Some kinds of debt, such as home mortgages and education loans, are linked to better child wellbeing while unsecured debt like credit card balances and overdue medical bills are tied to increasing behavior problems, according to a US 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 told Reuters.
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.
They 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 wrote in ‘Pediatrics’.
As overall debt increased, so did a child’s behavioral problems, but this varied by the 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.
Thresholds
“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 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,” said Patricia Drentea of the University of Alabama at Birmingham, who was not part of the study.
“These findings aren’t telling us that if you take out a mortgage your children will be happier,” Dr. John Gathergood, an economist at the University of Nottingham in the UK. But the type of families that take out mortgage debts compared with the type of families that take out expensive credit cards or loans is important for a child’s wellbeing, he said.
