Debt, The New Addiction For Young Adults
Posted on January 19, 2007
Although drug use is rampant in today’s society and its addictive consequences are great, debt may have become an even greater affliction. Student loans coupled with the have-to-have-it-now mentality of today’s youth have combined to create a wider gap between young adults and their parents than at any time in history. More than 60% of twenty-somethings now carry an average debt in excess of $16,000; an amount that is escalating annually. When they’re trying to get started in life, the mental anguish this debt burden places on youngsters can be crushing. The negative effects caused by late payments, higher interest rates and bankruptcy can be devastating.
Just as individuals who started out experimenting with drugs and alcohol didn’t set out to become addicts, students using credit cards and obtaining student loans to get through college don’t see it as a trap that may lock them into a cycle of consumer debt that can last a lifetime. Many twenty-somethings graduate college with $50,000 or more in debts and are shocked by the meager paying jobs their expensive education brings. Frequently they find that it takes $3,000 to $10,000 per year in pretax earnings just to make the loan payments. That’s a real shocker!
Payments on credit cards and student loans when coupled with soaring housing costs have produced what many are calling the Boomerang Generation; young adults that after graduating are moving back home to live with parents while they struggle to overcome mounting debts. Parents, who thought they would be free to enjoy life when their kids got through college, suddenly find themselves coping with young adults who don’t mind the way they did when they were little children and new tensions erupt. Unfortunately, this phenomenon is becoming a reality in an increasing number of American homes.
The squeeze is coming from a number of places. Tuition costs are skyrocketing at both public and private universities. Housing costs have far outstripped inflation. Soaring energy prices soak up a significant portion of earnings, and health care is out of reach for all but a fortunate few twenty-somethings. As bleak as the picture may seem, these factors may ultimately combine to shift behavior from the buy-now pay-later mentality of today to the more fiscally sound save-first then spend method used by earlier generations. If so, it could break the cycle of debt addiction that is currently strangling many people.
Unlike their parents, who expected Social Security or company pension plans to care for their needs in retirement, today’s twenty-somethings are increasingly skeptical about the future and openly express doubts about how they will fare as seniors. Of the recent college graduates with whom I talked, less than a third expect they will ever see a dime from Social Security. With frequent stories about major companies eliminating retirement plans from their benefit packages, the pressure on young adults to behave in more financially responsible ways will continue to grow.
Making a transition from spend-now-pay later to save-first-then-spend will be a daunting task for society. It’s taken several generations for debt addiction to take hold, and I expect it will take generations before it releases its grip. It certainly won’t happen overnight. It may even necessitate an extraordinary event like 9/11 or Pearl Harbor to get large segments of society to make the kind of sacrifice that will be required. I predict that extraordinary event is just around the corner in the form of retirement by the Baby Boom Generation.
When this large segment of the population enters retirement it will place demands never before experienced on the Social Security System and other retirement plans. As retirement age is extended, benefits cut, and private plans face crisis after crisis, today’s twenty-somethings will experience a level of stress and anxiety their parents never faced.
Here’s a tip! Rather than waiting for financial disaster to strike and force behavioral changes, wouldn’t it be better for both parents and children if they could recognize that as a country we can’t continue to pile up mounting debts and expect to maintain a descent standard of living. Parents willing to be frugal during their child raising years and set aside money to help with education expenses will enjoy more freedom and a better life once their children graduate and are able to support themselves without piles of debt. Children willing to work and help with expenses while going to school will not only have the opportunity to develop work habits that will help them obtain better jobs after graduation, but they will also be helping themselves to avoid entering the workplace with a big debt monkey on their backs.
If you’re already buried in debt, focus on getting it paid off. You’ve got to get out of the hole and back on level ground before you can start building for the future. If you aren’t in debt, resolve to keep it that way and focus on saving so you can pay as you go through life without having to mortgage your future to have more fun today.
It’s a difficult subject, but I urge parents to open a dialog with their children about financial responsibility at an early age and continue the discussion until they mature. Some parents avoid talking about money and it often gives youngsters a skewed outlook on the way life really works. Talking about financial difficulties as well as successes helps children learn that life is filled with up and downs. The better prepared they are to deal with life’s responsibilities the better future they will have when mom and dad aren’t around to handle things.
Copyright 2007 by Mike Summey – Reprint with permission only.
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