A recent credit report study from TransUnion found that the composition of loans that people typically carry has materially changed for both the youngest and oldest segments of the population during the last decade. Not only did economic forces prompt change, but general demographic shifts have changed the composition of outstanding credit among different age groups in the U.S.
It makes logical sense that student loans are now dominating the composition of loans for younger Americans. And indeed, more young people today are foregoing other types of debt to service their swollen education loans.
This matters to companies in the debt industry, obviously, because if young people today are shifting away from particular types of debt to service student loans, the downstream account receivable management (ARM) industry will soon be impacted.
But those other types of debt haven’t suffered too much. For example, in 2014 credit cards made up 3.8 percent of all debt owed by people aged 20 to 29, compared to 5.1 percent in 2005. While that’s quite a dropoff, the decrease among those 60 and older was even greater. The total share of auto loans actually increased substantially among twentysomethings over the same timeframe, from 11.6 percent in 2005 to 14.1 percent in 2014.
So what debt type is suffering the “student loan effect?” Mortgages, and in a big way.
In 2005, mortgages accounted for 63.2 percent of all debt held by people aged 20-29, compared with all Americans at 76 percent. But in 2014? That number dropped off a cliff to 42.9 percent, compared to 75.7 percent of all Americans (all other age groups saw significant increases as housing prices soared).
Why should the ARM industry care about declining mortgages among younger Americans?
It certainly doesn’t have much to do with sector work. The mortgage sector is a relatively small one in the ARM industry because of the built-in protections enjoyed by lenders; not much mortgage debt is outsourced to the traditional third party collection industry. The real impact will be developing slowly over time: people location.
Home ownership tends to lead to a more stable lifestyle, with regard to residence. And on the flip side, renting can lead to transience. This can make the job of a skip tracer that much harder when trying determine the address for the initial communication.
If there is one silver lining, however, it may be in the use of mobile phone technology by the younger generation. Mobile numbers are now almost universally portable across carriers. The Millennial generation may be the first to have phone numbers stick to them more reliably than addresses.
But that brings new set of challenges for collection strategists. Now there are two distinct age groups of Americans whose behaviors call for different strategies: those 60 and over, and those 20-29. And of course, everyone in between prompting a hybrid approach.
This article originally appeared in the latest issue of Know Your Debtor, a free quarterly newsletter focused on the U.S. consumer environment. Make sure you’re registered to receive insideARM’s newsletters on your User Profile page.