Publication Date
March 2016Author(s)
Terrie Friedline and Allison FreemanThis article tests the association between a savings account and debt in the lives of American young adults during periods of macroeconomic stability and decline and finds that a savings account may help young adults invest in their debt by entering better, healthier credit markets and avoiding riskier ones, especially during bad economic times.
The effects of different types of debt can vary widely: some debt is considered productive by advancing financial health, while other debt can be unproductive, pushing financial health out of reach. A savings account may be associated with young-adult households’ reduced reliance on unproductive debt and their increased access to productive debt that can facilitate wealth building. This article tests the association between a savings account and debt in the lives of American young adults during periods of macroeconomic stability and decline. Owning a savings account in 1996 was associated with a 14 percent decrease ($844) in young-adult households’ accumulated unsecured debt, while closing an account in 2008 was associated with a 12 percent increase ($1,320) in this type of debt. Thus, a savings account may help young adults invest in their debt by entering better, healthier credit markets and protecting them from riskier ones, especially during bad economic times.