This week, The Simple Dollar takes a look at Generation Debt, a book that proposes to show why today is a terrible time to be young, from a financial perspective, at least. Is there enough meat on this idea to make an interesting argument, or is this book just blowing in the wind? Let’s find out.
The first portion of the book focuses on the double-pronged attack that adulthood levies on the young: cheap labor or expensive schooling? For many people, this is a terrible choice: they aren’t in the upper crust of students, so schooling is very expensive, but they also don’t have the option of entering the workforce directly and making more than a pittance.
In 1970, a high school graduate didn’t have to go to college to earn a strong-paying job. There were manufacturing jobs available to people with work ethic, jobs on the floors of factories that paid $15-$20 an hour in wages in 1970 dollars. Today, those jobs simply don’t exist, so the only option for an individual to match the wages that their parents could make right out of high school is to go to some sort of post-secondary education, or give up that dream and work an $8 an hour job at Home Depot.
On page 52, Anya hits directly upon one of the major problems with the cost of education right now. According to traditional loan profiles, an average person has a manageable level of non-housing debt if the total debt payment each month is 8% or less of their gross wages. This fits right in with the general home loan model of not exceeding 28% of your gross with housing debt and not exceeding 36% of your gross in total debt, the difference of which is that magical 8%.
In 2000, 39% of graduating college students left school with unmanageable debt as defined by that criteria. Furthermore, 59% of college graduates in a 2002 poll indicated that their student debt is a major obstacle in their financial life. In short, education is breaking the back of our children. Admittedly, I’m no different: my student loan and credit card debt upon my college graduation had minimum payments that pushed me into the unmanageable debt category.
There’s another factor that makes this problem even worse, and that is the fact that young people entering the workforce have some pretty high expectations thrust upon them. Many of their parents and grandparents never had to face this situation. They left high school and were either able to start earning immediately, or were able to take advantage of relatively inexpensive higher education (the increase in education costs has far outstripped inflation since 1970). Neither formula works any more.
Thus, young people who cannot pull off this miracle are often seen as failures in the eyes of their parents and grandparents who look back upon their own experiences and recall only easy successes. They remember buying their own home at age twenty five and thus are appalled at the “laziness” of their children when they can’t buy a home at age thirty.
So what’s a young person to do when dealt a hand like this? The obvious answer is debt, debt, debt – and it’s one that is suffocating many young people.
Tomorrow, I’ll look at how the book addresses some of the greater societal changes that have adversely affected Generation Debt.
Generation Debt is the fourteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.