That’s the question that has walletwatch stumped, despite being a member of Gen Y himself.
For example, when a member of Gen Y is running short of cash between paydays, where does (s)he turn to for the best advice on where to get a loan? Or when its time to buy a car? Or buy a house? Or what is the best credit card to choose?
Our country does a pretty poor job of financial education in general. Wouldn’t it be terrific if, for example, we taught high school students Finance 101 — how to balance a bank account, how to buy a house when you’re ready, and the importance of saving for retirement. And it seems that unlike their parents, Gen Y is less likely to get its advice from the bank teller in our neighborhood, given that Gen Y does its banking online or with bank tellers who are on the other side of bulletproof glass. And Gen Y is probably unlikely to go to financial literacy seminars either.
Based on anecdotal stories, it seems that many twenty- and thirty-somethings turn to parents in these situations. It seems mother (and father) still knows best when it comes to who to see about buying a home, or what are the best 401(k) options. But this only reinforces the theory that wealth is generational. That is, children whose parents were homeowners are likely to become homeowners themselves due to family culture.
Another answer is that Gen Y is using each other for financial advice. walletwatch has certainly had many conversations with Gen Y’ers about what savings options are the best (I recommend ING Direct), who has the lowest fees on Roth IRAs, and where the best real estate investments are. Another answer is the internet — there’s a host of personal finance bloggers and columnists. But unfortunately the internet is full of financial scams (although less so post-housing crisis).
So where does Generation Y get its financial advice? I’m still trying to figure this one out and will keep blogging ’til I do.
Demos, a New York based think tank, really knows how to speak about the economic insecurity of Generation Y and churn out thoughtful solutions on how to deal with it. As Gen Y gets older, the widespread economic opportunity that once was so prevalent in the U.S. will evaporate. And with the continued shredding of the social safety net by conservatives — unemployment insurance, retirement savings, health care, and the like — its no wonder that Gen Y is in so much debt.
It’s getting harder for young adults to get ahead in America. Compared to previous generations, today’s 20-somethings earn less, carry more debt and pay more for everything from health care to housing. With young people voting in record numbers, it’s time to put this generation’s economic crisis on the national agenda and build a movement for a better deal.
Maybe the reason so many Americans don’t understand the credit crunch is that the media doesn’t speak our language. They still can’t seem to speak in a way Americans understand, despite having countless reporters and media devoted to it, including two entire cable networks — which in reality are hot ladies talking money with bald dudes.
Even our country’s top economic officials can’t explain it without speaking in gobblydegook. Check out this interview with former U.S. Treasury Secretary John Snow in this clip and Jon Stewart’s translations.
Baby Boomers seem to think that the reason that Generation Y is in so much debt is cultural. Baby Boomers were raised in the era of cash only. If you don’t have the money to buy it, then you can’t have it. Getting ahead is about saving: putting aside money for life’s large expenses, such as a downpayment on a home, a car to get you to work, or necessary appliances and items that help middle-class families run. This argument certainly has some merit.
But the reason that Gen Y is in so much debt is that (with apologies to Tamara Draut, from whose book “Strapped” I stole this line) as young adults work to get into the middle class, they’re being hit by a one- two punch: the economy no longer generates widespread opportunity, and our public policies haven’t picked up any of the slack. The price of almost all of life’s necessities has increased since Baby Boomers were Gen Y’s age. The cost of a college education has doubled many times over; getting a mortgage is more difficult; health care is a much bigger burden; and necessities such as gas and childcare are on the rise too.
So as Gen Y’ers enter the workforce, up to 15 percent of their income goes towards paying off student loans. Homeownership isn’t possible until much later in life, especially in high-cost cities where jobs are most readily available. A college education isn’t worth as much, especially as manufacturing jobs that used to be widely available have vanished. And even jobs in high-tech professions that Gen Y’ers thought were a reliable bet — such as IT — are being shipped overseas. Many who were raised in middle-class suburbs by Baby Boomer parents are learning to live with less.
And it certainly doesn’t help that our nation’s most prestigious financial institutions make it very easy to get into debt. All the expenses that Gen Y can’t afford — what used to be standards of middle-class living — can now be swiped and put on a credit card.
walletwatch gives a big shoutout to conservative columnist David Brooks. In an October 2007 column, he says that the economic vise grip that Gen Y is stuck in is driving their culture — not that Gen Y’s culture of consumption is driving them further into debt. He writes that
During this decade, 20-somethings go to school and take breaks from school. They live with friends and they live at home. They fall in and out of love. They try one career and then try another.
While Brooks could have done a better job of describing these economic trends in more detail, he is spot on when he writes:
The job market is fluid. Graduating seniors don’t find corporations offering them jobs that will guide them all the way to retirement. Instead they find a vast menu of information economy options, few of which they have heard of or prepared for.
It’s possible to see that this period of improvisation is a sensible response to modern conditions.
Kudos to the folks at Demos, a New York-based think tank for not only documenting the root causes of debt but also offering solutions. Their new book “Up to Our Eyeballs” is a must-read for anyone studying the world of young Americans being in so much debt.
A summary in their words:
Up to Our Eyeballsis a lively and timely exploration of the causes and consequences of the explosive rise in consumer debt, and of the fast-spreading financial and economic crisis. After explaining how we got into our credit fix, the authors sketch out a plausible escape route, based on proven good ideas that our political and economic elites have temporarily forgotten, at the expense of the rest of us.
Particularly impressive was the authors’ documentation that the middle class of the 1950s-1980s — which is now being fractured by increasing wealth inequality — was built by deliberate public policies that are now being eroded. That is, the prosperity that so many families experienced during those decades was the result of public-sector programs such as the GI Bill that made college affordable, the Federal Housing Administration that made homeownership a reality, social security that made it easy to save for retirement, and so on. But as our economy started to change, these programs have slowed eroded, and in part have been deliberately shredded by conservative politicians.
While they make an excellent case for implementing a solution, the book is a bit thin on specifics. walletwatch was very impressed by the authors’ knowledge and categorization of recent legislative moves, and with their principles for reform. Specifically, they echo the call for a Financial Product Safety Commission, an idea put forward prominently by Harvard Law Professor and debt guru Professor Elizabeth Warren.
walletwatch added this book to its Reading List (link above).
Americans for Fairness in Lending, an umbrella group of 15 consumer groups interested in credit card debt, circulated this excellent video on students and credit card debt:
Wallet Watch promotes policy solutions to make basic financial services — checking accounts and credit cards — safer and more understandable products, so that Americans can make better decisions about where they access credit and reduce their overall indebtedness. More >>
Particularly impressive was the authors’ documentation that the middle class of the 1950s-1980s — which is now being fractured by increasing wealth inequality — was built by deliberate public policies that are now being eroded. That is, the prosperity that so many families experienced during those decades was the result of public-sector programs such as the GI Bill that made college affordable, the Federal Housing Administration that made homeownership a reality, social security that made it easy to save for retirement, and so on. But as our economy started to change, these programs have slowed eroded, and in part have been deliberately shredded by conservative politicians.