A study by Ohio State University has found that the more educated you are, the more likely you are to take on irresponsible levels of debt.
No, they aren’t talking about the student loans you ran up getting that can’t-miss PhD in Etruscan Socio-Linguistics. They’re talking about buying wide screen TVs on your ninth credit card, because that 0% teaser rate was just irresistible.
Apparently people with lots of education tend to believe themselves so capable of paying down debt, they rack it up with less consideration.
The Ohio study found that people with college degrees were more likely than those with only high school educations to pay more than 40% of their monthly income to debt. Forty percent represents a level of debt, the authors claim, at which job loss or a health crisis would likely result in a debt default. Basically, it’s the point at which you long ago should have stopped borrowing, but didn’t.
From the report linked above:
The percentage of Americans who were paying more than 40 percent of their income for debts like mortgages and credit card bills increased from about 17 percent in 1992 to 27 percent in 2008. But college-educated people were more likely than those with high school or less education to be above this 40 percent threshold – considered to be a risky amount of debt for most households. The association between more education and higher debt was true even after taking into account the fact that people with more education tend to have higher incomes.
The research runs counter to the notion that people with less education were more vulnerable to predatory lenders, who sold them loans, mortgages and financial instruments they didn’t understand. Rather, formal education appears to have little to do with one’s tendency to go too far into hock. It seems to suggest that borrowing too much money is an enticement beyond education’s ability to curb.
Or, perhaps that post-graduate degree you’re still paying off didn’t make the fine print of your mortgage application any clearer. You pick.
The full report, which can provoke panic or shadenfreude, depending on your TRW score, is available here.