Kids Say 'Charge It!'; Granny Says 'Make Do'

Money & Investing
Kids Say 'Charge It!'; Granny Says 'Make Do'
Scott Reeves, 10.26.05, 2:50 PM ET

Yankee grandmothers used to say, "Use it up, wear it out, make do or do without."

Their grandchildren generally have abandoned thrift and routinely take on debt to satisfy immediate desires such as clothing, consumer electronics or travel.

The shift, Lending Tree says in a research report titled "Living With Debt: A Life Stage Analysis of Changing Attitudes and Behaviors," undercuts the cultural values of past generations and erodes the basis of accumulating and maintaining personal wealth.

"America has gone from a society of scarcity to plenty," says Dr. Robert D. Manning, an economist and professor of finance at the Rochester Institute of Technology and author of Credit Card Nation. "It used to be that if you didn't manage your finances well, your family went hungry and you didn't have shelter. The social stigma of high levels of debt is largely gone."

Manning, author of the report, led interviews with 145 people in six age groups in Rochester, N.Y., Washington, D.C., and Orlando, Fla.

Many don't understand the difference between "good" and "bad" debt (see: "Debt Gets A New Rep"). The wise use of debt is an investment in the future--an educational loan that will increase earning power or a mortgage for a house that will increase in value in over time. Bad debt is used to finance a lifestyle that wouldn't exist without the extravagant use of credit cards.

The study found that "Empty Nesters," or those aged 45-64 years old, are generally thrifty in personal matters but are willing to go into debt to provide greater material wealth to their children than they enjoyed when young.

Empty Nesters freely admit that they've failed to instill thrift and self-discipline in their children and blame themselves for their lack of "tough love" in fiscal matters.

Seniors, or those aged 65 and above, were influenced by economic scarcity and sacrifice fostered by the Great Depression and World War II. Seniors see wise use of credit as a sign of strong character and lament the "democratization" of credit that has made debt available to large numbers of people.

College students, or those aged 17 to 27, don't embrace the traditional financial values of their parents and routinely borrow heavily to cover educational expenses. Manning says this leads to a "cognitive disconnect" for students between the limits of their current income and what for them constitutes a desirable and affordable lifestyle. (See: "Ten Financial Tips For June's College Graduates" and "13 Tips For College Kids.")

Most students haven't learned the basics of personal finance at home or in high school or college and therefore don't understand the long-term effect of their heavy reliance on credit, including its effect on credit scores and how this affects the cost of borrowing for a house or a car. (See: "Teaching Kids About Money," "Deciphering A Credit Report" and "Get Your Free Credit Report Now.")

Young Singles, or those under 35, enter the job market with higher levels of student and consumer debt than previous generations, the survey found. They generally resist efforts to live within a budget and often fret about "competitive consumption" to maintain their status. For many, this means piling up more debt.

People in this age group typically put aside plans to save for a rainy day to scrape together the down payment for a house. Many see buying a home as a nearly foolproof investment and therefore don't make long-term financial plans for their retirement or their children's education.

Young families, or those under 35, often use debt to fulfill immediate needs, the survey found. Many see spending beyond one's means as an "entitlement" for hard work and a stressful life. There's also pressure to provide their children with the latest clothes and gizmos simply because it's expected--the classic "keeping up with the Jonses" syndrome. Young families know the importance of budgeting and spending guidelines, but generally take no steps to cut costs and live within a budget.

Mature families, or those aged 45-64, know about budgeting and the danger of consumer debt, but are willing to get out the credit card to provide their teenagers with what they see as a "socially expected" level of material goods. The result isn't what the parents planned.

"The resistance to fiscal discipline as it relates to their children's consumption behavior illuminates how middle-income families are unwittingly fostering an inter-generational cycle of consumer debt dependence," Manning concluded in the study. "It perpetuates a financial strain for parents into their retirement years as well as unhealthy debt management practices and behaviors for the next generation, placing a financial burden on children who must now finance more of their own educations and incur large amounts of debt during and after graduation."

Surprisingly, many people don't know where to turn for basic personal finance information. Seniors often sit on several hundred thousand dollars of home equity yet some carry large credit card debt because they don't know how to unlock the value of their homes.

There are many financial Web sites that can be used to learn the basics of personal finance, including Lending Tree, a division of IAC Interactive (nasdaq: IACI - news - people ) and major banks such as JPMorgan Chase (nyse: JPM - news - people ), Bank of America (nyse: BAC - news - people ), Citigroup (nyse: C - news - people ) and Wells Fargo (nyse: WFC - news - people ).