MONEY

Gen X, Baby Boomers see credit cards as a lifeline

Charisse Jones
USA TODAY
Fewer Gen Xers pay off credit cards as they use them to make ends meet, study suggests.

Generation X, weighed down by debt, is unfortunately growing accustomed to the burden.

Gen Xers — and their older, Baby Boomer peers — see credit cards as a lifeline, according to a new study from Allianz Life.

Of the 1,000 Gen Xers age 35 to 48, and 1,000 Boomers ages 49-67 surveyed, 48% say that credit cards now function as a financial survival tool.

That reliance on debt is particularly troublesome for younger Americans, who often put off saving for retirement and other needs because of it.

"It's really significant and I think it's coming to a head with Generation X,'' says Katie Libbe, vice president of consumer insights for Allianz Life, who noted that members of that age group tend to have greater total debt than Boomers. They are burdened, she says, by a "Bermuda Triangle'' of financial stressors, including student loan debt, a tepid job market, and homes that may be worth less than what they initially paid.

Among Gen Xers, only 46% pay part of their credit card balance each month, vs. 32% of Baby Boomers. The rest of both groups either pay the entire amount, or don't use cards at all.

And with 23% of Gen Xers saying they don't feel they can start saving for retirement until their credit cards are paid off, many in that age group may come up short when they want to stop working in their senior years.

Still, Gen Xers aren't nonchalant about their financial situation, with 41% of those surveyed saying they are uncomfortable with the debt they're carrying versus 25% of Boomers who have similar worries.

But many Gen Xers seem to believe that they can't do much about it, Libbe says.

"There's this sense that ... 'I can't save for retirement because I'm barely getting by,''' she says. But not putting aside some money means that Gen Xers are missing out on interest that accumulated over decades could result in nice-sized nest egg.

The survey highlights the potential drawbacks of having easy access to credit cards, with 76% of Gen Xers and 68% of Baby Boomers saying they received their first credit card by the age of 24.

"I think that older generations ... were brought up a little bit more to live within their means because they didn't have access to a card,'' Libbe says. "I think what's been going on over the last 30 years is the acceptance of credit cards and credit card debt, which ends up masking the fact that you're living beyond your means.''

The Allianz survey found that Gen Xers were carrying 38% more in mortgage debt, and 45% more in other debts, such as credit cards and student loans, than their Boomer peers. For instance, Gen Xers averaged $144,000 in mortgage debt as compared to $90,000 for Boomers, and $8,000 in average credit card debt as compared to $6,000 carried by the older generation.

And 20% of Gen Xers believe that going into debt to handle day-to-day purchases is simply a fact of life, as compared to 14% of boomers.

But it doesn't have to be.

"First you have to have the discipline to live within your means so if I can't afford to pay for it with cash, then I don't buy it,'' Libbe says. "Then you begin to build up a fund for emergencies. ... Then you begin to funnel some of your money into paying off debt, maybe more than the required balance.''

Others believe that tackling credit card debt needs to be a top priority.

"It typically makes more sense to pay off high-rate credit card debt first before building a large cash reserve,'' David Walters, a Portland, Ore.-based certified financial planner and CPA with Palisades Hudson Financial Group, said in an email. "A savings account will earn you less than 1%, whereas the interest rate you pay on your credit card is much higher.''

He added that "if you're concerned about not having the cushion of an emergency fund, remember you'll have credit available to you from the debt that you've paid down,'' if necessary.

Libbe says the important thing for members of Generation X to remember is that they still have time to get their financial house in order.

"Gen X still has decades of employment ahead of them.,'' she says. "It's never too late to start on this saving pattern. ... It just takes some discipline and some planning.''