Young dream-seekers strapped by debt
School loans, soaring house prices, low wages, and too-easy credit are keeping 20- and 30-somethings from making financial headway.
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 compact discs, choosing ones to sell.Skip to next paragraph
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"We never imagined we'd be peddling our wares for food money at the age of 30," Ms. Draut says. A combination of graduate school tuition, meager salaries, unemployment, a career change, and the cost of setting up housekeeping had drained their modest resources.
Straitened circumstances are 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 healthcare 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 says. "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 healthcare and housing."
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 says. "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."
Ms. 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 says. Draut wants legislation to stop what she sees as the most egregious lending practices of the credit card companies.
Very often, social observers say, young adults living on the financial edge view their situation as simply their own fault.
"We're so individualistic," says 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. 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 says. "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 says. "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."