5 Debt Facts That Young Adults Can Use Right Now

Young adults have to make a lot of decisions

The trouble with being a young adult is that you're expected to make some of the most important decisions of your life during a time that your brain has yet to fully develop the capacity for fully understanding long-term consequences of your actions. This is bad news for finances at that age, but an understanding of the Good, the Bad and the Ugly of debt for young adults can point them in the right direction.

The Good

You Can Have a Powerful Impact on Your Future Finances

It's all a matter of time and compound interest. Money saved early is worth more than money saved later. A 19-year-old college freshman who saved $100 a month between 19 and 24 would graduate with $7,200, assuming average returns of 7% a year. At the same rate, that $7,200 would be worth $107,000 upon retiring at 65. Putting $100 worth of expenses on credit cards at the current average interest of 17.42 percent would mean $9,600 in debt upon graduation. If saved, that would have become $143,000 by retirement. That's a difference of a quarter million dollars.

Student loans are more available as tuition costs have risen

Student Loans are Available in Abundance

And it's a good thing, too. Tuition costs nationwide rose 596% between 1980 and 2011. During the same period, student loans went from representing about 20% of how students paid tuition, to being responsible for 50% of student financial support. The availability of student loans makes it possible for young adults to make an investment in their future at a time that they're less likely to have the distracting responsibilities of family or career.

The Bad

Increased earnings with education

An Education Doesn't Necessarily Mean a Better Job -- So Borrow Like It's an Investment

Earnings are still higher overall for those with a degree -- about $250,000 over the course of a career according to a Georgetown University report on education and the workforce. However, this increase isn't consistent across all majors. STEM (science, technology, engineering and math) degrees result in higher paying jobs, while liberal arts, education and social work degrees earn little more than a high school diploma. Young adults who want to borrow money to pay for a degree should consider the value of the investment before committing.

Live on a Budget From Day One

According to the American Dream Education Campaign, young adults overwhelmingly report beginning adult life unprepared for the complexity of personal finances. As costs rise and the economy puts adults with better resumes in the jobs previously held by college students, this has led to a 16% increase in student loan debt and a 24% increase in credit card balances upon graduation, according to a report by the National Endowment for Financial Education. Living on a budget helps to avoid the kind of debt that limits opportunities upon graduation.

The Ugly

students are targeted by credit card companies

Credit Card Companies Know Your Weaknesses

Teens have a long life of payments ahead of them, and aren't developmentally capable of making smart long-term decisions -- which is why the U.S. Public Interest Research Group raised concern that 80% of young adult students had received direct mail from credit card companies, and 22% received four phone calls per month offering credit cards. Although the CARD act of 2009 aimed to curb that kind of predatory advertising, banks and credit card companies still pay colleges for access to student contact information and physical access to campus in order to continue targeting young adults.

Whether you're a young adult or the parent of a young adult, understanding how debt works can make a vast difference in future happiness and financial welfare. Though only a few high schools offer the subject as a regular class, resources abound online. They're aimed for established adults -- often as a requirement for the process of bankruptcy -- but the information is just as important for those just starting out.