Recently, I had a long email conversation with a reader about 10 years younger than myself. He’s firmly a member of the millennial generation, whereas I’m right on the dividing line between millennials and Generation X.
This reader’s argument centered around the idea that the deck is stacked against millennials far more than other post-World War II generations. His primary reasons are threefold.
First, the real wages of someone with just a high school diploma have dropped in the last 40 years. He pointed to this data showing that the inflation-adjusted wages of a person with a high school diploma have dropped by about 30% since 1970. It’s worth noting that the median wages of a person with a bachelor’s degree have dropped by about 15% over the same period, and the wages of someone at the 25th percentile of those with a bachelor’s degree almost perfectly match the experience of someone with just a high school diploma over that time.
Second, the cost of a bachelor’s degree is rising while wages are falling. According to this data, the cost of a bachelor’s degree is going up by about 6.2% a year, which means that this year a four-year bachelor’s degree at a public institution will run you about $80,000, compared to about $5,000 in 1970.
Let’s combine those two points for a moment. We’re going to convert everything here into 2013 dollars, removing inflation from the equation. A person in 1970 could expect to make about $37,000 a year (in 2013 dollars) from just a high school education, costing basically nothing, or $53,000 a year from a bachelor’s degree, on average. That degree would cost about $30,000 in 2013 dollars. In other words, a bachelor’s degree cost you about half a year’s worth of the average income you’d expect to earn with that degree.
Today, a person would make only about $25,000 from just a high school diploma. If they want to do better than that, they can get a bachelor’s degree, which bumps their income up to about $47,000 on average. That degree will now cost you about $80,000. The cost of that four-year college degree is now almost twice (1.8 times) the average annual salary that person could expect to earn from that degree. Student loans are simply a requirement for most students, and if they wind up with below average earnings, they’re in a real pickle.
Third, housing prices have risen almost as fast as education prices. In 1970, the average American home could be purchased for about $150,000 in today’s dollars. Today, that same average American home costs about $384,000, according to this data and using an inflation calculator to convert everything into today’s dollars.
Again, let’s compare that to a person’s salary, putting everything into today’s dollars. In 1970, a person with a high school diploma would make about $37,000 a year and could buy an average home for $150,000. That’s about four times a person’s annual salary, but it’s doable. A person with an average college degree would make $53,000 a year, which means that the average American home is less than three time a person’s annual salary. A person with an average degree and an average job in 1970 could probably purchase a home straight out of college, as their total student loan debt and housing debt would add up to only 3.5 times their salary.
Today, the picture is way different. A person with a high school diploma makes about $25,000 a year, which means an average american home costing $384,000 a year would cost that person about 15.5 years of annual salary. A person with an average college degree makes $47,000 a year, which is merely 8.2 years of annual salary. A person straight out of college with an average job would have to invest ten years worth of their salary to pay off their student loans and their home, and that’s not even considering interest.
I don’t think anyone would disagree with the fact that the financial hole that people start their adult lives in today is far bigger than the ones that their parents or grandparents did. The cost of a home and the cost of an education have grown at a rate far, far faster than wages, and the result is that people coming out of college are facing a much larger financial challenge than their parents ever did. No matter how hard you spin the numbers, the situation millennials face today is substantially more financially challenging than the one faced by earlier generations.
My millennial-aged reader termed his generation the “Lost Generation” because of it, co-opting the term that once referred to the generation that came of age during World War I.
So, why write to The Simple Dollar about these issues? My reader’s argument is that most traditional personal finance advice simply doesn’t apply to that generation or to the generation likely to come after (read: the generation that includes my own children).
The question then becomes what financial and career advice does apply to millennials and the next generation? What follows comes from someone who would probably be considered the absolute oldest of the millennials or the youngest of the previous generation. I’ve witnessed astronomical education costs and the challenge of paying them off and I’ve witnessed the nature of the huge escalation in housing prices, too. As those gaps continue to grow, here’s the advice I give to all millennials and to my own children, too.
The one skill and attribute that matters more than anything else going forward is that of lifelong learning and self-improvement. If you’re not constantly learning new things, honing skills, and improving yourself, you’re going to be left behind. The world moves too fast today to just sit around on the skills you have on the day you graduate. The specific skills represented by your degree will be outdated in pretty short order.
Learning new things, honing your skills, keeping them up to date, and improving yourself should be daily parts of your life. Let me repeat: Learning new things, honing your skills, keeping them up to date, and improving yourself should be daily parts of your life. They should be completely normal. This is simply the way the world is now. You can no longer expect to be able to walk out of school, walk into a job, and do the same thing for 40 years. The world simply does not work like that any more.
Fifteen years ago, Google barely existed. Facebook didn’t exist. Neither did Twitter. Most people didn’t have cell phones, and those that did almost exclusively had “dumb” phones, meaning they could call and maybe text, and texting wasn’t a common thing. Wikipedia existed in an extremely nascent state. Advances in almost every field over that same timeframe have been similarly incredible, where entire fields have appeared (such as microbiomics), and others have disappeared almost overnight. Fifteen years ago, Iowa was almost entirely powered by coal; now, wind turbines and solar panels are everywhere, meaning that powering a person’s home or a business is completely different. Almost every field has radically changed in just the past decade or two.
If you can’t keep up with that, you’re not going to be a highly valued employee. An employee who can keep up with that? That’s a valuable asset to have. The difference between the two is a capacity for and a passion for lifetime learning, self-education, and self-improvement, along with other traits that support them, like good time management and information management. Those are the traits that matter most going forward.
The person that succeeds today is the person who spends their time making things and improving themselves. Almost every job that just requires you to approve things or pass things around or do a fairly simple repetitive task is on the verge of disappearing because we can automate all of that stuff. That’s part of the reason that wages are so depressed – jobs that do things that could be automated are paying less and less because if workers demand more, a company will just automate the job.
That doesn’t mean there aren’t good jobs out there. It just means you have to be providing things that a computer can’t necessarily do, and that usually means a creative approach to your work. You have to be making things, and you have to be learning things that will help you make better things.
Again, I’m firmly convinced that is a learned skill or set of skills, but it’s one that a person has to work at on their own. You can be shown how to follow steps in a process, but if that’s what your job is, then you’re likely heading for being devalued and eventually being automated out of a job. Instead, what’s valued are people that produce things that don’t follow a strict process, or else are able to constantly refine their own process to improve it. They create things and improve things, and creating things doesn’t just go from step A to step B to step C. It involves applying a person’s knowledge and skills in new ways all the time, and that’s never described by a step-by-step process.
You do not need a college education to succeed in many fields going forward; what matters is what you can create, build, and make. Here’s the reality: College is a fantastic, wonderful experience, but it is not worth it if it puts you in financial handcuffs for the rest of your life. It simply isn’t. If you can go to college on scholarship or for a reduced rate, that’s great. Take advantage of it. If not, never forget that you do not need a college degree to succeed financially or professionally.
More and more, what matters to employers is what you can produce and whether or not you’re constantly learning and building skills. A college degree is just the foot in the door at many jobs; quite often, the skills you demonstrate are just as effective at opening that door.
I speak from experience. I think of the stories of six different people I know very well who are working in fields completely unrelated to their education. I’m one of them. None of those six are using degrees they earned; three of those six don’t have college degrees at all. All of them are making very good money in their fields.
How did they get those jobs? Every single person in that group spent their spare time learning and making things and sharing what they made. Every single person either got a job or started a self-employment path based on that. None of them required a degree of any kind.
Again, let me repeat: I’m not saying that college doesn’t have value. I’m simply saying that it is far from the only ticket to a good job, and I believe that the imperative I mentioned earlier – that the number one ticket to success today is to be passionate about being a lifelong learner and making things – is actually more important than a college degree.
In the end, your resume is what you’ve created, not the positions you’ve filled. It’s not the jobs you’ve had or the degrees you’ve earned. Those might get your foot in the door, but they won’t matter for long.
You have to be able to show that you’re able to adapt, you’re able to think creatively, you’re able to self-manage, and you’re able to bring a project to completion. Those are the things that matter today.
You are essentially self-employed from day one, even if you have a great job. Back in the era where jobs more or less stayed the same for decades, a company that found a reliable employee to fill that slot would reward that employee for steady effort and constant reliability.
Today, no job stays the same for very long. It just doesn’t happen. That means that companies have to choose between continuing to hold onto employees that won’t adapt to changes or staying profitable. They’re choosing to stay profitable.
It seems cruel, but it is also a window to a new world as an employee. If a company is not loyal to you, you don’t have to be loyal to a company. Treat yourself as self-employed from day one. You’re working for this company now because they’re offering the best situation this moment, but just like the world is changing rapidly, so will that “best situation.” As long as you keep learning, keep making stuff, and keep building a portfolio of things you’ve made, you’re going to maximize your personal value. It’ll become easy to move on in your field.
Your goal, at any job, is to create value for your employer, but you should do that with a constant eye toward creating personal value for yourself. Take advantage of every tool they have for you to grow and build skills. Take advantage of every opportunity they have for you to produce and make things that you can show to others as proof of your skills.
Reputation and relationships are more valuable than ever. Getting your name out there, having lots of connections, and making your work known is more valuable than it ever has been. It’s part of that “personal value for yourself” that I mentioned above.
Remember, everyone today should view themselves as effectively self-employed. Your ticket to your next route of employment will come through your relationships and your reputation and the things you’ve created. Build those relationships. Build that reputation. It’s on you. No one else will build it for you.
Let’s move on to some more strictly financial tips.
There is almost no imperative to have children or buy a house in your twenties. Both of those things are bone-crushingly expensive, and your twenties are not a time to add bone-crushing expense to your life.
Live as cheap as possible. Remember that you honestly won’t spend a whole lot of time at home, so have a tiny apartment in a convenient place. Spend your time out and about, meeting people and building relationships and learning new things.
Communities are growing in strength today because of the clear need for them today; rely on them and use them. The amazing part of all of these changes is that they’re actually giving birth to a lot of communities, both online and off. People are realizing the value of constant learning and self-improvement and the need for communities and professional and social relationships. That’s why there’s an explosive growth right now of communities oriented around those things.
Take a look at Meetup and see what’s going on in your area. If you live anywhere near a metro area, you’ll find more groups and mini-communities growing than you could possibly imagine. It’s like drinking from a fire hose. Many of those communities are centered around the very things I’ve been talking about – personal growth, lifetime learning, professional relationship building centered around general areas of interest, and communities.
Dive in. Let those things become your social network. Find like-minded people who are really passionate about the things you’re passionate about and marinate yourself in those communities. You’ll be surrounded by interesting, excited, passionate people who are already doing the things described here and it will be exhilarating.
I know – I’ve been a part of a lot of such groups in my area. Groups tied to my profession. Groups tied to my various areas of personal interest. They all provided lots of professional connections, quite a few social connections, and a lot of friends. They provided an environment that practically demanded lifetime learning. They helped me find people that cared about the same things I did, and that passion fed off of each other.
You can find similar groups online, but there’s something truly special about face-to-face meetups. Take advantage of them.
Borrow, borrow, borrow. If you want to read a book, borrow it from the library. If you want to go into the city, borrow a train ride there by buying a metro ticket. If you want to see a movie, rent it for a buck or two. Borrow anything and everything you can and keep your possessions to a minimum.
Why? For starters, owning is more expensive than borrowing. It costs far more to own a car and use it for everything than it does to buy a mass transit pass and use it for everything. It costs far more to buy a book than to borrow one from the library. It costs far more to buy a Bluray than it does to rent one or borrow one from the library.
Secondly, the more possessions you own, the more living space you have to have, which is more expensive. You need storage space for all of that stuff, and eventually that means bigger living quarters are needed. A bigger apartment or a house is expensive.
Finally, the more possessions you own, the harder it becomes to move on, and moving on is likely going to be a big part of your life if you’re striving for big professional goals. You want to be able to move as quickly and easily as possible.
Remember, stuff isn’t the spice of life. Experiences are. Focus on collecting experiences, not things. Not only is it cheaper, it makes your life more flexible and still keeps it fulfilling.
The message is simple: many of the professional and financial rules of previous generations don’t really apply any more. A steady job where you do the same thing every day doesn’t have the same value it once had, and it’ll never have that value again. A changing world requires you to change approaches, and the biggest change can be summed up in one word. Flexibility. Be flexible in your life. Be flexible in your mind.
Millennials have more tools available to them than any generation before them, but it requires new techniques to use all of those tools. Flexibility is the key. That’s the biggest lesson I’m imparting to my own children as they grow up. Be flexible. Know how to teach yourself. Don’t expect others to teach you. Yeah, it’s going to be hard, especially at first. Find your interests and find communities that will help the interests thrive. Keep learning. Make things. Value experiences over stuff. You’ll do fine.