Millennials reveal rising source of debt, but it's not what you think

Americans have a lot of debt, it’s become a way of life for many, but while inflation and student loans remain key factors in what’s owed, something else is a multi-generational burden.

Two separate reports on debt, released this week, have highlighted how medical costs are impacting the finances of older people, but also millions from core working age Millennials.

While paying down the cost of their college education has dropped out of the top three, the Northwestern Mutual Planning & Progress Study for 2025 found, for the first time in its history, that medical debt has taken its place (8%), beaten only by car loans (13%) and credit cards (31%).

For Millennials, 11% cited their medical bills, compared to 8% of Gen Zs and Gen Xers, and 6% of Boomers.

"More Millennials are at an age when they've been paying down college debt but are starting to accrue medical debt. We've also seen growing urgency toward paying down debt in recent years – including student loans. And of course, many may have benefitted from recent college loan forgiveness initiatives,” said John Roberts, chief field officer at Northwestern Mutual.  “The emergence of medical debt demonstrates the importance of insurance as part of a holistic financial plan for financial security. A pronounced illness or injury can have a sudden and significant impact on a person's financial life – including younger generations.”

But this does not perhaps tell the whole story of the cost of health care, because a separate study from the AARP reveals that among the growing cohort of older Americans with credit card debt, 50% cited medical bills as a factor (mostly dental, prescription drugs, and vision care), behind everyday expenses, vehicle costs, and housing costs.

The study of over 50s also found that 47% of those with credit card debt use them to pay for basic living expenses that they otherwise cannot afford. A similar share say managing card debt means it’s harder to save for the future, and 43% are very worried about how long it will take to pay off their debt.

While retirees use several tools to insulate themselves from unexpected medical expenses, they remain vulnerable to the costs associated with long-term care, according to a recent analysis by the Center for Retirement Research at Boston College.

INFLATION BATTLE

The ongoing battle with inflation continues with the Northwestern Mutual study finding this as the top financial concern across age groups.

More than half of respondents say income is not growing fast enough to offset rising prices, even those with at least $1 million of investable assets. Only 19% of millionaires said their income growth is outpacing inflation.

"Houses, kids, groceries and gas: all of these higher prices are having an outsized impact on people's budgets, and most Americans believe these challenges will grow in 2025," explained Roberts. "Economists often talk about how inflation is 'sticky,' meaning it takes time to reverse a broad economic cycle. Our study findings show that inflation is sticky at the individual level too – it remains top of mind for people, and they get reminded of it often in their daily lives. Americans can adapt, but it requires financial planning and acting intentionally now, to enjoy today without sacrificing tomorrow's goals."