Yves here. I hate the generational meme, since it’s an age cohort invented by marketers, and is therefore stereotyped as feeling and acting in certain ways, just as, say, women and Hispanics are also targeted demographically for products.
So if you can put aside the frequent (mis)use of the millennial label, young people have a terribly insecure financial future, unless they managed to get on an elite career path (and even those are uncertain and the fall is far if you slip off it). This article describes how millennials are making perfectly logical decisions in light of the conditions they see. This post doesn’t weigh heavily on the lousy job market, but even those who manage to find decently-paid work still are subject to short job tenures, making it well nigh impossible to save, much the less invest. Their behavior is a part of the New Normal that the officialdom would like to ignore.
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
Turns out, to the greatest consternation of some folks on Wall Street, millennials are smart.
“They don’t trust the stock market,” Goldman Sachs determined in a survey. Only 18% thought that the stock market was “the best way to save for the future.” It’s a big deal for Wall Street because millennials, having surpassed the baby boomers, are now the largest US generation – and the future source of bonus checks for Wall Street.
“Millennials will become the most important financial generation in America, and the industry will have to adapt to meet their needs,” the report warned.
The older ones in the cohort have seen the market soar, collapse, re-soar, re-collapse, re-soar…. They’ve seen what amount of monetary gyrations the Fed undertook to re-inflate stocks this time around. They’ve read about the stock market scandals and manipulations, high-frequency trading, dark pools, and spoofing. They’ve seen that the little guy gets mauled, that you can make a ton of money if you get in at the right time and get out before it’s too late. They’ve seen hard-working people get wiped out. They’d rather play with their apps than mess with that infernal machine.
But they do have a problem, smart as they are: they’re carrying on their shoulders a good part of the $1.2 trillion of student debt outstanding. In 2004, Americans under the age of 30 had $146 billion in student loans, according to Equifax. By 2014, in just ten years, the student-debt burden of the under-30 cohort had skyrocket by 152% to $369 billion.
Delinquencies are rising. Some of the millennials have gotten caught up in the for-profit-college scandals that have left them with lots of debt and little education. Now they’re waiting for a taxpayer bailout. It has been the school of hard knocks for them.
But there are consequences. Equifax determined in its analysis that millennials aren’t borrowing money to buy homes like their predecessors a decade ago did – “a trend that may have as much to do with high levels of student debt and poor job prospects as it has to do with trauma from the housing bust….”
The analysis also confirmed our suspicions that those earning less than $30,000 per year – so for example, lawyers working as bar tenders – face the highest risk of delinquency. Then with each $10,000 increase in income, the delinquency rate drops by 20%. A “phenomenon that demonstrates the strain student debt puts on young consumers starting their careers,” as Equifax put it.
Unlike their predecessors, millennials still have trouble staying current on their student loans as late as four years into a job, which is where the delinquency rates of their predecessors began to improve.
And given these realities, millennials are establishing a new trend: they’re not piling on mortgages. In 2006, 33.2% of their predecessors under 30 who had student debt also had mortgage debt. By 2014, just eight years later, the number plunged to 20.9%.
But it’s not just the additional burden of student loans; even Millennials who don’t have student loans aren’t borrowing to buy a home: In 2006, 29.6% of Americans under 30 without student loans had mortgage debt. By 2014, their number dropped to 21.7%.
When the New York Fed asked renters in its Survey of Consumer Expectations why they hadn’t bought a home yet, for crying out loud, 55.7% responded: “too much debt/not saved enough.” The problem is only getting worse. With rents rising sharply, with incomes nearly stagnant, and with home prices soaring, renters won’t be able to save up enough money for even a puny 3% down payment. Just one of the many distortions Housing Bubble 2 is leaving behind in its wake.
Equifax data suggests that the conventional theory – millennials are the rental generation and uninterested in home ownership – is only a part of the story,” Dennis Carlson, deputy chief economist at Equifax, said. “Importantly, large amounts of student debt and less than stellar job prospects for recent college graduates make the dream of home ownership shine less brightly than in the past.
So they don’t trust the stock market, and they’re not borrowing money to buy overpriced homes either, even with interest rates at historic lows. They’d rather rent, remain flexible, live in urban centers rather than distant suburbs, and do their thing. The perfect nightmare generation for Wall Street.
Why does this economy “feel” so much worse than the overall economic numbers, lousy as they are? Because we get hit by per-capita reality. Read… Why This Economy Feels So Lousy
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On a related note:
Economics, demographics and childbirth.
People can:
1. Start a family before they’ve got permanent well-paid positions but if they do then they’ll be labelled as irresponsible
2. Wait with having children until the finances are good but if they do then they might simply find it difficult to find someone or they might simply be too old for childbirth and raising children
The result is that if the economy is prioritised over people then demographics is likely to worsen….
Yes, but you missed a step.
In the old days when times got bad, yes people would limit the number of children because they would be worried about not being able to support them. This would naturally tighten the labor market and tend to produce a rebound. Witness the great depression when fertility rates fell, and did not rebound until things got better. Every prosperous country has such history. And every country that does not have this history remains poor.
But now the decision of the American people that it’s not the right time to have large families is being over-ruled by the rich via their post-1970 immigration policy, which has already increased the population by about 100 million and climbing (you need to count their descendants as well), demographics is not going to ‘worsen’, if that’s the right phrase. No, the rich have decided that the population should not be controlled by the decisions of the American people as a whole, but should be regulated by the rich, just like the government regulates the money supply, or a farmer regulates the size of his herd.
Wallstreet, the bankers, the 1%’rs etc…have rigged the game SO MUCH in their favor, the millennials are taking their ball and going home.
Now they (wallstreeters) wanna whine about it?
Seems some self reflection is necessary here. Too bad the Wall streeters won’t. They’ll just move on to the next pot to steal from.
Just imagine a bus with a huge neon sign on it that says “this thing is bound to go off the nearest cliff and burst into a fiery inferno”. Those on the bus already are oblivious and are even urging the new passengers at the bus stop to climb aboard. But for some reason those new passengers take one look at the bus and walk away.
Older people are often too blinded by their legacy ideologies, paper “assets”, and entitlements to come to grips with the fact that everything they’ve invested in is going down in flames. Those who haven’t already belted themselves onto the bus are under no such delusions.
So funny.
The bus I was on didn’t have seatbelts (as my 401k became a 101k).
Love the analogy. Cheers….
That’s what we get with robot drivers.
What’s an “entitlement?”
There is only one fly in the ointment.
The nearest cliff is close enough so that when the bus goes over, people at the bus stop will still be flattened by the explosion. Not even running away will help.
I’m not sure which generation I would get labelled as, I’m probably a hair too old to be considered a millenial. I inherited a pretty small amount of cash which I took a punt on the stock market with, it was a real eye-opener. Even before you get to the crashes & scandals, the first obstacle to circumnavigate are the fees. Unless you have 100k or more to invest, the fees you pay will eat up any reasonable gains.
I got out, and am never going back. Now if only my pension fund could figure out a way to do the same I might actually live long enough to see it. I better stop now before my colleagues wonder why I’ve started laughing hysterically.
Huh? Sharebuilder is like $4 a trade. Avoid funds and you’re set.
Probably fees to psychologists/brokers who are there to steady your nerves – that’s the narrative from the marketing department.
I go with monthly auto-investment and no-load mutual funds, probably soon to be index mutual funds.
With all due respect to Mr. Richter, the Goldman Sachs survey seems like a meaningless sort of canvas on which anyone can project whatever narrative they want.
I’m highly cynical about this. I’m in my late 20s and virtually nobody in my social circles is familiar with terms like HFT, LIBOR or Quantitative Easing. Very few if any have heard of the TPP or TTIP. Those that are politically active are heavily invested in the traditional move-the-football-back-and-forth wedge issues like gay marriage, gun rights, or abortion.
I wholeheartedly agree. They are unrepentant Obots, despite the overwhelming empirical evidence of upward wealth transfers. I just hope their identity “politics” and “cultural” “issues” will provide them with reliable food and shelter, gainful employment, and actual health care (when their junk insurance doesn’t cover them).
In college, during the Bush years, i was president of my College Democrats. Instead of turning out the vote or discussing issues, it was about bashing the tribal others. They could care less about the Wall Street fraud, just about being culturally superior than all the unenlightened rednecks. These are the Jon Stewart addicts who found their home in the Obama campaign. And if you speak with many of them, you quickly discover how right-wing they are on economic issues. For example, i know plenty of Obots that are in favor of privatizing Social Security.
I tend to agree – and I’m 38 at the end of Generation X.
It’s a lack of money to invest that is the real issue – even in my age group student loans are still a big nut each month and everything else goes to housing and raising kids.
And daycare – unless you have the luxury of family or subsidized daycare – $250/week per kid is the going rate around here. With 2 kids under 5, that’s $2,150 per month right there.
Im in my mid-to-late 20’s, and many of the people I know, even those completely devoid of knowledge in finance, have at least heard about HFT’s, the Libor Scandal, etc. Most know, at the very least, that playing around with paltry amounts of money in the market will get you burned.
Most also know that the political system is rigged against all but the wealthy/large corporations, and have made deductions that they should take as little risk as possible in all aspects of life.
The millenials are the generation that grew up with a million advertisements trying to make them buy everything in sight, but also, in contrast, with the freedom of knowledge and information that the internet brought, and have thus become incredibly disillusioned with consumerism in general. We are a much more anti-social crowd than the previous generations. We hate corporate double-speak, and are quite good at picking out bold faced lies due to the fact that we can fact check just about anything in a matter of seconds.
We have picked apart hollywood/media for what it is: bullshit. Everyone of us knows that most of us will never own a ferrari, a large mansion, have a starlet wife, etc. We also know that CNN, FOX, CNBC, the New York Times, Washington Post, etc. are all politically spun and have little motives other than making money. Of course, as children, we grew up believing that everything was done out of the goodness of our hearts; that corporations actually gave people great jobs; that owning a house was a given if you ‘worked hard’; that you could ‘follow your dream’ if you had enough drive; that going to college was a birthright; and on and on…
But then we went to college, got saddled with debt, got shitty jobs at crappy corporations where we realized it was all for show, where management was just a term for middle-aged white men who came from upper middle class families and who do no real work besides circle-jerking at meetings, where most corporations in America don’t actually produce anything, or if they do, little research and development is done, where most jobs are simply pushing papers from one end to another, where having contacts and having the appearance of wealth, knowledge, experience etc is actually more important than having the actual knowledge and experience (hearkens back to ‘everything is just for show’)…
The millenials are quite rapidly having their eyes ripped open to the underlying truth of America: that it was all for show. That what America says and what it does are usually two completely opposing things.
Millenials and to some extent Gen X’ers are the first generations in American history to have a lower standard of living than their parents.
The way I see it, not being drafted and shipped off to Vietnam or France during WW1 counts for a lot.
Best non-published job description of middle management I have seen in a while.
The gen-x’ers are either fully bought into maintaining their fragile middle management position or saying screw it and jumping from corporate slave to small business owner. Thanks to getting educated and buying a first home before the bubbles, we have the equity needed to obtain a business loan and make the self employment option viable. For those younger, no assets and big debt – Wall Street appears to have bled their golden goose out at a very young age.
Brilliant.
I’m a little older than you, I think–just old enough to remember the pre-internet days with some Piaget cognitive development. Were people really so naïve, that when they read some PR report from McDonalds about ‘career opportunities’ or helping the rainforest when all the beef is on slash and burn rainforest, that they actually believed it?
I study the Perostroika period and some of the ridiculas pro-market nonsense coming out of the market reformer packed media in the late 80s is striking. At least those people had restriction to information.
Are we really more informed, or are we just more cynical.
I wonder if the USA as a whole is clinically schizophrenic.
Indeed. You don’t really see anyone on tumblr getting in a froth over goosing asset prices or the failure to properly prosecute accounting control fraud. Identity politics on the other hands…
The simple answer to the dumb question of “why young people no consume?” is “they don’t have any money.” They have jawbs not jobs, terrible credit ratings, massive credit card and student loan debts, and an official unemployment rate (not even counting the way this is calculated in order to suppress it) in the double digits.
And speaking for myself, I spent the first five years of my academic career moving from one city to the next every year. It wasn’t until my spouse got a stable job and I gave up on the tenure track golden ticket that we finally managed to buy a house, well into our 30s.
Does the house have a yard around it? Is gardening possible, if you-all decided that is what you want to do?
Wall St. will be in trouble if too many people stop having benefits. But the next golden goose to grab is the last big social safety nets of Social Security. I’m sure the plans for the next cycle have already been hatched.
So young people who have experienced two stock market crashes and a housing bust, and have little prospect of decently-compensated work (despite their expensive college educations) are reluctant to invest the money they don’t have in the market and overpriced houses? Can I get a job as an analyst at Goldman too?
Let’s do a generational comparison. In 1984, at 29 years old, I got married and our combined income was just over $100K. We saved enough to put 20% down on a 2 br, 1.5 bath townhouse in Boston that sold for $165K. According to the mortgage company, we just barely fit the ratios needed to qualify.
Now my millennial daughter with a similar income looks at those same townhouses that now sell for $600K. If she is going to save up enough to put 20% down, she certainly isn’t going to gamble that savings on the stock market. Or she will have to count on finding a husband with a similar income, which may allow them to take on a little more risk.
No mystery as to millennial behavior. We boomers would do the same thing under similar conditions.
I live in Somerville. Where are those 600 grand townhouses in Boston proper? Here in Somerville, open houses on converted condos are receiving multiple offers in the 7’s, 8’s and above. There is a new townhouse down the street for $1.24 million. Most of the buyers are not going to enjoy living in these places after a few years. So renting, although very expensive, seems more prudent.
I too bought out in Calif. around your time frame. Could barely qualify for a $130,000 mortgage even with about a 100 grand in family income. Thirty years later, entry level jobs are paying about $40,000 (outside of finance, attorney, medical). Home prices go up, debt levels increase, wages go down. No surprise young adults are not buying homes. Best to just enjoy a beer in the square.
Scott,
Not quite apples to apples… I bought a place in West Roxbury back then and my daughter is looking in Southie. There’s a lot of 2br 2bth for $600ish.
It’s also amazing they have to pay $3000+/mo rent. My other daughter left, came back for three years to build a war chest, and now is back out. Her rent is 40% of her income. Yikes! Barely enough for a beer on the square.
So are any of us in “the situation” ever going to get together and, like, DO SOMETHING about it? Other than trying to stand on someone else’s shoulders to keep our own noses above the rising waters?
Ding ding ding!
This isn’t even about millenials’ attitudes towards risk (about which I can speak only modestly; I’m on the upper end of the cusp, work with some younger folks at a well-but-not-astronomically-paid job in tech–the only one with any hope of home ownership in the near future lives in his grandmother’s place and is married to a lawyer)–it’s about the fact that we’ve spent thirty years pretending we can ignore the exponential function. You cannot have housing prices increase 10x or more and wages remain stagnant and expect that market to clear. My down payment would have to be around what your total purchase price was, on a wage that’s static–not to mention that the “service/knowledge economy” has made sure that all the jobs are in the cities, so if you want to work you pay so much rent that you can’t make any headway toward that down payment anyway. (Of course, the joke’s on the Boomers hoping to retire on the proceeds from those houses they can’t sell.)
Next up, Goldman analysts questioning the moral fiber of turnips unwilling to be blood donors.
I agree as well its about specific circumstances. Technically I’m mid baby boomer but the conservative outlook above applied to me and actually a lot of others I knew who failed to get houses at the time. The triggering reason was PG study delayed my entering the earning and housing market and I still had sufficient delusions about the game to get a job that paid poorly initially. Once you get behind like many with outrageous student loans, you struggle to tread water.
Between that and living in a particularly expensive city though ‘notionally a professional, I couldnt get ahead as a single person even then, at least at first. So this is not new.
I managed to get out but only through concurrent pieces of luck/circumstance .. a well paid job in a remote location for a couple of years with all salary was saveable, parents who were able to front 33% equity, and a housing slump/recession favoring those with smaller loan needs and cash due to the relatively high interest rate around 1990.
In hindsight though, those were good times. What today’s generation are to do I cannot imagine. Housing etc. has now inflated so much even my former luck/circumstance would today be insufficient to afford more than an ashtray. Yesterday I met a late 30s medico who genuinely bemoaned he could buy a place in the same suburb I live in.
ps regarding the houses noone will be able to afford in the future ….. absolutely agree. Fortunately I didnt overcapitalise either as I saw the house as a place to live, not a rentier asset.
pps. I also arranged to bank the salary in bonds but I ended up getting ripped off (zero interest when the rate was 10%). In hindsight though this was a cost effective lesson in demonstrating the predatory nature of the finance industry.
And not just the millennials:
Twice as many Americans now forced to delay marriage, college, kids
It’s been said on many blogs that I read: the Oligarchs/Plutocrats/1% are short-sighted, dumb, greedy, pathologically nasty, disdainful of others, etc, etc – fill in the blank.
If you don’t pay the “average worker” enough money, provide them with a reasonably secure job, what do you expect? Especially since the younger generations (not just millenials, I might add) are saddled with ridiculous student loan debt.
Housing prices are still way too high and currently going up in the areas of the country where there are jobs. I look at prices and think: who can afford that these days?
Wall St/the Banks/Congress: killed the goose that lays the golden eggs about 30 years ago with their snake oil Supply Side/Trickle Down bs “economics.” The 2008 crash was just the final icing on the cake.
2008 resulted in the most massive transfer of wealth – a heist – from the middle/working classes to the upper 1%. Now they’re whining that the proles aren’t spending enough and “investing” in the Wall St Casino?? Sheesh. Takes nerve.
What a bunch of greedy maroons.
Tempest in a teapot. Wall St. can hire a few — a very few — millennials to administer the existing fictitious economy, just like they’ve been doing since 2008. Nothing needs to change.
What they need are stable jobs that pay a decent amount. They need an economy that is oriented towards Main Street, not Wall Street. They need houses and housing markets whose prices haven’t been artificially goosed to ridiculous levels. Does anybody really think the banksters are going to support these kind of changes. The finance industry is self-limiting, they pollute their own environment to such an extent that even they, bottom feeders that they are, can’t survive in it. The unfortunate thing is that when their environment collapses it takes a lot of other people with it.
Don’t worry, nobody on Wall Street is actually losing sleep about meeting the financial needs of the millennials.
Unless by “meet their needs” you mean “rip them off,” which is what the Goldman Sachs analyst explicitly means.
My understanding of the present economical situation is the down-sizing that will eventually affect us all is starting with the wise millennials: soon we will all be living within our means and those “means” will become smaller and smaller.
True. In the meantime the banksters along with their economist mouthpieces justifying their greed, turn fiat into Ferraris.
Let’s not forget obamacare, that provides young invincibles the mandatory opportunity to pay for the health care of older people.
Oh, and of course the “young invincibles” are never going to get old – right?
All forms of social insurance have some form of implicit subsidy between different groups whether its young and old or healthy and sick, employed and jobless. No one has a guarantee of not suffering the misfortune of bad health irrespective of age. And, of course, no one is immune to growing older and having age-related health issues.
I’m no defender of Obamacare (HR-676 would be my choice). But to claim that it disadvantages young people by “forcing” them to subsidize the health care of older people is just ridiculous bullshit. Obamacare allows insurers to charge those over 50 up to 3 times more than younger people for the same coverage. How would the “young invincibles” like to be caught in the “no insurance but a few years too young for Medicare trap”? Obamacare is no great deal for folks in that situation, particularly those who have been downsized and been forced to take some McJob that offers no health insurance.
I’m fairly young and 100% healthy–and there is no way in hell that I’d ever, ever sign up for Obamacare. Unless I got really super sick I mean. Then I might sign up.
By the I read just a few days ago that Obamacare policy premiums were set to explode by over 10-20% next year. Hehe. I guess that means that young, healthy people aren’t actually doing much subsidizing in real life anyway so it’s kind of a moot point.
You don’t get it. The ethics of the situation are not germane to this discussion about “stingy millennials” who won’t invest in the stock market or buy giant houses or get married or have kids or all the things that will enrich our corporate classes. Being forced to pay into obamacare is one of the reasons for this.
The fact that their mandatory contributions to the care of the elderly have to be laundered through insurance company balance sheets is an associated indignity but not the point in this discussion.
Actually, you’re the one who doesn’t get it and doesn’t get that he doesn’t get it.
Everyone who doesn’t have health insurance is “forced” to pay into Obamacare (actually they have to pay a penalty if they don’t sign up, which is hardly the same thing as being “forced”) not just millennials.
The reason why millennials, or anyone else, because I can tell you from personal experience that reduced consumption is now pervasive across all age groups, isn’t “contributing” to the economy in the way in which the elites expect is that many of them can’t find employment that 1) pays enough for them to accumulate enough savings to invest in the stock market or make large purchases or 2) provides enough financial security for them to have confidence to make long-term purchases on credit.
Obamacare, for all of its faults (and there are too many to list) is a relatively minor player in the scenario you mentioned in your original comment, especially since the age-adjusted premiums favor younger people.
And yes, the ethics of the situation are entirely germane in reference to your original comment, which reveals a complete lack of understanding about how social insurance works and smacks of generation-baiting irrespective of the overall point of the discussion.
1. Young invincible forced to purchase product they didn’t previously buy and don’t currently want.
2. Young invincible therefore has less to spend on other things like education and houses and so forth.
You’re free to introduce whatever subjects you want, but you’ve done nothing to invalidate my primary argument. I notice you even agree with it, in a diminuitive sort of way:
“is a relatively minor player in the scenario you mentioned”
As for the subjects you did introduce, this is a redistributive “tax” exacted through the purchase of a product that (on average) the healthy young don’t consume.
I’d be fine with an ACTUAL tax paid into a single payer system, according to income etc. We have nothing like it now (ex Medicare etc.). As it is it’s massively regressive, and stuff about “but older people pay more” doesn’t change that.
And this:
So, they aren’t FORCED to buy insurance, but then they will be FORCED to pay a fine. Please explain how this is ameliorative.
They’re not “forced”. If they don’t want to purhcase insurance through Obamacare they have the option not to sign up and pay a penalty that is many times less expensive than buying the coverage or buy other coverage (which will probably cost more). Its the same rule for them as for any one else and they also have an option unavailable to older people to buy a less expensive catastrophic coverage plan through Obamacare. Quit whining and making excuses with absurd arguments like this. I don’t like Obamacare or the mandate but your argument is invalid.
Again – no different than anyone else who needs to purchase health insurance through Obamacare
I didn’t introduce the subject – YOU DID!!!! And I don’t “agree” with your argument – I think its a complete red herring, If the millennials had jobs with health coverage none of this shit would matter because they wouldn’t need Obamacare in the first place! I absolutely invalidated your argument.
Again you’re introducing the argument that young people (or implicitly, healthy people who may or may not be young) should not have to “subsidize” the health care of older healthy people. This is an obnoxious attitude that ignores the realities of life – EVERYONE GETS OLD and MOST PEOPLE WILL NEED HEALTH CARE AT SOME POINT IN THEIR LIFE! Your argument is a bullshit, individualist stance that is representative of the toxic “I’m OK – if you’re fucked up then its your fault” attitude that’s sinking this country.
No – you wouldn’t be! Why would you be any happier paying a tax that “subsidizes” health coverage for people who are going to need it more than you at some point in your life? Medicare for all funded by taxes would be an infinitely better system than Obamacare but there’s fundamentally no difference between satisfying a mandate to buy health insurance (or pay a penalty) and paying a tax to ensure coverage for all. You don’t even understand your own argument!
What the fuck does this gibberish even mean? The part about older people paying triple for the same coverage as younger people invalidates your whining about young people “subsidizing” the health insurance of older people.
I’m perfectly happy paying for the health care of people who can’t afford it – as a tax,”medicare for all” sure wonderful.
You are making it about young versus old, not me. I see a significant difference between buying a product with costs indexed for age & health, versus paying a tax that’s indexed for income. It doesn’t matter a fig old or young about whose premiums are higher, it’s going to be regressive for both groups because anyone not upper middle class or above will pay a high percentage of their income for their mandatory coverage.
If you don’t perceive any difference then there’s nothing more to talk about.
This is quickly turning into an unfruitful discussion. Good day to you.
Oh, and here’s this year’s penalty for not having insurance:
http://www.nerdwallet.com/blog/health/2014/10/02/how-much-is-the-obamacare-penalty-not-having-health-insurance/
Unless you are broke, this is not a trivial expense. But I agree with you, probably not as high as insurance premiums.
Thank you, sir. I think we lose sight of the real fact: no opportunity. I also believe the anti-boomer hysteria is an astroturf job from a Koch front group to get people to scuttle SS.
More than just Kochses. Also DLC Clintonite Obamacrats without any Koch brothers help or even inspiration at all.
My .02, as someone this article was more or less written about…
Financially I’m in vastly better shape than most of my peers. I’ve been working in my field for a few years now and have done well enough that I’m now making a fairly good salary and I paid off my student debt a couple of years ago. I live well within my means and have been stockpiling money with a view toward eventually buying a house with it. I even live in a city that hasn’t seen a big inflation in home prices. In other words, I’m exactly someone who should in theory be putting down 20% on a 30-year fixed rate mortgage.
But my student loans were a huge problem for the first couple of years I was working, and even though they were only a “mere” 20k the only reason I was able to pay them off this soon was that when my employer was acquired I got just enough money out of the deal to do so. I can’t count on windfalls like that in the future. I’ve already had to change cities once for my career and it’s a near-certainty I’ll have to do so again in the next few years.
So between what a huge pain in the ass that 20k debt was, and how I really can’t assume I’ll be able to keep the same job or even live in the same city for more than maybe a decade at most, the idea of taking on 6-figure debt on a 30 year timeline seems completely insane regardless of what the interest rate might be. That’s not even taking into consideration whether the house is likely to appreciate or end up underwater. I get the creeping horrors just thinking about it.
So the end result is that I’m basically not willing to take on any debt that I can’t pay off in 5 years or so, because it simply is not possible to plan any further ahead than that. My plan, in case it’s of interest, is to eventually buy a place either entirely with cash or with some ludicrously large down payment. At present rate of savings I should be in a position to do that in another two years.
“As ye sow, so shall ye reap.”
Interesting how the Bible seems to be a good guide to the economy these days.
If the millennials can’t afford to buy real estate and are stuck in the renters class – how do you expect them to invest in anything? Wall Streets biggest problem with the millennials is that they don’t have anything to invest!
I’ve regularly put money in 401ks and stuff without being able to afford to be other than a renter, I suspect I’m not the only person in California in that situation, middle class and priced out of housing, housing just costs too much. Though I’m Gen X. So yes stock and bond mutual funds or whatever are actually much more affordable than housing. Yes it probably is all Ponzi ultimately.
There’s more to it than a lack of means to be old school consumers. My younger brother made a small fortune in the dot com bubble–enough to live on for the rest of his life in all likelihood–and in spite of having the means doesn’t play the consumer game at all, driving around in an old Camry, and to whom a big night out means pinball and Rainier beer in a can. His only indulgence is world travel, and even there he’s staying in hostels and the like. You could hang around with him for months probably and have no idea whatsoever that he had ever made significant money. I don’t know how big a group they represent but there are plenty of people in similar situations, who could easily play the consumer game buying shiny houses and new cars and all that and simply choose not to buy any of it.
Fed policy for the last 7 years : Raise the costs of things we the people need and lower the costs of things we don’t need. Inflation is a stealth tax paid to the banksters, what a wonderful recovery for Wall St.
The solution is quite easy. Raise taxes big time.Institute a wealth tax…..perhaps 1% of total assets. So a person with 50 billion dollars will pay 500 million per year. Institute a confiscatory inheritance tax. But shut down the military industrial complex as well. Give all Americans a guaranteed annual income.
Hold on there cowboy.
You might want to put a minimum wealth level on that asset tax and make sure to exclude retirement savings and primary residences.
“They’d rather rent, remain flexible, live in urban centers rather than distant suburbs, and do their thing.”
if the assumption that the-under-30 generation is “smart” then the take-home from it not investing in the stock market or real estate should be –> the stock market and real estate are over-valued.
however, if the under-30 is not investing in the stock market or real estate because they do not have the means, then the message changes. If the under-30 generation does not have the means to buy stocks or real estate because they are suffering from a crippling student debt load, the message becomes even clearer.
the message is this…millennials are not “smart”, they are just destroying their futures by over-paying for education. don’t confuse and educated person with a smart one.
if millenials were smart, they wouldn’t prefer rentals to home ownership, because in major cities like NYC, Chicago, SF, etc. there is a large arbitrage to be exploited between buying a home/condo/apartment versus renting. (read: its less expensive to own than it is to rent). the “smart” generation would be acting on this arbitrage and exploiting it such that the market would rebalance and rental rates would drop OR real estate prices would go up.
While I agree with Yves that it’s wrong to blame or characterize entire generations, I think they’re nonetheless important and that Richter uses the concept correctly here.
Age cohorts have crucial commonalities, mainly common experiences. And of course, their life stage.
They’re important in another way: as a measure of time and of population turnover. Really big cultural changes happen primarily by replacement of the people involved – that’s why they take so long, a factor very easily forgotten.
One example would be modern feminism and the role of women. The movement, and the change, are about 40 years old now – two generations. Those much under 60 have no idea how much things have actually changed. An Yves Smith would hardly have been possible 40 years ago. (I don’t know her age, but it’s a lot less than mine.) “Millennials” take the new role of women, and their hard-won rights, for granted.
One thing that means is that it’s significant what has changed and what has not. For instance, employment and even leadership have changed tremendously (I can still be surprised by some of the things I see women doing – even though I know perfectly well that they can.) On the other hand, it’s alarming that so few women are, say, in Congress. It would be worthwhile to figure out what the barriers are. And our courtship system has changed very little. That’s strange – feminists in the 70s assumed that it would, tremendously.
That’s all beside the point of the article, which is the same as the one about deflation in the EU: people can’t buy stuff if you don’t pay them enough or they can’t find jobs. Even Henry Ford knew that.
Great comment. I’d say in addition to change taking time, it’s also why it’s hard to see from the outside. Age is a vector that helps organize society into groups with similar experiential backgrounds and life stages but is subtle enough to not always be obvious or have clear demarcation lines. In practice, we tend to spend time with people and institutions that are more closely aligned to our own life stages than others – often without realizing how this colors our view of society as a whole.
Where there is intergenerational interaction, those with less power (younger people) tend to be deferential and respectful to older people rather than saying what they really think, especially as they see those who do dare speak up ineffective in being heard. So in aggregate, established perspectives don’t encounter direct resistance at its actual level of underlying intensity.
And that’s what has happened with wealth concentration. Even today, a lot of educated, older commentators act like something uniquely big happened in 2008, as if things were hunky dory before the GFC.
As you say, it’s a rather simple notion to understand that people who don’t have money don’t buy stuff. But since that doesn’t compute, pundits from the established power structure must invent other explanations, or at least shift the conversation away from the core of that truth.
Breaking news: 20somethings not heavily into stock market.
That will all change as they grow older, make more money, and try to plan for retirement.
Hahahahaha… we’re going to get paid more in the future? And ever get to retire??
You’re hilarious.
You think you’re the first generation of 20somethings to feel poor?
lol.
Those damn millennials have no generational solidarity. How can we, the older generations, get out of the ponzi if they dont get in?
I can relate to this article quite a bit. My husband and I (36 and 30, respectively) aren’t sure we’ll ever be able to buy a house in this over-priced East Bay nightmare. Houses in Berkeley, CA regularly go for 15-20% above asking, and just a normal no-frills house will probably set you back $1.25M. Despite being earners in the top 3% for our state, I can’t imagine how we are going to save up $250k for a down payment. I paid off $55k in student loans in my younger years, have another $140k to shell out for grad school that I’m paying as I go, and he still has half of his $150k in student loans to contend with. We live in a small apartment and pay a rent that I think is a reasonable for the area, but I always remember that our rent is still MORE than the mortgage my parents paid on the 2,500 sq ft home in which I grew up (not that long ago!), in an upper-middle class neighborhood on the East coast. It just seems so disproportionate.
I also just read Elizabeth Warren’s “The Two Income Trap.” Written in 2004, her ideas were rather prescient, and she very accurately predicted how some of the deregulatory policies of the 90’s would impact homeowners later on (much of which we saw come to fruition in the 2008 financial crisis). She made a very cogent argument, supported by her excellent technical analysis of bankruptcies in the US, and her words will really stick with me.
Bottom line, if we can’t afford a house on one income, well then we’re just not getting a house. I’m happy to rent and be free from the shackles of a mortgage so that I don’t have to live in fear of illness, job loss, or whatever else bankrupting my family.
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