Like Parent, Like Child?: The Relationship Between Parental Debt and Young Adult Debt

Abstract

Accumulation of debt is a serious problem faced by young adults as it can place a heavy financial burden on an individual, and the consequences of unsustainable levels of debt can trickle over into other parts of one’s life. Thus, it is important to investigate the factors that may influence an individual’s likelihood of developing debt. Since research indicates that parents are the most important agents of financial socialization for their children, it suggests that children develop their financial habits based upon what they witness their parents do. However, there is not much research available on the relationship between parental debt and subsequent debt habits formed in young adulthood. This paper uses data collected from 25 year-olds in the National Longitudinal Survey of Youth 1997 in three different probit regression models. The models estimate the relationship between parental debt and young adult debt, parental debt and unsustainable debt-to-income ratios, and parental debt and high debt-to-asset ratios. The paper confirms that having parental debt does increase the likelihood of developing debt as a young adult.