebtedness—especially rising student debt—explains roughly 30% of this increase, according to a new study by Lisa Dettling and Joanne Hsu at the Federal Reserve Board.

“Debt exerts a much greater influence on flows into parental co-residence than economic conditions, with the magnitude of the total effects of debt on average about twice as large as the effects of economic conditions,” the economists say.

The two Fed economists analyzed data from the Federal Reserve Bank of New York and Equifax on the credit histories of young adults and the age of the people they’re living with to pinpoint the causal links between debt and decisions to live at home. Their sample contained over 1.8 million people.

Heavier debts were “associated with statistically significant and economically meaningful increases in the likelihood an individual will move into parental co-residence” after living independently, they say. Economic factors like local unemployment and home prices were controlled for. When they controlled for debt instead, they found that “fluctuation in the county-level unemployment rate and higher median home prices exert[ed] a relatively modest positive effect on the decision to ‘boomerang,’ and no effect on the length of time at home.”

America’s weak recovery from the Great Recession has prompted concerns about the millions of young people who entered their professional lives on the wrong economic footing and may suffer long-term financial damage.

But the rise in young people living at home may have more to do with the growing debts they’re taking on to finance educations, since this makes it difficult to get additional credit—or at least makes them reluctant to take on even more debt.

Living at home may be a kind of insurance against financial shock for many young people, the Fed economists say. “Large balances may pose high psychic costs, and individuals may choose to live with a parent in order to repay more quickly,” they said. Living with parents may be used, especially among those whose parents have higher incomes, “to smooth consumption, often preemptively, as opposed to being a ‘last resort’ option.”

This link between towering debt and living with parents makes intuitive sense: Ms. Dettling’s figures suggest living with parents really started growing in 2005—after years of being relatively stable and well before the 2007-09 recession. While economic conditions have lurched up and down and up again over the past decade, average student-loan balances and delinquencies have generally risen since the mid-2000s. Some 40% of young adults had student debt in 2010, up from 26% in 2001.

Dettling’s isn’t the only recent study on debt and young people’s decisions.

While credit-card balances among young people have actually fallen some over the past decade, a new study by Fenaba Addo at the University of Wisconsin—Madison in the journal Demography finds that “credit card debt is positively associated with cohabitation for men and women.” In other words, debt pushes people into living with partners, not just parents.

Indeed, research presented at the American Sociological Association meeting in August shows the Great Recession’s impact on kids living with parents isn’t actually that special as far as recessions go. Marriage rates and cohabitation were deeply affected by the 2007-09 recession. Living with parents, much less so.

“The likelihood of living in the parental home during the Great Recession was no different from the three previous recessions in the early 1980s, 1990s and 2000s,” say Census Bureau researchers Jonathan Vespa and Laryssa Mykyta, who authored the paper. “Despite the attention that has been given to the rise in young adults returning to the parental home, the trend in the past five years is comparable to what has occurred in other recessions.”

The share of 18-to-24-year-old men in the U.S. living with their parents was actually higher in 1983 than 2013, Vespa says. Increases in living with parents have been driven by 25-to-34-year-olds. Yet even this group hasn’t fueled a real pop in the overall numbers: Vespa’s figures show that 31% of young adults 18 to 34 live in parental homes, up from 28% in 1967.

The composition of America’s young population has changed dramatically over time—by race, education, age and finances, among other things. These changes, including, now, student debt, are driving much of the changes in young peoples’ living arrangements.

Ultimately it’s worth remembering that increased living with parents is far from the biggest social shift we’ve seen over the past several decades. Much bigger are changes in young adults living with spouses, living with friends (or partners) and living alone.

 

Census.gov

The share of young adults 18 to 34 living with a spouse has plunged from 60% in 1967 to 27% in 2013—a whopping 50% drop. The fraction cohabiting is up nearly 8,000%—from 0.1% to about 5%, according to Vespa’s work. (Or, in human terms, from about 25,000 young adults to 3.5 million. Even this estimate is conservative.) Shares of young adults living alone and living with nonrelatives (friends)? Up 217% and 343%. Compare that to the meager 12% rise in the share of young adults living with parents.

The looming question now is whether the growth of student debt and increased financial insecurity young people are experiencing will make living at home a new life stage even as the economy picks up.

 

 

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