Bad Timing

Ross Menke

EVERY GENERATION faces its own unique financial challenges—and my generation has, so far, had a particularly rough time. Consider a 2018 report by the Federal Reserve Bank of St. Louis, which looked at the connection between birth year and financial well-being.

Some 48,000 families were divided into six groups based on their birth decade—from the 1930s to the 1980s. I was born in 1987 and hence belong to the 1980s cohort. The Great Recession affected all generations, but it’s possible that my age group was hurt the most. The study found that the odds for long-term financial wealth are currently stacked against the 1980s group, though there are still reasons for optimism.

Get to know today’s typical 35-year old family. They were born in 1984 and attempted to enter the workforce at the start of the Great Recession. This 1980s cohort is the most educated group to date, but that came at a price—in the form of record levels of student loans.

As the report states, “The typical 1980s family also had higher debt in relation to both income and assets than any previous generation at the same ages, creating headwinds to wealth accumulation and risks to financial stability when setbacks occur.” Because we graduated college in the midst of a recession, we started our careers by finding any entry-level job available, simply so we could make student loan payments, while often also being forced to postpone homeownership.

Understand the challenges that the 1980s cohort have faced over the past 10 years. The greatest driver of a family’s wealth is income. The higher your income, the greater your chances of increasing your wealth over the long-term. You’re able to pay off student loans, purchase a home and save for retirement.

Problem is, because my group has had to deal with lower incomes and a lack of assets, we’ve missed out on the rapid appreciation of stocks and real estate since the Great Recession ended. With lower returns expected in the decades ahead, we’ll be playing catchup for years to come.

Compare the 1980s group to previous decades. The cohorts that recovered fastest from the Great Recession were born in the 1930s to 1950s. Why? These groups have more assets and lower levels of debt, allowing their wealth to bounce back over the past decade.

By contrast, those born in the 1960s, 1970s, and 1980s now have wealth levels that are, respectively, 11%, 18% and 34% below benchmarks established by earlier generations. For each group born before 1980, the largest amount of debt is their mortgage. Meanwhile, my group’s largest debt is student loans. Because this debt isn’t tied to an appreciating asset like a home, 1980s families fell further behind from 2010 to 2016, relative to earlier generations.

Sound bad? There are still reasons for my cohort to be optimistic. As the baby boom generation exits the workforce, millennials hope to see a spike in earned income. This should provide the opportunity to save more and buy appreciating assets. The study expects both the income and wealth trajectories of my generation to be steeper than that of earlier generations. Improved health at later ages should also be a financial benefit. We can potentially work longer during years when we’ll be at or near peak earnings—assuming we’re willing to push back full retirement until our 70s or even our 80s.

Ross Menke is a Certified Financial Planner. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross’s previous articles include Never Too LateHead Games and Full Speed Ahead. Follow Ross on Twitter @RossVMenke.

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Mik Barbasol
Mik Barbasol
3 years ago

Borrowing money for a bogus degree and expecting financial success is a suckers game….vocational school is probably a better choice for many.

3 years ago

Excellent article. As a soon to be retired college professor and the uncle of two nephews and a niece who were born in the late 1980s I have seen the impact that economic conditions at the time of graduation can have on careers. A major problem for those who graduated during the recession when companies weren’t hiring is that many employers prefer to only hire new grads into their management development programs.

3 years ago

Piling up student debt to get degrees with the word “studies” in it is usually a bad financial decision. Women’s studies, Gender Studies, International studies etc do not provide a good cost/benefit

The real tragedy is that the Government is letting unsuspecting kids rack up debt on these degrees that will not provide a clear financial gain

Right now, schools promote these degrees with unrealistic expectations. But the schools do not lose when the debt is racked up…the kids do (or the taxpayers when the loans are not payed back) The schools should hold some of this debt themselves which will incentivize them to have productive degrees and only loan to kids with a good chance of paying it back

Purdue University is experimenting with a different approach than debt….check it out, I think it is a great idea

3 years ago
Reply to  DD

“7,782 degrees were in the broader category of “area, ethnic, cultural, gender, and group studies,” which women’s studies falls under. This represents about 0.4 percent of all bachelor’s degrees….In fact, the share of degrees going to humanities majors (the category that “area, ethnic, cultural, gender, and group studies” falls under) has dipped slightly over time, as has that for social and behavioral sciences.
The fields that gained, in percentage terms: computer science and engineering; business; and “other fields.” “Other fields” includes many professional or pre-professional disciplines, such as health professions, agriculture, communications, law enforcement, legal studies, military technologies and applied sciences, etc.”

3 years ago
Reply to  parkslope

Interesting article, thank you…The large increase in “Other” degrees does concern me…

Doug K
Doug K
3 years ago

born in 60s, largest debt will soon be the student loans we are taking on to put our kids through college.
We felt it’s scarcely fair to our children:
1. to lumber them with tens or hundreds of thousands of dollars in debt,
2. with the first payment due two weeks after graduation,
3. when that graduation is into a world where even the physicists and engineers have to spend months or years searching for jobs in their profession (a number of kids we know).

I lost two years to the army also, though was able to take a correspondence course studying computer science in the evenings, which helped upon emergence back into late capitalism.

Hours of minimum wage work needed to pay for four years of public college:
Boomer 306
Millennial 4 459
Source: National Center for Education Statistics. Calculations based on tuition for four-year public universities from 1973-1976 and 2003-2006.

It’s really not the millenials’ fault..

I did a rough calculation at one point. Colorado State is slightly cheaper than CU Boulder, so I used it in this calculation.
Assume best case earning $9/hour, though we know most minimum wage jobs will be less than this. Minimum wage jobs are typically capped at 29 hours a week, since after that companies are required to give some benefits. To work over 29 hours a week, it’s necessary to hold two jobs. Scheduling and travel become difficult, especially since many of these jobs will be zero-hour contracts or ‘flexible hours’, meaning the schedule will change daily and unpredictably.

For Colorado, total costs (tuition, books, board & lodging) for a state college are about $29 000. To make $29 000 after taxes at $9/hour takes 3222 hours. Working two such jobs for 58 hours a week, it would take 55 weeks to make that $29 000. That’s more than a year.

Now the student still has to cover board and lodging for the times when school is out (summer vacation, etc). Also in order to work those minimum wage jobs, they will need a car and gas money, or will be spending money and 2-3 hours a day on public transit to reach their jobs. This doesn’t leave any time to attend class, let alone study.

So it will take roughly a year and a half of 58-hour weeks to pay for a year of college. The student won’t have time to attend class due to travelling and work requirements.The only choice now is incapacitating debt, or not going to college.

Langston Holland
Langston Holland
3 years ago
Reply to  Doug K

Respectfully, debt, incapacitating or otherwise is a choice in this amazing country. My grandfather worked his way out of extreme poverty as one of 12 children, several of which died in their early years in a shack his father rented as a sharecropper. How did he do this? The military. WWI. Active duty in France. Came back and attended Univ. of FL (a single building in a field at the time), majored in law (that made you a lawyer back then), kicked butt and married well some years later when he could attract the kind of woman he wanted.

There are also a growing number of good colleges that accept work in lieu of tuition. Hard work, but not long enough hours to damage study for the serious student. You can also get significant tuition benefits while driving a UPS truck among other large employers that offer similar programs. You can work your *#/$& off like several of my friends did before and during college which included qualifying for various scholarships. After I got over my embarrassment, these people had a profound affect on me.

You need good parenting to find this kind of discipline early in life. It would also help if our “progressive” culture didn’t encourage long term adolescence. Nevertheless, I have a hard time feeling sorry for kids in this country that take on huge debt loads and whine about it afterwards.

Doug K
Doug K
3 years ago

good for you and your friends.
It’s different today. Please read the article I linked to.

My kids and their friends work far harder than I did. I’m an immigrant who worked 80 hour weeks for years, to get to a position where I could legally immigrate. The kids today are alright, it’s the economy that we built is the problem.

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