The Impoverished Millennials

For years, Americans have always been fervently optimistic about the financial course of their families.  Parents and grandparents were confident that the generations to come would be wealthier and better educated than they were — and for much of American history their optimism was justified by the reality.

Is that true any longer, with the so-called Millennial Generations, which consists of adults under age 35?  A troubling article in the Wall Street Journal indicates that there are disturbing signs that the Millennials are instead on track for lives of financial difficulty.

The article looks at the savings rates of Americans by generation through an analysis of consumer finances and financial accounts.  It finds that, after a brief blip of increased savings during the Great Recession, Millennials now aren’t saving much of anything.  In fact, their generational savings rate is a negative 2% — which means many of them are burning through the savings they accumulated previously, or spending their inheritances.  They are less likely to have any investments or investment accounts, which means they have no cushion to fall back on if they lose their jobs or hit another financial bump in the road.

In short, forget about saving to make a down payment on a house — these young people are hanging on by their fingernails, hoping to make their credit card and student loan payments, and eating into their seed corn savings in order to do so.

Some of this predicament clearly is the product of bad planning and poor personal financial management.  If you’re barely making your credit card payments, maybe you should skip that expensive “destination” bachelorette party with your college pals.  But some of it is larger forces — like a weak job market, student loan debt that is far greater than that carried by prior generations, and flat wage and salary growth.  The fear is that the Millennials will become trapped and never be able to break out of a cycle of debt that leaves them living hand to mouth for most of their adult lives and limits their abilities to buy homes, start families, and ultimately to retire.

It’s not a pretty picture, and we can only begin to perceive what the ripple effects of an impoverished Millennial generation might be for our country and its economy.  Perhaps we should stop worrying so much about senior citizens and start thinking about how to create more opportunities for the younger people who must carry the country forward.

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That Unseemly Campaign Mode

Kish and I watched President Obama’s speech about our response to the depravations of the Islamic State in Iraq and Syria last night.  I think we have to do something about those vicious Islamic terrorists, so I am glad the President has decided to take action.  As for his strategy — well, if it doesn’t work, we can try something else.  The main takeaway is that we’re going to act, once again, in an effort to lead the world to a better place.

The President struck a jarring note at the end of the speech, when he invoked both the 9/11 attack and the economic downturn of 2008 and argued that the United States “is better positioned today to seize the future than any other nation on Earth.”  He added:

“Our technology companies and universities are unmatched. Our manufacturing and auto industries are thriving. Energy independence is closer than it’s been in decades. For all the work that remains, our businesses are in the longest uninterrupted stretch of job creation in our history. Despite all the divisions and discord within our democracy, I see the grit and determination and common goodness of the American people every single day, and that makes me more confident than ever about our country’s future.”

This snippet of happy-talk was dubious — Our universities are great when they are gouging students with outrageous tuitions and producing debt-crippled graduates?  Our auto industries are thriving when GM produces defective cars while living on federal support? — and obviously has nothing to do with ISIS or terrorism.  It came across as unseemly politicking as a mid-term election approaches and thereby detracted from the rest of the speech.  Perhaps the President doesn’t realize it, but when he is addressing national security and describing our strategy to defeat another bloody terrorist group and then veers into campaign mode, he presents himself as focused on internal politics and less than serious about the external mission he is announcing. It’s not a positive juxtaposition.

Today marks another anniversary of 9/11 and, as a result of the President’s speech last night, we will open another front in the long and difficult struggle against terrorism.  The memories of that black day 13 years ago remain raw and painful.  Due respect for 9/11 requires that our leaders continue to focus on our bipartisan, national goal of keeping our country safe from another attack.  When 9/11 is invoked, electioneering should not follow.

When College Graduates Move Back With Their Parents

Last week Gallup released some survey data that deserved more attention than it actually received. The survey indicated that, in the United States, 14 percent of adults aged 24 to 34 live with their parents. What’s more, 51 percent of young adults aged 18 to 23 live with their parents. Put them together, and almost one-third of American adults under the age of 35 live with their parents.

As the Gallup report linked above indicates, there are many potential causes for this phenomenon. Some young adults, for example, may be helping to care for their aging or infirm parents. But deep down, we all know what the real cause is — the job market for young people is terrible, and many college graduates have obtained their diplomas at the price of a huge amount of debt. If you can’t get a job that covers the cost of housing, allows you to service your student loans, and leaves a little money left for living expenses, you don’t really have a choice. Inexorable financial necessity drives the decision.

The reality exposed by the Gallup survey is why so many of us have difficulty accepting the gradual decline in the unemployment rate as real evidence of an improving economy. We all know too many smart, capable, motivated college graduates who have had to move back in with their parents to try to make ends meet while they look for a job. It’s not what they — or their parents — envisioned when then went off to college.

The Gallup piece ends with a paragraph that begins: “A key question is to what extent those living at home are better off or worse off than their contemporaries who are out on their own, and what implications that has for society in general and the economy in particular.” Gallup promises to explore this question in a future report, but I think I can predict the findings — young adults who live with their parents probably eat better but are less satisfied than their friends who have found a job and are living on their own. People want to be independent, and the surest indication of independence is maintaining your own place. Mom’s home-cooked meals are nice and the comforts of home are pleasant, but young people who have to move back into their old rooms to make ends meet have to be frustrated and worried about their careers and their futures.

The Questionable Consequences Of Student Loan Programs

Last year, Americans took out $100 billion in student loans.  This year, the total amount of outstanding student loans will exceed $1 trillion.  Amazingly, Americans now owe more on student loans than they do on credit cards.

The story of federal student loans is one of a well-intentioned program that has produced unintended consequences.  The underlying concept was that a college education has value and that qualified students shouldn’t be deprived of that value simply because they couldn’t afford tuition and boarding costs out of pocket.  Since many members of Congress went to college and enjoyed the experience, this concept wasn’t a hard sell.  And if the funds were loans that would be repaid, and couldn’t be discharged in bankruptcy, what was the risk?

Now, people debate whether student loans and student aid have contributed to the constant increases that have made tuition at most colleges exorbitantly expensive.  (Some, like Education Secretary Arne Duncan, argue that there is no connection, but simple notions of supply and demand dictate that if there is a greater pool of funded applicants — i.e., demand — the price of the service being supplied can be increased.  Does anyone really doubt that if fewer people were going to college, colleges fighting to attract candidates from that shrinking pool would engage in price competition?)  The ready availability of student loans also has led to the proliferation of “for-profit” colleges, on-line programs, and schools that teach students technical skills or the “culinary arts” — in many instances, skills and capabilities that used to be taught by “on-the-job” training at no cost to the person learning the trade.  And how many parents decided to forgo attempting to save for college as their children grew up because they figured a pool of loan money would be available when the time came?

There can be no dispute, however, that for many student-borrowers the decision to finance their higher education through student loans has become an albatross.  Some years ago I sat with some associates at lunch when the topic of student debt came up; one of the associates mentioned, grimly, that on her current payment plan she would pay off her debt when she was in her 50s.  In good times, the payment obligations necessarily restrict the job options that the graduate can consider; if you will owe thousands of dollars a year, you may not be able to afford taking that low-paying, but likely fulfilling, public service job.  In bad economic times, the debt load becomes crushing.  You can’t find good-paying work, and what you can find pays barely enough for food and rent.  You fall behind on your loan payments, late fees get imposed, debt collectors come knocking at your door and that of your co-signing parents, and suddenly you are trapped in a desperate debt death spiral.

Recently I heard one of the Occupy Wall Street protesters interviewed.  She explained that she had received a history degree from a reputable college, and it meant nothing for her in the job market.  How many of the OWS protesters are frustrated recent graduates who see their futures swirling ’round the drain as a result of their student loan debt?  Isn’t it time that we re-examine this program, to see whether our good intentions have simply paved the road to a hellish lifetime of being dunned by debt collectors for a generation of college graduates?