Some kinds of debt, such as home mortgages and education loans, are linked to better child well-being while unsecured debt like credit card balances and overdue medical bills are tied to increasing behavior problems, according to a U.S. study.
"Our findings underscore that debt can be both positive and negative, depending on what it is being used for and the price or cost at which it is borrowed, in terms of interest rates, fees, and the like," said lead author Lawrence M. Berger of the Institute for Research on Poverty at the University of Wisconsin-Madison.
"It makes sense that taking on debt for specific investments can be beneficial‚" for example, taking on student loans to go to college or a mortgage to buy a home may lead to better social and economic outcomes, whereas taking on unsecured debt, such as credit card debt or payday loans, that is not tied to such investments may not," Berger said by e-mail.
The researchers looked at data from a national sample of participants recruited as children beginning in 1979, and the children of those subjects, who started to be included in 1986. The whole cohort was followed through 2008 for the new study.
Researchers focused on 9,011 children and their mothers, who were interviewed every two years about their child’s problem behaviors. The study team also divided total parental debt into four categories: home, education, auto and unsecured—including credit cards, money owed to individuals or banks and medical debt.
Families with debt tended to be more educated, with higher academic aptitude and self-esteem. Parents were also more often married and owners of their own homes than those without debt, likely because more advantaged people have greater access to credit and are more likely to take on debt, the authors write in Pediatrics.
As overall debt increased, so did a child’s behavioral problems, but this varied by type of debt. Higher levels of home mortgage and education debt were tied to fewer behavioral problems, while increases in unsecured debt were tied to more behavioral problems.
"What is not clear from our work is whether there are particular thresholds, either in absolute terms or relative to income or earnings at which we should particularly worry about the influence of debt on child development," Berger said.
"I think parents can be careful not to discuss financial hardship in front of their children," and not to have frequent fights in front of children, said Patricia Drentea of the University of Alabama at Birmingham, who was not part of the new study.
"These findings aren’t telling us that if you take out a mortgage your children will be happier," Dr. John Gather good, an economist at the University of Nottingham in the U.K., said by e-mail.
But something about the type of families that take out mortgage debt compared with the type of families that take out expensive credit cards or loans is important for a child’s wellbeing, Gathergood told Reuters Health.
Collection efforts are more rigorous for unsecured debts, and may be more stressful, said Heikki Hiilamo, a social policy researcher at the University of Helsinki in Finland, who also was not part of the new study.
But this is one of the first studies on the topic of parental debt and child wellbeing, so it should be investigated further, he told Reuters Health.
"It may be common to think about those struggling with (particularly unsecured) debt as having made poor financial decisions or having over-spent," Berger said. "However, many of those with credit card debt, medical debt, and payday loans took on such debt because they lacked other financial alternatives."
Wages have stagnated or decreased for several decades, particularly at the low-end of the labor market, while credit has become more readily available in large part due to financial deregulatory policies, he said.
"Thus, many individuals and families are taking on debt to simply stay afloat," he said. "Although not addressed by our analyses, financial counseling and education may be beneficial in the short-term by helping individuals and families craft strategies for reducing the cost of debt and repaying it as efficiently as possible once taken on."