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Most, 54 percent, are concerned about paying their student loans. Only about 36 percent own a home, while almost one-third of them, 32 percent, owe more than their home is worth. One-quarter of those, 24 percent, have been late with mortgage payments. And more than one in three, 35 percent have unpaid medical bills.  Those are the millennials reports a study by the National Endowment for Financial Education.   The young, fresh faces who are entering the workforce and excitedly renting their first homes, come with crippling debt burdens


In spite of that, some 64 percent, almost two in three, give themselves a high mark for their financial knowledge.  They mostly have checking accounts, about 85 percent, but 29 percent of them say they overdraw occasionally. They have retirement accounts, too; about  36 percent have a self-directed IRA, but 17 percent of them took a loan on it in the previous 12 months and 14 percent took a hardship withdrawal.


My how times have changed. “Young adults are increasingly at risk of starting their adult careers buried under a mountain of debt with no hope of repayment,” reports Jason N. Houle, Dartmouth College professor of Sociology, in his paper “A Generation Indebted: Young Adult Debt across Three Cohorts.”  Houle adds, “newer cohorts of young adults face unique risks and circumstances in young adulthood that earlier born cohorts did not.” [my emphasis]  Houle continues, “From 1970 through the present day, the proportion of households with debt has increased, and median household debt has risen from $20,000 to over $67,000 in constant inflation adjusted 2010 dollars.”


Young adults are not so adult anymore, either.  “Early Baby Boomers, those 24-28 from 1976-1978, moved quickly from their parents’ home, completed their education, entered the labor market, got married, and had a child in quick succession (and typically in that order) by the time they were in their mid-twenties,” reports Houle.  Young adults today overall have not gotten to the point preceding generations did.  Many rely on parents to make ends meet and one in three still live with parents, and for the first time in 130 years more young adults live with parents than with a partner, a Pew Research poll found.


But a college degree isn’t the ticket to the better life it used to be. College degrees are commonplace anymore, and so graduates have a more difficult time finding full-time jobs that equate with their college degrees, so we have the barista with the BA. Moreover, college enrollment has increased but college graduation rates have not, meaning that more students drop out of college and are still saddled with student loan debt while lacking the wage advantage a college degree brings.  Now imagine those fresh-faced young folks who dropped out of college. Their incomes are about $16,000 a year less than are those of college graduates reports the US Census Bureau.


How has it gotten to this point?  The culture in this country has changed from one where we expected to pay cash and avoid debt to one where we are expected to buy now and figure out how to pay for it later.  The Baby Boom generation didn’t succumb to the degree the millennials have. Millennials were raised with the idea that debt was not only just fine but the way people are expected to live.


Then there are the helicopter parents. A Forbes magazine article July 7, 2015 by Jennifer Calonia explained, “These parents routinely hover over their children, micromanaging their lives for fear that their kids will bring harm and failure unto themselves with poor decisions. More millennials are experiencing helicopter parenting into their mid- to late-twenties, often leading to stunted financial stability and success.”  These are the same parents who delivered their kids to soccer practice and playdates in their minivans, and not only clucked over, but interfered with, every event in their children’s lives never allowing their kids to make their own mistakes and learn from them.  That has carried over into the time when their children should be acting like adults, but mom and dad are afraid to let them leave the house.


Another reason for this disconnect is credit cards.  Until 2009 with the passage of the Credit Card Act, credit card companies had free reign on college campuses. “For decades, they were everywhere on campuses across the United States, hawking T-shirts and free food to students in exchange for filled-out credit card applications,” wrote Connie Prater on creditcards.com in 2008. Until the Credit Card Act of 2009, credit card companies signed up college students and told them to charge away.  They must have figured mom and dad would pony up for the bills when their son or daughter couldn’t.  Those college students, now the new generation in the workplace, got in the habit of charging everything right down to packs of gum and their daily Starbucks fix.  This cavalier attitude toward debt is coming home to roost with millennials discovering that they may have “no hope of repayment.”


Wages have stagnated or even fallen, so households need to try to make up that shortfall with increased borrowing.   Consumption has also become more important even as income inequality increased. And the price of higher education has skyrocketed over the past several decades, which means young people who graduate with more debt have an increased likelihood of needing to borrow more money to finance consumption once they start working.  They differ from the more stable generations we are used to, the baby boomer and Generation Xers, but they are coming to work for us and renting from us. This is the new normal and what we must expect with millennials.

By Robert L. Cain

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