A new study commissioned by LendingTree, an online lending exchange, finds that living with increasingly higher levels of debt has become an accepted state of affairs in America, an inevitable and permanent feature of daily life. And since the social stigma of high levels of debt has largely evaporated, many more consumers are willing to go into debt or take on additional levels, depending upon what stage of life they are in.

For example, families are saving less for college and relying more heavily on student loans, which contributes to higher debt levels among graduates, who are entering young adulthood with more debt-both student and consumer-than previous generations. The average student graduates from college with $22,500 in student loans and credit-card debt, including $19,500 in loans, according to Cambridge Credit Counseling Corp., a debt-management firm. Moreover, 65 percent of college students carry credit-card debt, with more than 50 percent charging their cards to the limit some or most of the time, according to a recent survey funded by Oppenheimer Funds and conducted by Smith College.

In addition, the LendingTree study found that home ownership is a more important piece of the overall financial equation and that many consumers don't do long-term financial planning or even have a personal budget. Another interesting finding: Many people attribute their willingness to go into debt-or to take on additional levels of debt-directly to a dramatic increase in spending on children and grandchildren.

The LendingTree study, written by University of Rochester Institute of Technology economist and professor of finance Robert Manning, the author of Credit Card Nation, examines debt among college students, young singles, young families, mature families, empty nesters and seniors. "The findings are extraordinary," says Manning. "People who live on debt have to learn to reduce their standard of living. And people have to learn to become savvy investors even when they are in debt. ...Consumers' knowledge base has lagged the information out there. Individuals in this economy have to become self-empowered and learn the skills that will become most important to them."

Americans, he says, are increasingly financing a higher standard of living-one they probably can't afford-with higher credit-card and installment loans and funds that should be going toward personal savings. "People are being told, 'It's okay. You can afford it. You deserve it. You work hard,'" says Manning. "There's a cognitive disconnect about the understanding of the standard of living they can afford based on the standard of living they want. The whole allure of the credit-card nation is that people don't feel the need to plan, yet there's more pressure for them to do so."

Manning traces the attitude shift to several factors, including the rising price of housing and a love affair with credit cards. "People are basically following the rules of the game set by banks," says Manning. "If you can make your minimum payments, you're okay. But is six years at this minimum payment a good debt? Not really." Moreover, he says, in the U.S., an average household's share of discretionary income allocated to housing jumped from 46.2 percent in 1979 to 85 percent in 2003. And that was while the national household savings rate dipped to negative 0.6 percent in the second quarter of 2005, from 8.6 percent in 1989, according to the study.

"The presumption is that consumers are rational actors, but this is not rational response," says Manning. "It's the most irrational in the world." For example, he says Americans should have had the least amount of debt in 2001, when the federal funds rate was at one percent and money was cheap. "But instead, we've seen sharply rising indebtedness since then," he says. "They are going to push themselves into financial insolvency."

Indeed, at the end of 2005, U.S. consumers had $2.2 trillion in debt, including revolving credit-card accounts and student loans, up 22 percent from 2004, when it hit $1.8 trillion. "People are also living with a false sense of financial security, due to the amount of credit extended," says Chris Viale, president of Consumer Credit Counseling, who notes that the average American has $14,000 in credit-card debt and carries an average debt load of $300 a month to pay it off. Moreover, 35 million households-or one out of five-are either over their limit or behind on payments to those accounts, he says. "They may be comfortable only because it seems the norm," he warns. "But it's not healthy at all. There is a false sense of security due to the amount of credit extended. People are living beyond their means. They don't understand the magnitude of the problem. It's so easy to get credit, and if there's any type of financial setback, they'll live off credit. We hear it over and over again."

And now that credit-card companies are mandated to require consumers pay four percent instead of two percent of balances as a minimum monthly payment, Americans may find themselves unable to keep up, warns Viale. "And because of the universal default rate, if you're late on one card, all other eight cards have the right to raise your rates," he says. As Professor Manning would say, welcome to the credit-card nation. (c) 2006 U.S. Banker and SourceMedia, Inc. All Rights Reserved. http://www.us-banker.com http://www.sourcemedia.com

This story ran on on February, 2006.