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Poor Little Youngsters

By JLP | October 16, 2009

Here are the opening paragraphs to an article I saw on MSN today:

A new survey conducted for the AFL-CIO suggests many American workers under 35 can’t manage the basic financial building blocks of an adult life. The union calls the past 10 years a “lost decade” for these young people, during which many fell short on getting their own places, finding stable jobs and saving money for emergencies.

About 31% of survey respondents said they made enough money to pay their bills and set some money aside, but 70% said they did not have enough money saved to cover two months’ worth of living expenses. Parents of these young workers know how far they are from making it on their own; one-third are living with their folks.

I thought this quote was kind of funny:

…Jannon says the results should not be interpreted as laziness. “Young people are really yearning to move out on their own to start their adult lives,” she says. “(But) they can’t find the type of work that supports an adult life.”

I think part of the problem is that we often look at luxuries as necessities and don’t want to make the tough choices of prioritizing our needs and wants.

Lest you think I’m full of hot air, let me give you some examples of what my wife and I did in order to get ahead.

1. We bought a house we could AFFORD! We were told by the mortgage broker that we could “afford” a lot bigger note than what we wanted. But, we knew the math and how the note would affect our finances. We also knew that the mortgage broker’s commission was based on the size of our loan. We went with what we could afford.

2. We went YEARS without fixing up our house. We did little things along the way, but for the most part, we only spent money on things that HAD to be fixed like a new roof and plumbing. It was a couple of years before we even had money to start painting and stuff like that. We could have painted but we wanted to do more than that so we held off until we could afford to do what we wanted to do. We have been in our house ten years now and still aren’t completely finished making it the house we want. We’ll get there though.

3. We went without cable for years. We did have internet service but it was years before we decided to get cable.

4. We had barebones cellphone service for years. Just within the last year or so have we upgraded our cellphone service and plan.

5. We didn’t spend a lot on furniture until we made sure we could afford it.

6. We put away the maximum amount we could afford to put into the 401(k). When my wife first became eligible for the 401(k), we put in the maximum amount. We weren’t able to keep up that pace when our family started growing but we always put in enough to at least get the full match from her employer.

7. We didn’t buy fancy cars. We did buy a new Civic, a one-year old new Ford Contour, and a new Buick Rendezvous (in 2002 and I’m still driving it today). I see young people driving around in BMWs and big trucks and think about all that money they are just throwing away.

8. We racked up some stupid debt but we made an effort to pay it off as soon as possible. We sacrificed to get our credit cards and student loans paid off. Our only debt right now is our house and a Honda Civic note that will pay off in May.

9. We didn’t spend lots of money on clothes. We bought cheap stuff or we shopped end-of-season clearances.

10. We didn’t spend a lot on trips and stuff like that.

Now we are in a pretty good spot. Our monthly cashflow is nice and we are finding ourselves able to pay cash for nearly all of our purchases unless we take advantage of a 0% offer or something like that.

I think young people need to realize that they shouldn’t expect to have it all as soon as they graduate from college. Sure, we all want things, but that doesn’t mean we deserve them or should go out and get them even though we can’t afford them.

I’m not trying to preach. I’m just stating things as I see them.

Topics: Getting Going | 26 Comments »


26 Responses to “Poor Little Youngsters”

  1. BG Says:
    October 16th, 2009 at 1:21 pm

    Excellent points: youngsters need to understand that older people have worked decades to get what they have. Start small & climb the ladder responsibly. As Dave Ramsey would say: “act your wage”.

  2. Terry Says:
    October 16th, 2009 at 1:25 pm

    Here in Portland, there are many thousands of young, underemployed college graduates working at low-ende jobs that pay $8-$10 per hour.

    The longer they fester in underemployment, the less employers are interested in hiring them for desirable jobs, the less likely they are to buy homes, and the less likely they are to get ahead financially.

    And now with millions of baby boomers delaying or coming out of retirement, we can expect a vast backlog in the promotion and hiring pipelines for younger workers.

    So I expect it to get worse, not better.

  3. Terry Says:
    October 16th, 2009 at 1:28 pm

    psst…BG…with millions of boomers delaying or coming out of retirement, you can kiss goodbye – until middle age perhaps – the promotion pipeline for younger workers.

  4. Evan Says:
    October 16th, 2009 at 2:17 pm

    I hate this generational thing. I don’t believe one generation was better than another at saving/spending etc.

    JLP – How many 40 year olds (congrats btw) do you know that didn’t do all the right things that you did? Do you know any 25 years that are doing the right things?

    I think it is less of a generation thing than it is older people telling younger people they don’t know what they are doing…and that has been done since the beginning of time

  5. Yana Says:
    October 16th, 2009 at 3:48 pm

    I agree with you and your ways, but many people are just not inclined that way. As far as the age thing, maybe it’s the way things are these days – but it looks to me like it might be an inborn quality or temperament, when it comes to the way people manage money. I don’t see older people changing their ways, after many years of disregard for the value of money. Frugality and saving have always been part of my personality. I’ve heard it said that if people are poor enough, they’ll be more careful with what they have, but I haven’t seen that as a reality. Along with that is “easy come, easy go”, but that’s not always true either. Maybe it is, if one has parents who dispense funds (love?) without end, but I think it’s just an individual thing. One that defines the person.

  6. Lucas Says:
    October 16th, 2009 at 4:02 pm

    JLP,

    You seem to be irrationally focused on personal behavior & responsibility and fail to realize that the entire game has changed. Incomes are flat since the 1970’s, while productivity (and corporate profits) have soared.

    Take a moment to view Dr. Richard Wolff’s piece on this issue:

    http://www.rdwolff.com/content/capitalism-hits-fan-movie

    Don’t forget that our generation is paying billions into Medicare (a relatively ‘new’ program) for our parent’s health care and many of us cannot get private insurance (at any cost). The whole game has changed my friend. It’s not as simple as you believe.

  7. Ron Says:
    October 16th, 2009 at 4:39 pm

    MY income hasn’t been flat. I’ve gone from a $12,000/yr job in my early 20’s to mid 6 figures in my early 40’s today. The crybaby whiny attitude that “things just aren’t fair anymore” has to end. The game has never been the same for any generation.

    Personal behavior and responsibility are the ONLY things that matter. The government doesn’t care two whits about you. And you can form your own corporation, work it like there’s no tomorrow, and reap the profits yourself (I did). Why all this narcissistic navel gazing and crying that “life isn’t fair” for a certain generation? Get up off the couch, get a job, sacrifice today, and when you’re in your 40’s or 50’s you can live like your parents who are in their 60’s. Not when you’re in your 20’s. Sheesh.

    The price of success has to be paid up front.

  8. Dan Says:
    October 16th, 2009 at 7:42 pm

    Ron, High five.
    Good job.

  9. Lindsay Downs Says:
    October 16th, 2009 at 10:27 pm

    So basically what this article is saying is that people don’t know how to sacrifice anymore. They don’t choose to put off spending until they can actually afford something-instead, they will get what they want however it can be worked out.

    This is NOT fun. There’s stuff I want – even stuff I could probably make a good case for “needing”. But I’m willing to sacrifice #1: to make up for the mistakes we made earlier, and #2: to get ahead. It’s hard, but thats what being an adult means.

  10. Financial Samurai Says:
    October 17th, 2009 at 12:54 am

    Some people just want to live the good life NOW. It’s rational that they overspend now, and hurt later. But, people should know that, and it is what it is. Human nature.

    Younger folks have their life ahead of them to make money. i wouldn’t worry about them.

  11. kenyantykoon Says:
    October 17th, 2009 at 6:02 am

    but i think that the mass media is mostly to blame for the predicament that the young college students are in. i am in my early twenties and i know all too well how i have to fight with myself not to buy stuff that i will not need so as to keep up with my stylish friends. it feels very strange talking about a personal finance book that you have just finished reading when everybody else is ranting about how good that(much hyped up) party was. The media tempts young people with wanting too many things too fast and since we are young and mostly stupid and naive, we easily fall into this trap live a life of debt as the credit card companies make obscene profits. i am in no way exonerating my peers but i think that there should be more financial education in the main steam media

  12. Bodine Says:
    October 17th, 2009 at 9:00 am

    No reason for worry– unreasonable expectations by so many young adults are a self-correcting problem.

    When easy money, cushy jobs, and parental safety-net vanish (as is rapidly happening now)… economic reality quickly educates people on what lifestyle & standard of living they can actually afford.

    Of course, it’s not all their fault … :

    The mainstream media, public schools, and politicians have deceived them since birth about basic economics… teaching that all you need is strong self-esteem and complete faith in government leaders & officials to reap the unlimited material abundance in the world — thus forging a comfortable fulfilled life with minimum effort.

    No problem if one should falter in life thru bad choices or indolence — the government will provide for all your needs from cradle to grave.

    Reality bites.

  13. Stacey Says:
    October 17th, 2009 at 11:56 am

    Lots to discuss and disagree about in these postings. Is this situation generational? More likely than not and here’s why I think so:
    1. These 20-30 somethings grew up in the 80s when conspicuous consumption was erupting, so it surrounded them in their everyday lives w/peers, the media, Nancy Reagan and her china, etc. Could they rise above this constant bombardment? I guess we’re finding this out now. Couple that with 2-parent working families who might not have made the free time to teach the kids about financial concepts/personal responsibility. Now throw in skyrocketing college costs/student loan debt and a less than stellar job market and it’s no surprise there’s no “extra” money. Given all that, I do agree w/JLP about the need for personal sacrifice and the article’s point of “lifestyle creep”–of course it’s human nature to want to “not do without” when your means improves. So combine all the above factors and your result is people who don’t (notice I didn’t say ‘cannot’) make the necessary, difficult financial choices.

  14. Little House Says:
    October 17th, 2009 at 1:42 pm

    I have to comment on this. I am 37 and my husband and I have been financially independent our whole adult lives.

    However, I have a couple of siblings under the age of 30 that still live at home with my two sets of parents (I come from divorced parents who then had more kids). Neither of my siblings have a job right now, and they live on opposite sides of the country. Each of them depend on my parents to help support them, and there has not been any discussion for them to move out and get a job.

    My husband and I have discussed this problem to no end. Considering that each sibling was raised with a separate set of parents, I can’t necessarily blame my parents. It’s not like they were sharing parenting tips.

    I have to agree with #13 Stacey, I think there is something to be said about these two people being born in the early 80’s. They were exposed to mass consumption at a young age and weren’t given much financial guidance. Nor, was a strong work ethic pushed on them.

    In contrast, I was born in the early 70’s and life was a bit harder for my parents financially. I was taught that I had to work hard and earn money to live.

    I’m making a broad generalization here, but I think that financial knowledge, or lack there of, can be somewhat defined by the decade you grew up in.

    Little House

  15. Kirk Kinder Says:
    October 17th, 2009 at 3:20 pm

    I didn’t read the article, but I bet the AFL CIO made the point that they could help the young generation…just pay those union dues, baby.

    This is a bigger global trend that is taking place and will continue to do so. As we ship cheaper products into our country from overseas, we improve the living standards of the manufacturing countries. However, this means many of the better paying, blue collar jobs are disappearing here in the US. So our standard of living will decline. It won’t drop drastically, but it is dropping to the point where younger generations can’t consume as many products as in the past.

    The other killer here is the cheap money we have experienced for the past couple decades thanks to Al and Benny has boosted asset prices to unaffordable levels, namely housing. This too will rectify itself (it has already started), but this trend will continue.

    I still believe that watching ones spending and focusing on saving will bear fruit, but it will not be as easy as it was in the 90s and 00s.

  16. JT Says:
    October 17th, 2009 at 3:36 pm

    I’m in my early 20’s and completely unlike most of my peers. They feel the need to spend money going out, on new cars, and high-priced clothing. They all have iPhones and big screen TVs.

    I don’t own a TV nor do I pay for cable. I just purchased a Hyundai Elantra with 93,000 miles on it (which I hope to get 100,000 more out of). I have never gone into debt for a car. I only use credit cards for the rewards and pay them off every month. The only debt I have is student loans but I choose not to pay them off due to the low interest rate (~2%). I have a substantial (12+ months) of emergency funds.

    I have accomplished all that in two short years after college on my own. My parents are supportive but I never required nor received their assistance. As a matter of fact I help them when it comes to finances. They taught me little to nothing about money. I learned it all on my own.

    The point I’m trying to make is that young people are certainly influenced to live beyond their means. However, that does not have to be the case. The information is out there to help anyone who wants to live within their means.

    I think the whole idea of arguing what is and is not a generational thing is pointless. It does not help anyone either way.

    All that I know is consumers, regardless of age, are starting a major transition to a new attitude. This attitude is one of frugality and it will be here to stay for some time. I always tell people that the future is frugality. You can either accept it now or have it forced upon you later.

  17. Cathy @ Chief Family Officer Says:
    October 17th, 2009 at 4:29 pm

    There’s definitely something to what you’re saying, because I remember having to make a mental adjustment when I was finally on my own to knowing I couldn’t afford the same lifestyle I lived when my parents supported me. I think THAT’s what’s hard to understand, because it’s not expected.

  18. kitty Says:
    October 17th, 2009 at 4:44 pm

    I agree with JLP. Not only that but really young people should think about their future when they go to college. Getting a degree just for the sake of a degree while racking up student loan debt isn’t exactly brilliant.

    I don’t pretend that I didn’t spend money on things I enjoy – back in college I took an $800 student loan and used it as well as some money I saved from my scholarship/work study to go and study for a semester in Italy. I paid it off, by the way, in full with one check a month before the first payment became due. But I saved on other things. I lived with a roommate for a few months after I started working; rented a one bedroom for a few years before buying a one bedroom condo on a rental-to-condo conversion. My first car was used that my parents bought me when I got my MS (I didn’t have a car in college or grad school); my second car was new – an 87 Toyota Camry and the only car which I bought on credit (about 50%). This was right after stock market crash and I didn’t want to sell my investments. A couple of years later, I simply repaid the balance of the loan with a single check. This particular car I drove for many years; the cars after that were new, but they were Civics or Corollas, all bought for cash (three – because I gave one to my parents after their car broke down and totalled another).

    After I transferred to another location (from Dutchess county in NY to much more expensive Westchester) I commuted for 2 years because the prices in Westchester were so high and also because I felt real estate prices were going down. 2 years later I bought a one bedroom condo in Northern Westchester for 25K less than what the prices were 2 years before. With 20% down.

    I do think, thought, that Stacey (#13) has a point. Our upbringing does have a lot to do with it. As much as I like to point out how I (or my parents) grew up in the Soviet Union, had no “financial education” and still were able to use credit cards without carrying balance, this type of upgringing had its advantages. We weren’t used to having a lot of stuff, so we didn’t need that much. A one bedroom apartment may seem like little to Americans, but to somebody who’s grown up with 5 people (me, my parents and maternal grandparents) living in an equivalent of a tiny two bedroom that is smaller in square footage than many an American one bedrooms, this was more than enough. Ditto if you had one dress for the whole of school year. I wasn’t thinking about how this or that person bought a house or a fancy car; I was thinking that my cousins or school friend back in the USSR had a lot less and how lucky I was to have so much. As to my parents – when my mother was a teenager in years after the war, her parents’ salary would run out before the end of the month and they spent the remained eating bread and onions. Hence, my parents learned the value of money. They also weren’t afraid to tell me that mommy had to work for so many hours or days to buy this or that. We had one dress – a uniform – for the whole of school year. Our birthday parties were at someone’s home when parents would cook and a very few friends would come and bring small cheap presents – a book for example was considered a great birthday gift. Dresses for school parties were made by hand. But I think that in many families in the US, parents don’t talk about prices of the items they buy for kids.

    It’s very natural for me to think immediately about what else the same amount of money can buy and how long it takes to save it when I look at the price tag – regardless of how I intend to pay for it with cash or not. I am not even trying – I just look at the price tag and this money has value to me measured in metrics above. This manner of valuing money doesn’t seem that common in the US. But really, how many people would be tempted to spend for example $1000 on a handbag if they automatically think “this is like my rent” or “this is like a new regrigirator”.

    @Terry: “with millions of boomers delaying or coming out of retirement, you can kiss goodbye – until middle age perhaps – the promotion pipeline for younger workers.”
    Maybe in some jobs people are promoted based on years of service, but in many jobs people are promoted on merit. A young talented individual can be promoted ahead of an older one. In my company, a lot of bright young people get promoted very quickly. There are project leaders in their late 20s and there are some baby boomers who do what much younger people tell them to. Not everyone likes to be a manager by the way. Also, older people are a lot more likely to be laid off and have more trouble finding another job.

    Additionally, at least among engineers there have always been what was called in the past “salary compression”. It meant that companies raise starting salaries to attract bright young people much quicker than they increase salaries to existing workers. As a result, it has always beent he case that someone could be hired earning almost as much as someone who’s been working there for years.

  19. David M Says:
    October 17th, 2009 at 6:56 pm

    Great comments JLP!

    My wife and I always joke about all the “necessities that we do not have”. She tell’s me that I’m not American for all my views. For example, we have never had cable and we both have $100 a year prepaid cell phone plans and we have only 1 car that we paid cash for.

    She also tells me I’m “Stupid” for getting a 15 year mortgage and making extra payments on this mortgage.

  20. Save Money Hound Says:
    October 17th, 2009 at 9:59 pm

    It does seem to be that these days people want everything now and a fairly high standard of living.
    It comes at a price if they have to get into high debt to have that standard of living. Surely not a price worth paying?

  21. El Cheapo Says:
    October 18th, 2009 at 2:16 am

    JLP, have you been gainfully employed the past 10 years or so? Just curious. As a 30y/o, I’ve already been through two down cycles in the job market since I graduated college and guess what? Its the younger gen of workers that are being laid off. Fortunately I survived this past downturn, but many of my friends in I/T have not. Tough to get ahead when you’re not working. Throw in an epidemic housing and stock market collapse, for kicks too.

    I’m not one to hide behind excuses either, and I wish some of these financial websites would cover some of the young savers like myself who grind to get ahead. No debt, haven’t taken a dime (or lived with my parents) since age 19, college paid off, 70K liquid and a NW approaching 6-figures. My weaknesses? European cars and travel. But hey, I also want to find a good balance between savings and fun experiences too.

  22. kitty Says:
    October 18th, 2009 at 12:34 pm

    @El Cheapo “Its the younger gen of workers that are being laid off.”

    It’s everyone really, and it often depends on the employer. During the last layoffs in my location, 15% of those over 50 were laid off vs 5% of those under 50. At least this is what someone who was laid off told me: they were given a page of statistics – so many people out of so many in this age group and so on. This actually meant that those under 50 were pretty much safe unless they got “needs improvement” evaluation. Among over 50 crowd it seemed almost random — certainly everyone from bottom 5% was laid off, but so were absolutely brilliant people, everyone left was just as surprised as those laid off.

    I do agree with you about balance between savings and life experiences. I’ve always saved, but I did spend money on things I like – for me it was travel and opera (including voice lessons I took when I was in my late 20s – early 30s).

  23. Ms. MoneyChat Says:
    October 19th, 2009 at 6:43 am

    Well said. I would like to see personal finance become part of our educational curriculum, even if it’s offered as an elective.

  24. Travis Says:
    October 19th, 2009 at 12:30 pm

    I’m 25, and I agree and disagree with a lot that’s been said here.

    I think our generation is the first that has been strikingly different than those before. Think about what used to happen: the majority of people would graduate from high school, get a nice paying job, marry their high school sweetheart, and settle down. By the time you were 25, you had 6 or 7 years of work experience, a house, and maybe a kid or two.

    Now, the 25 year old is just graduating college with mountains of debt and no previous experience of living like an “adult.” As a result, we marry later and are more prone to renting than buying a house and settling down. The current economic environment just exacerbates this problem even more.

    Then again, who says one way is better than the other? Why tie yourself down to a lifetime of mortgage payments when you can stay liquid and rent?

    I think my generation is starting to reject the notion that by your early 20’s you need to be working a 9-5 job just so that you can pay your mortgage, bills, and your kids future tuition. Unfortunately, enjoying life to the fullest now is going to have long-term consequences – but that remains to be seen.

    Baby boomers ought to be worried though: who’s going to buy their house when they sell? who’s going to buy their stocks when they sell?

    It used to be 20 and 30 year olds for the previous generations, but not anymore.

  25. traineeinvestor Says:
    October 20th, 2009 at 1:09 am

    Great post JLP.

    Delayed gratification, living below your means and basic financial common sense seem to be values that far too many people have lost touch with. This comment applies to all generations – the young graduates drving new cars, the baby boomers demanding more handouts and the people in the middle who think that their kids have a right to go to the best private schools. Personally, we made a number of choices designed to give us better financial security in the future: no car, sending our children to a good non-profit school rather than an elite one, etc. Living below our means is not a response to a recession – it’s the habit of a lifetime. Not only have we reaped the financial security but we have the comfort of knowing that the chances of having to downsize of standard of living are a lot less.

    To address the points raised on where job losses have fallen, the stats show that they have been spread accross the age groups. The one demographic that has been hit disproportionately hard is men: http://www.reuters.com/article/companyNewsAndPR/idUSN2150160320090122

  26. JimmyDaGeek Says:
    October 22nd, 2009 at 11:14 am

    Unfortunately, the CCCs have succeeded like the car companies, in convincing everyone, especially college kids, to treat credit cards and credit balances like a utility. That is something you need and something you’re going to pay for the rest of your life.

    I lost the battle with my own college kid who came home with no permanent job, but with a CC balance because he saw no need to save any money from his coop jobs and saw no reason not to buy the cool stuff that he wanted. After all, he could just pay it out, regardless of the interest rate, and regardless how much he owed.

    Delayed gratification? What’s that?!

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