“Generation Debt: Why Now is a Terrible Time to Be Young”

July 12, 2008 at 6:14 am | Posted in Economics, Nonfiction, Personal Finance, Politics | Leave a comment

(June 14, 2007)

Here I am, reviewing another book about why Generation X struggles so much economically: Generation Debt, by Anya Kamenetz.  I felt compelled to read it, after Strapped, which I reviewed several weeks ago, to see whether Kamenetz covered any new ground.  (Also, I had read all the other personal finance books available at the library that day, and I needed a fix).

It’s true, the cost in real dollars of housing, education, and medical care have all risen substantially between the Boomer Generation and ours. I take these trends as signs to do three things that have been proven effective in every economic climate: Work Hard, Avoid Debt, and Keep Your Overhead Low.  My advice has always been “Focus!”  So I picked up this book expecting to shake my head over yet more whingeing about how young people are “forced” into debt and how Someone Else needs to come along and improve conditions for us.

Unsurprisingly, Kamenetz makes many of the same points Tamara Draut did in Strapped.  Surprising to me, though, was that this time I found them convincing.  Kamenetz focuses more on economic and political trends.  She also presents a population that includes lower-class, less educated people as well as children of the middle class.  This was refreshing for me, as I admit I can’t be bothered to feel much sympathy for people who leave the parental nest and suddenly find they can’t afford to live “in the manner to which they have become accustomed” – because most of the world never gets a taste of that lifestyle, much less lives it for two decades.  There’s time for us, after all, and we have to be prepared to build our own nests over a few years before we expect to live our parents’ lifestyles.

That said, times have changed, and it’s entirely possible the majority of us will never see a lifestyle like our parents’ – certainly not our grandparents’! – no matter how hard we work and save.  Here’s why.

1. College.  Not only is college literally ten times more expensive than it was 30 years ago, but the world of funding has changed.  Pell Grant awards have remained stationary for years, and are spread between larger numbers of students.  The vast bulk of funding, therefore, is being offered in the form of loans, not grants, meaning most students will have to go into debt that may take years to repay.  Further, the year before I graduated high school, eligibility standards were changed, forcing students under 24 years of age to include their parents’ incomes with their own on their financial aid applications, regardless of whether they (like me) were financially independent and lived alone.  In the 1960s and ’70s, it was possible to work a summer job through high school and college, and graduate debt-free.  Hoo boy, is that no longer the case!

2. Usury, by which I mean Credit Cards.  Credit cards are what get many students through college.  I don’t mean for pizza, either – there is an increasing trend of putting tuition on the card.  Textbooks, too – it’s common to pay $300 a term for books, and the money has to come from somewhere.  Now, debt is bad enough, but the interest rates, fines, and fees go far beyond what banks were allowed to charge in the past.  Somebody went and deregulated the banking industry, and now they are allowed to charge up to 30% interest.  Fees are up in the $40 range, for infractions as trivial as being one penny over limit or sending in payment one minute late.  In the past, a credit card that was over-limit would be denied.  The new trend is to allow the charge and tack on the fee, though most users say they would prefer to have the card rejected. Fees are the new cash cow for credit-issuing banks.  Sadly, the young are more likely to be both naive and broke, making them easy marks for the card companies that set out tables all over campus, enticing their victims with free t-shirts and other goodies.  One moment of dumbness and a few weeks of reckless behavior can now quite quickly result in thousands of dollars of debt, silently building and building and sucking the marrow from our youth.

3. Jobs.  The economy has changed incredibly since the 1960s and ’70s.  In those days, it was possible to get a factory job and earn a solid middle-class income with just a high school diploma.  Automation and globalization have effectively removed the vast majority of those jobs.  What we have now is a “service economy,” meaning most new jobs are turning up in retail, fast food, and customer service, for example at call centers answering billing questions.  Another factor affecting us is that seniors are living longer these days, and increasingly postponing retirement.  When Social Security was put into place as part of FDR’s New Deal, the average lifespan was 62, so a retirement age of 65 seemed almost far-fetched.  Generations later, people in their 60s are possibly more physically active, as a group, than people in their 20s, and they just don’t feel like retiring yet.  (Plus, they have credit card debt too, and they can’t afford it!)  What that means to us is that the really excellent, interesting jobs will be increasingly hogged by aging incumbents.

4. Temporary jobs.  (As opposed to Real Jobs).  Again, up until the 1980s, the expectation was that you would get a job, work there until retirement, and receive a pension.  There’s a reason the word “temp” is of recent coinage – the idea that a business can extract work from someone who can be let go with a single phone call and no notice, paid minimally, and offered no benefits is an idea of recent vintage.  (It’s an idea that still has scorch marks and a whiff of brimstone wafting off it).  Even a college-educated person with a strong work ethic may find that temp work is the only gig in town.  I worked in tech support a few years back, and it was company policy to hire only temps, excluding management.  This meant none of the 1200 people who came to work there every day was eligible for health insurance, much less paid holidays.  This sort of policy is by no means uncommon, and will undoubtedly become more common still as health care costs continue to rise.

5. Benefits.  As more and more people, especially young people with limited work experience, must forego health insurance, the personal costs of this changed economy of ours will be felt with greater force.  When you’re already reeling under the staggering burden of student loans, getting hit with a serious medical issue can be all it takes to drag you under.  Kamenetz relates the terrifying tale of a gal who was diagnosed with bone cancer at age 21, then contracted a second form of cancer from the chemotherapy.  Luckily, she was covered by her mom’s insurance until she finished grad school, and was able to get a job with insurance right before she aged out of that coverage.  (The cancer is in remission).  Not everyone is that lucky, however – what if her mom hadn’t had insurance either?  Large medical bills are one of the major causes of bankruptcy.

6. Social Security.  Oh, don’t get me started!  Many people perceive Social Security as a sort of investment – pay in while you work, collect when you retire.  The way it was set up, though, the first collectors received far more than they deposited.  For instance, Kamenetz points out, the first person to collect a Social Security check, one Ida May Fuller, paid in $24.75 and collected $22,888.92 by her death at age 100.  Current workers pay for current retirees – they don’t pay for themselves.  Our generation is much smaller than the Boomers’, and chances are that our grandparents will still be collecting while we’re paying for our parents’ retirements.  So, not only will we be paying large sums into Social Security that we will most likely never see back, but we face a pension-free economy as well.  SS was originally meant to be “one leg of a three-legged stool” including a pension and personal savings.  So, we won’t have Social Security and we won’t have pensions.  If we’re lucky enough to have 401(k) accounts, we face the possibility of another Enron and watching our money flush down the tubes.  How are we going to have personal savings when we start our careers dragging tens of thousands of dollars in debt, can’t get health insurance, and pay these outrageous rents?  Sigh.  No stool to sit on – we’re going to be on the floor when we retire.

7.  Medicare.  You think Social Security is expensive?  Take a look at Medicare.  Medical procedures are going to continue to get more expensive, along with prescription medication.  Once a procedure is available, in the medical world, it’s a necessity.  There is no “sorry, we can’t afford to offer this procedure to millions of people” in the world of politics.  Again, it’s paid for by current workers, and as it costs more, our taxes must rise to compensate.

8. Demographics.  There are more of them than there are of us.  Simply put, if every eligible voter actually voted, Generation X is so soundly outnumbered by Boomers that we could never outvote them on generational issues.

9. The National Debt.  Thanks for that, older folks!  Love ya!  Y’know, a national debt is a fairly recent invention too.  Kamenetz notes that prior to 1946, the federal budget ran into deficit spending for brief periods – budget surplus was the norm.  During the Reagan Years, the United States went from the world’s largest creditor nation to the world’s largest debtor nation.  That ol’ National Debt keeps snowballing.  (It brings to mind the Sta-Puft Marshmallow Man scene from Ghostbusters: “What did you do, Ray?”)  What’s going to happen is that those chickens are going to come home to roost.  Sooner or later, probably sooner, our nation is going to have to stop postponing payment for today’s policies.  Either taxes go up or benefits go down – more likely both – and it’s our generation and the ones that come after that are going to pay for it either way.  (My prediction is, the day of reckoning is not very many years off, because we’re going to see more and more natural disasters, and those have to be paid for somehow too).

10. Families.  In days of yore, you could count on finding a mate, raising children, and staying nestled in the bosom of an extended family.  Families supported each other – taking care of each other in times of sickness, helping out with new babies, sharing meals when times were hard.  Now?  It’s hard to know who to go to if you have two sets of step-parents.  Even the most old-fashioned, marriage minded, conservative, religious young person may be hard pressed to find a mate with similar qualities who wants to Marry For Life.  Times have changed, forever, and the old marriage-house-baby path is barely visible any more.  This can make a huge economic difference for a young person.  If you stay single and live in an apartment, obviously there’s nobody to take care of you when you’re sick.  There are no housewarmings, no wedding gifts, no baby showers.  Maybe you’re cohabiting, but if not, there’s no sharing of household expenses.  Most of all, there’s no sharing of incomes, no trading off if one spouse loses a job or the other wants to go back to school.  The trend toward later and rarer marriage is an expensive one, in some ways, on the individual level.

Kamenetz concludes, like Draut, by inciting readers to become more politically active.  Specifically, she suggests financial aid reform, reinstating usury laws, and unionizing.  She goes beyond this, talking in detail about reconsidering college, spending more time planning a career (that may not require further training), cooperative housing arrangements, and learning to live on less.

One area of Generation Debt worth discussing is the idea of a new station in the life cycle.  Kamenetz posits that social changes and longer lifespans have created an exploratory phase of life, ideal for travel, personal expression, and career research (in the form of job-hopping).  While it’s true that this is a trend that can be easily observed in action, it’s debatable whether our society can afford to encourage such a phase, especially in light of all the economic ills Kamenetz presents.  She suggests “stakeholder grants” – giving young people money for ventures other than college – not necessarily a bad idea in itself.  She weakens her argument, though, by pointing out that 9 of 10 new businesses fail, and that some young people could use the money to “take the extra time and independence to find out that for what they really want to do, they don’t need college. (228)”  Where is the money supposed to come from?

Generation Debt is clearly written for Generation X, although 90% of it would serve our generation better if it were aimed at Boomers.  Kamenetz shoots us in the foot here, for example by using the phrase “old people.”  There’s no pressing economic reason for our elders to care what happens to us – the impetus behind the book was, after all, to prove that our situation really was the result of a multitude of larger historical forces. The book may have had greater effect if it had been aimed at a more general audience.

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