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Filene: Consumers Still Reluctant to Take on More Debt
Monday, February 6, 2017 6:25 AM

More than seven years after the end of the Great Recession, consumers are reluctant to take on more debt because they worry about their earnings and the economy, according to a Filene Research Institute study released Wednesday.

The Madison, Wis., think tank found more than half of the 1,164 adults surveyed last September said they plan to avoid debt unless completely necessary. However, they considered mortgages unavoidable.

More than 80 percent of respondents are worried about their current debt. They were stressed most by medical, credit card and student loan debt, and least by mortgage, entertainment and car debt.

The study was conducted by Hope Jensen Schau, a marketing professor, and Ignacio Luri, a doctoral student in marketing, both at the University of Arizona. “Very few people are completely closed to debt, and that is an opportunity for credit unions,” Luri said. “Credit unions should seek to understand more about the reasons for when and how consumers feel confident and try to make borrowing a less stressful topic for their members.”

Current debt is a stronger predictor of lack of confidence for taking out additional debt than earning power. The survey found 93 percent of respondents resistant to taking on more debt:

  • Forty-one percent would not feel confident taking out more debt over the next six months and would avoid doing so at all costs;
  • Fifty-two percent would take out more debt over the next six months if the need arises, but would avoid doing so if possible; and
  • Seven percent would feel confident taking out more debt over the next six months.

Among those willing to take on debt, if necessary, the top concerns they cited were lack of earning power (49 percent), worry over sustaining a good credit score (36 percent) and poor economic conditions in the region (35 percent).

The 93 percent of respondents resistant to taking on more debt cited the need to reduce current debt and the dislike of any form of debt. The survey found 12 percent of respondents considered their debts to be “a major source of daily stress for me and my family.” Another 28 percent considered debt a source of stress (but not a major one), 41 percent were only slightly concerned and 19 were “not at all concerned” by their debts.

Hispanics were more likely than others to rely on debt now and anticipate borrowing more in the future. At the same time, they tended to hold less debt and show higher intentions to eliminate their debts. Hispanic debt was also less likely to include credit cards and almost twice as likely to cite concern about credit scores as a reason for not taking on more debt.

The survey found millennials (ages 18 to 34) are optimistic regarding the economic conditions for taking out loans, and those willing to borrow are twice as likely as older borrowers to cite their earning power as a main source of their confidence.