2019/06/17

Generation Screwed

Student Debt

Or more accurately, generations, plural, though this bleak Zero Hedge article only mentions Millennials.
“There was a great deal of interest [in millennials], but there wasn’t as much due diligence around that group," she said. "We’ve generalized them as a certain type of person, [but] the reality is the rubber is meeting the road. Companies are starting to understand, 'Wow, we’re not getting the ROI we thought we might’.”
It's a mystery.

Millennial net worth

But now that millennials have been part of the labor market for over a decade, the sad reality of their buying power has hit potential sellers like a ton of bricks. Spending, per se, isn't the issue: Millennials spend about $600 billion a year and are on track to spend $1.4 trillion by 2020, according to Accenture data. The problem is that they are saddled with large and unavoidable expenses that reduce their overall purchasing  power. These expenses primarily include housing and student debt.
The home ownership rate for Americans aged 25-34 was 37% — 8% below the rates for Gen Xers and baby boomers, according to the Urban Institute, in 2015. Ron Cohen, VP of product strategy for consumer analysis firm Claritas said: "Of the 13.5% of millennials that are heads of households, only around 50% of them own their own homes. The other half are renters—many likely with roommates to share rent and other expenses."
Astute readers will note that the Urban Institute defined Americans aged 25-34 years old in 2015 as Millennials. However, that range includes on the first year of the Millennial generation. People aged 26-34 as of 2015 are really members of Generation Y.

I concur with Zero Hedge that Millennials are financially screwed. However, if you buck the nonsensical trend of lumping the Millennial Generation in with Generation Y, the latter are shown to be much worse of than Millennials in regard to financial metrics such as home ownership.

Ys are in many ways another Silent Generation, in that they're suffering silently while the media myopically focus on Baby Boomers and Millennials.

We're coming up on the third generation to enter the workforce saddled with unserviceable debt while facing stagnant wages and grim asset accumulation prospects. This type of situation is what's known to historians as a powder keg.

The powers that be would be well-advised to stop playing with matches.

16 comments:

  1. My first degree is in economics, and one of the most fundamental things in that field is cost-benefit analysis. Because of that, I would recommend against college unless the credential of a degree--or field-specific knowledge that you cannot get anywhere else--is required for your career.

    At least until academia is recovered from the wicked and the trivium and other arts as good culture are taught once again. Then this can be revisited.

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    1. Agreed. A tradesman job is very honourable and in high demand.

      xavier

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  2. Interesting. Couple thoughts:

    - this is also the third generation in which stable, two-parent homes are mocked as 'Leave it to Beaver' fantasies, such that huge %s of kids not only don't grow up in one, but think having a mom and dad married and cooperating in the support of the household is some kind of a joke. Yet marriage and family have long been the top motivators for working hard and buying a house. If you aren't married, or don't think you'll ever get married and stay married and raise kids, what's the point of paying down debt and owning a home?
    - long wondered: when Boomers start to go en masse to meet their Maker, who are they leaving their houses and assets to? Their 2.1 kids? Might be a lot of surprise liquidity for some people at least over the next 10-20 years.
    - if we weren't subsidizing the banks through manipulating mortgage rates, the cost of housing would be lower; apart from that, as demand drops, so should prices (demand in the economic sense of wanting and having the money to pay).
    - same goes for colleges - prices are high because we subsidize the hell out of colleges (colleges get the $$; students get the debt - IOW, it's not the students getting subsidized). If that judgement against Oberlin holds and they are indeed driven into bankruptcy, here's hoping it's the first domino and the whole monster that is post-secondary education comes crumbling down. The reality is that education should be cheap: even today, you could hire expert tutors in any subject taught in college for a fraction of the cost of the whole college ride. Once you dump the 6-figure diversity officers and 80% of the remaining bureaucracy, and the superfluous physical plant, what's to pay for that takes, say, more than $20-$30K/yr?

    Not really sure about causes versus effects here, simply speculating.

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    1. Definitely, the primary motivation regarding marriage and debt is a desire for "independence", meaning as little commitment as possible. But it adds up to a heck of a lot of financial peer pressure in the end. How many more couples would be comfortable with raising children if breadwinners were a thing?

      The college thing, agreed, is just a matter of recognizing the emperor's nakedness, finding people who've bought solid outfits from the thrift store, and waiting out the financial hangover. Definitely the least vicious-circle-y of the lot.

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    2. The marriage crisis dwarfs the housing crisis. Drastic action is required to save the patient at this point. We're talking outlawing no-fault divorce, abortion, and artificial contraception while gutting the corrupt family court system. No one who matters is even willing to discuss these steps, let alone take them, so buckle up for a bumpy ride.

      If self-congratulatory puff pieces in the online rags and anecdotes from older Gen Xers are any indication, Boomers are being propagandized to blow all their assets on cruises and shopping sprees with the deliberate aim of leaving their heirs nothing. Some in the target demographic are publicly announcing the propaganda worked on them.

      Taxation is destruction, but subsidies are slave yokes. The schools--especially Catholic schools--sold themselves into bondage when they bellied up to the government trough.

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    3. @Joseph The beating black heart at the center of this rotten system is the Federal Reserve. The fake money and fake interest rates lead to fake prices, fake colleges, and fake degrees. Even the grades are fake: the intern at my office reported that her class's GPA is something like 90%.

      Catholics are well-positioned to lead the "End the Fed" movement. I'd argue that fiat money not backed by gold (or physical work more generally) violates the Seventh Commandment, since it operates as a giant wealth transfer mechanism. The Catechism says that depriving a worker of his wages is a sin that cries out to Heaven for vengeance. What, then, should we think of inflation, which steals especially from the asset-poor wage worker?

      Satan, as the Prince of Lies, would approve of this duplicitous monetary system.

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    4. Joseph and Brian,

      Another important reform would be for the universities endowment funds to subsidize tuition etc under scholarships or grants. They can afford it and the federal and state governments can get out.
      Another reform I'd like to see is the loosening of accreditation and break the university monopoly
      xavier

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  4. Do any of you budget? A written budget where every dollar has a job (even the dollars that go to miscellaneous stuff in a "stuff" category)?

    My working theory is that budgeting:
    -helps Boomers become wealthy
    -helps GenX get ahead, maybe pay off their house
    -keeps GenY even/slightly ahead/no further loans, yet debts get paid off slowly if at all
    -helps Millennials from falling further and further behind, but they mostly tread water. Or accumulate debt slower than they would without a budget
    -sorry Zoomers, you'll watch your purchasing power crater no matter what you do

    I'd like to know what anyone's experience is with budgeting. I hope I'm wrong and budgeting is the key for everyone becoming wealthy...

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    1. From my experience it's Boomers and Millennials that have issues following any sort of budget. They have poor impulse control and blow savings in a heartbeat if they're not kept in check.

      The Greats knew how to budget the best. I try to keep them in mind when doing so.

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    2. I used to budget. Worked great for years. My mistake was buying into the bullshit idea that student loan debt is an "investment". That's only true if life never throws you a knuckleball, because no emergency fund is going to save you when e.g. your career evaporates right as you're finishing college and you're saddled with an extra rent payment worth of debt every month.

      Now I basically have a small mortgage worth of undischargeable debt with zip to show for it as I am starting career number four, which has even less to do with my education than career number three did.

      I'll never go into debt again once I'm done paying this off. I'd rather live illegally in a tent on a few acres of undeveloped land with no well, driving a 30 year old shitbox I need to fix every month---but which I own free and clear---than take out another loan for anything.

      I'm gen Y, for reference.

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    3. @John D Alden: Can confirm. We've had nearly identical experiences on the education/career front.

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    4. Gen Y also. Budgeting helps to tread water as I embark on career number 5.

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    5. Thanks for your responses everyone. I hope everyone's Nth career works out better for you than the previous ones.

      It's hard to encourage a Zoomer to attend college, even for something like engineering or medicine. After all, TPTB will just import Dr. Quickimart and Senora DeathBridge and Affirmative Action will push you out of the job market.

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