Student Loans, Credit Cards Pose Debt Threat to the Young.

A combination of escalating student loan and credit-card debt, rising costs, slow wage growth and underemployment have accumulated debt "unmatched in modern history" undermining the economic security and financial health of young Americans aged 18-34, according to a new study.

The report, "Generation Broke: The Growth of Debt Among Younger Americans," was released by Demos, a nonpartisan, public policy group, based on the Federal Reserve's Survey of Consumer Finances as well as dozens of other sources.

It found that between 1992 and 2001 average credit-card debt among young adults aged 25-34, the so-called Generation-X, increased by 55% to $4,088, with the average indebted young-adult household spending almost 25% of every dollar earned on debt payments. "This report should set off alarm bells for every American," said director of the economic opportunity program at Demos and lead author of the report, Tamara Draut.

"This is an age when you set credit and finance benchmarks for the rest of your life. Young adults starting off in the red will find that it impacts their financial security for years to come."

Among young-adult households with incomes below $50,000, nearly one in five with credit-card debt spends over 40% of their income to service debt, including mortgages and student loans.

This age group has the second-highest rate of bankruptcy - just after those aged 35 to 44. Between 1991 and 2001 the bankruptcy rate increased, indicating that Gen-X is more likely to file bankruptcy than were young baby boomers at that age.The youngest adult households aged 18-24, the so-called Generation-Y, spend nearly 30 cents of every dollar earned servicing debt, twice the amount spent on average in 1992 increasing credit-card debt among this group by 104% during this same period up to $2,985.

After the tech bubble burst of the late 1990s, Ms. Draut ...