Young Americans struggling with debt, not able to reach for the 'dream'

[buttmunch]

Jan. 15, 2006 — - Tamara Draut and Stuart Fink didn't expect it to come to this.

After eight years of marriage, the couple found themselves with less than a dollar and with three days until the next paycheck. Seated on the living room floor, they sorted through their CDs, choosing ones to sell.

"We never imagined we'd be peddling our wares for food money at the age of 30," Draut said. A combination of graduate school tuition, meager salaries, unemployment, a career change, and the cost of setting up housekeeping had drained their modest resources.

Living in straitened circumstances is becoming more familiar to those in their 20s and 30s as they try to get a foothold on the American dream. Student loans, depressed wages, rising health-care costs, and soaring housing prices are creating new economic realities.

Sixty percent of young adults between 18 and 34 are struggling for financial independence, says Draut, now the director of the economic opportunity program at Demos, a think tank in New York. She is also the author of a new book, "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."

"What made the transition to adulthood somewhat less bumpy 30 years ago was that we had an economy that lifted all boats," she said. "When productivity was increasing, so were wages. We don't have that today. Wages certainly aren't keeping up with the cost of things like health care and housing."


Debt
Then there is the high cost of college. A bachelor's degree has become the equivalent of a high school diploma -- essential for basic status in the middle class.

Michelle Wingate, who is in her mid-20s, holds an entry-level position at a public relations firm in Raleigh, N.C. She is paying off student loans.

"When you graduate from college, you think: 'This is great. I'm going to be able to pay off all my debts,' " she said. "That's just not the case. My salary looks good from afar, but once I get my money I'm sending it directly to the people I owe it to. That creates a whole other problem. When you owe money, you can't save it."

Wingate's goal this year is to pay off credit cards.

"After that, I can knock down a big chunk of my student loans. Maybe three years from now, I'll try to purchase a house."

She wishes credit cards were not so easy to obtain.

"When you don't have any food in the refrigerator and a pre-approved credit card is on the counter, it's easy to open that card and activate it," she said.

Draut wants to see the passage of legislation that stops what she sees as the most egregious lending practices of the credit card companies.


Their Own Fault?
Very often, social observers say, young adults living on the financial edge view their situation as simply their own fault.

"We're so individualistic," said Deborah Thorne, a sociologist at Ohio University in Athens, Ohio. "We see this as an individual problem, and then we look to the individual for the solution. The fact is, these are national problems, and they require a national solution. But this is just not on the radar of politicians. It's not an issue with which they concern themselves. But it's the issue the American family is concerned with."

Young people, Draut says, feel that many Americans are doing very well.

"You see Hummers on the highway, McMansions being built," she said. "It's extremely frustrating and confusing for young adults who are living paycheck to paycheck and with five-figure student-loan debts to see young families living in million-dollar houses."

Parents are also confused.

"A lot of parents don't understand why their kids haven't accomplished the traditional markers of adulthood that they did -- buying a home, starting a family, living without debt," Draut said. "I don't think there's an awareness of how much the economic context has changed."

Dayana Yochim, personal finance editor for The Motley Fool, an investor-education group, often hears from parents who want to know how they can teach their children about managing finances.

"These parents are worried about their own retirement," she said. "Cutting the apron strings is a move parents have to make to provide for their own futures financially. But it's a hard thing to do when you feel that your children don't have the skills they need."

Compounding these generational challenges is what Yochim calls "incessant commercial wooing." On TV, she said, "it's all about luxury and excess and consumption," right down to the fancy lofts and apartments where sitcom characters live.

"That is not how people really live in New York City," she said. And with commercials filling 20 minutes of every televised hour, she adds, "no wonder we all suffer from 'the wants.' "


Obstacles
When real-life 20- and 30-somethings dream of home ownership, they can face daunting odds -- and the temptation to overextend themselves.

"They're introduced to products that make for dangerous borrowing," Yochim said. These include interest-only loans and zero-percent-down mortgages. "The lending industry has said home ownership -- the American dream -- is not out of your reach, and we can make it work. They do make it work -- for them, for the bank."

As Draut looks at young people trying to build their lives, she sees a political system that has failed to address major changes, such as the increased need for a college education.

"Instead of putting more resources into helping people pay and making sure they get through college, we've made it more difficult for students to finance education than 30 years ago," she said. She proposes shifting federal college aid away from loans to grants.

Another major issue involves the high cost of rearing children. Family experts say the United States is alone among developed countries in not providing either paid family leave for parents when they have a new child, or affordable child care.

Even an Ivy League education is no guarantee of instant financial stability. Jeffrey McDaniel graduated from Dartmouth and his wife, Meghan, from Smith. But in 2002, as they began paying her graduate school tuition and their wedding bills, they did considerable belt-tightening.

"We ate on $10 to $15 a week," said McDaniel, a fund-raiser. They lived in a $590-a-month unair-conditioned apartment on a trolley line in West Philadelphia, battling roaches and mice. After McDaniel earned her master's degree and began working full time, they moved to a better area and continued paying off debts.

On Dec. 30, their frugality paid off.

"We hit a zero balance on every credit card," McDaniel said. "That was quite a celebration for my wife and me."

Draut and her husband no longer have to sell CDs to raise cash. But she says she is "still chipping away" at school debts.


Check, Read and Vote
For others in this generation, Yochim suggests finding ways to improve incomes. That might include taking a temporary second job, taking in a renter, keeping a car longer, or using public transportation.

She urges young adults to contribute to a 401(k) program, calling their nonparticipation "alarming." Noting that an employer's matching funds is free money, she added: "Always take the freebies."

And check credit reports.

"Your college grades might not follow you for life, but your credit report does," Yochim said. "Your youthful indiscretions are going to follow you around for seven years, or longer."

Draut chides her peers for their lack of interest in the news and their noninvolvement in politics.

"They don't connect their personal financial problems to the larger issues in the economy and to the political system," she said. "It's time we change that."

She also challenges young people to start reading newspapers, either in print or online.

"Politicians don't pay attention to them because they don't vote," she said. "Young people need to weigh in on issues being debated by elected officials. And vote. When it comes to this generation trying to exercise some political muscle, a 50-percent generational turnout isn't going to get the job done."


www.csmonitor.com

[suede]

I remember being in third grade and being told that we would never amount the financial reward of our parents.

Aside from that being the most horrid thing you could say to a child you can't compare generations.

The only way to be rich is to steal, cheat and knife your co-workers to make it to the top. Whereas once upon a time if you were honest, worked hard you would achieve the dream.

Very sad indeed.

[buttmunch]

I remember hearing that as well. It seems to be accepted that the generation now becoming adults is one of the first to not do as well as their parents, where as for a nubmer of generations, there was always an improvement. And no, hard work just doesn't seem to cut it the way it used to. That's why me and mine are choosing lifestyle over money. We're working to make enough to support a certain type of lifestyle and way of life that we want and fuck the rest. And while my hubby is self-employed, I'm half self-employed, half working for others...but hope to change that this year and go completely on my own. Corporate America sucks and sucks the life out of you while giving you little or nothing in return beyond a paycheck. Fuck them. I'd rather go down trying to do it for myself.

[suede]

Originally Posted by buttmunch

I remember hearing that as well. It seems to be accepted that the generation now becoming adults is one of the first to not do as well as their parents, where as for a nubmer of generations, there was always an improvement. And no, hard work just doesn't seem to cut it the way it used to. That's why me and mine are choosing lifestyle over money. We're working to make enough to support a certain type of lifestyle and way of life that we want and fuck the rest. And while my hubby is self-employed, I'm half self-employed, half working for others...but hope to change that this year and go completely on my own. Corporate America sucks and sucks the life out of you while giving you little or nothing in return beyond a paycheck. Fuck them. I'd rather go down trying to do it for myself.

I couldn't agree more.

I'm in the same situation - half self employed - half someone else's slave.

[buttmunch]

God it sucks being someone else's slave...although I have to say that my half time work is actually quite good...I'm just sick of working someone else's hours and making them money.

[suede]

Originally Posted by buttmunch

I'm just sick of working someone else's hours and making them money.

Sigh... me too.
The hardest part about working for yourself is the marketing and get the acutal business and not doing the work.

[pacific breeze]

I think it is harder for people today, and not just young people.

That said, a lot of people live beyond their means. They HAVE to have a new car, holidays, lunches and other meals out, the latest gadgets and fashions as though they were a birthright rather than something you save and sacrifice for.

I live quite well and buy the luxury items I want when and only when I have the money to pay for them. My car is 18 years old -- it runs well, and the only reason I am replacing it next year with another used vehicle is that my husband is convinced I need one with air bags etc. to be safe.

I bring my own lunches, and sometimes my own coffee and tea, so that I can eat out a really good restaurant every couple of weeks. I shop at sales, ask for discounts (something I never used to do), and use coupons when I remember. And if it's a have to have, I buy it even if it's expensive. You have to treat yourself ONCE in a while. On the other hand, the best way not to spend money is to stay out of the stores (other than grocery stores). And even there, I buy what's in season and if it's outrageously expensive, I don't buy it.

I don't have the keeping up with the Jones' mentality in terms of applicances or gadgets either. I still don't have an Ipod and am in no rush to get one.

I earn a lot less money now than I used to, but I'm not living any less well except for the ability to jet away when the mood strikes. And I live in one of the most expensive cities in North America.

Again, it's partly a question of setting priorities. I have a lot of students who rack up incredible amounts on nails, tanning, trips, clothes etc. on their credit cards. While some parents pay for school, a lot take loans and work part-time. Guess which ones complain the most about money and do the least work? But all seem to resent paying for education and I've had to resort to Draconian measures to get them to buy one textbook.

It's a lack of responsibility that starts at home, IMO.

[mklady]

My husband's parents are constantly hounding us about why we don't have the extra finances to take care of unexpected expenses. Then they hound us about why we have "bad luck". They want to know why things always go bad when we can't afford to take care of them. Well, duh! They're unexpected and when you're paying your mortgage, car payment, insurance, cell phone, home phone and cable, and getting food and necessities on about $3000 a month, you don't really have extra to save. It's so frustrating, our health insurance increased by $1200 this year. Hubby gets a raise in April and then the insurance increases and his take home ends up lower than the last year in January. It's ridiculous. We don't live an extravagant lifestyle, but we do try and do things once in a while as a family. I hate that we're not saving any money but I also hate the thought of us pinching every single penny. We have at the most about $180,000 in debt and that includes our house. Most of the people we know are double that. I don't know, it's frustrating because we are responsible, the bills come in and we pay everything, we just don't have enough to go beyond that. No vacations, no brand new furniture, no new cars and so on. If we want to do those things they're going to have to be financed and that's just not something we want to get into. So, alot of times we do without. Our biggest expense is that we get takeout alot, but sometimes I have to wonder if it isn't cheaper as opposed to buying everything to fix that one meal. Someday soon I'll have little to no mortgage and that will make a world of difference.

[pacific breeze]

^^ In some cases, take out food can be cheaper, but it's inevitably loaded with more fat, salt, sugar etc. than you'd probably use at home. I know it's a hassle to cook at the end of a long day, but there are simple, healthy recipes that don't take long.

With all the prewashed bagged salad stuff out there, nothing could be easier than putting it in a bowl and putting some home-made or low-fat dressing on it. Instant salad. Yet a lot of kids tell me they've never had a salad at home, and that their mothers have never cooked a meal. And of course, these kids don't know how to cook anything either

I guess this is one of my pet peeves, but cooking together is one of my favourite things. If you can get your kids to help, it could be quality time spent together.

[mklady]

Yeah, the take out thing isn't always healthier. Before I had my gallbladder removed, salad with grilled chicken was the only thing that didn't cause an attack, so that's what I ate for awhile and actually lost weight. Since then, I've had the gallbladder out and I'm back to "normal" food. On those nights that nobody can agree on what they want, any of the little places right in our town are great. If the food doesn't make me sick, I know that they are using better ingredients and cooking techniques than major chains. Weird stomach that way. 3 - 5 bucks for a meal with salad and bread isn't too bad plus it keeps me out of the Walmart (that's the cheapest place to get groceries around here) where I will inevitably spend anywhere from 10 to 100 bucks more than I needed.

[Barbara]

Originally Posted by pacific breeze

I think it is harder for people today, and not just young people.

That said, a lot of people live beyond their means. They HAVE to have a new car, holidays, lunches and other meals out, the latest gadgets and fashions as though they were a birthright rather than something you save and sacrifice for.

I live quite well and buy the luxury items I want when and only when I have the money to pay for them. My car is 18 years old -- it runs well, and the only reason I am replacing it next year with another used vehicle is that my husband is convinced I need one with air bags etc. to be safe.

I bring my own lunches, and sometimes my own coffee and tea, so that I can eat out a really good restaurant every couple of weeks. I shop at sales, ask for discounts (something I never used to do), and use coupons when I remember. And if it's a have to have, I buy it even if it's expensive. You have to treat yourself ONCE in a while. On the other hand, the best way not to spend money is to stay out of the stores (other than grocery stores). And even there, I buy what's in season and if it's outrageously expensive, I don't buy it.

I don't have the keeping up with the Jones' mentality in terms of applicances or gadgets either. I still don't have an Ipod and am in no rush to get one.

I earn a lot less money now than I used to, but I'm not living any less well except for the ability to jet away when the mood strikes. And I live in one of the most expensive cities in North America.

Again, it's partly a question of setting priorities. I have a lot of students who rack up incredible amounts on nails, tanning, trips, clothes etc. on their credit cards. While some parents pay for school, a lot take loans and work part-time. Guess which ones complain the most about money and do the least work? But all seem to resent paying for education and I've had to resort to Draconian measures to get them to buy one textbook.

It's a lack of responsibility that starts at home, IMO.

ITA.

[Mr. Authority]

Originally Posted by Mushy

Rules from an American couple:

1. Stop using your credit cards as cash
2. Pay more than the minimum limit
3. Pay cash for any purchases
4. Work, work, work
5. Stop renting, pay rent amount towards the purchase of a house
6. Do this for as long as it takes
7. Pay over the minimum for student loans, car payments, and mortgage payments
8. Reap the benefits

Life's not that organized. You can't just go every day with a routine for finacial situations. Overtime prices go up, people lose their jobs, bills increase, and wages don't increase along with the prices. Not to mention that emergencies come up and may require payments for hospital and other health costs. It's just not that easy to be organized when life is involved.

[suede]

Originally Posted by Mushy

Rules from an American couple:

1. Stop using your credit cards as cash
2. Pay more than the minimum limit
3. Pay cash for any purchases
4. Work, work, work
5. Stop renting, pay rent amount towards the purchase of a house
6. Do this for as long as it takes
7. Pay over the minimum for student loans, car payments, and mortgage payments
8. Reap the benefits

Conceptually that works but not always in reality.

By me a starter home is just over a half million dollars - and by starter I mean a 50 year old shack, no basement 2 brs, no garage - BARE BONES and in need of updating. A cheap rental starts at 2,000 a month and it's nothing special - usual part of a house.

If you are not a professional busting your ass for a bose that does consider you a slave, you are making less than 40k a year (50-60 is you have two jobs) and if you are two people making less than 100k you are not buy a home while doing 1,2,3 and 7.

The easiest way to get free of school debt is not to get a credit card in college and live at home with mommie and daddy until your loans are partially paid off and you've saved enough money for a huge down payment on a house. And by easiest I don't mean the most desirable - LOL)

Originally Posted by Mr. Authority

Life's not that organized. You can't just go every day with a routine for finacial situations. Overtime prices go up, people lose their jobs, bills increase, and wages don't increase along with the prices. Not to mention that emergencies come up and may require payments for hospital and other health costs. It's just not that easy to be organized when life is involved.

God you're right.

[Sojiita]

Originally Posted by Mushy

Rules from an American couple:

1. Stop using your credit cards as cash
2. Pay more than the minimum limit
3. Pay cash for any purchases
4. Work, work, work
5. Stop renting, pay rent amount towards the purchase of a house
6. Do this for as long as it takes
7. Pay over the minimum for student loans, car payments, and mortgage payments
8. Reap the benefits

But at what point does the unexpected illness with medication costing $$$ not being covered by insurance come in?...and the sudden "downsizing" at work?..or the husband caught cheating and the $$$$ divorce?..Oh that's right..you can't put them anywhere because you can't PLAN for them. The rules are for the most part pretty good and honorable I will agree Mushy..but life doesn't always play by the rules.

[AliceInWonderland]

Americans are so stupid w/ money, plus I blame Bush (Cheney), and everyone's greed

p.s. Sojita, how are you and your $ problems? I hope you're doing better