Wednesday, April 28, 2010

Gen Y: Doomed to a Constant State of Debt

I am at a total loss as to how our generation is “supposed” to progress through a financial secure life. All of the conventional steps seem to commit us to a constant state of debt 

When I think about the “typical” life progression of a person would go through between 18-35, I see all of the conventional steps we are supposed to go through and I can only come to one conclusion: Do most people just simply live bound to debt for the majority of their adult life? Let's look at the steps together... 

Congrats, you are on the road to bettering yourself. You went to the best school you could get into. Well, your parents can’t pay for all (or maybe any) of it. There are loans available. FAFSA not satisfactory? There are private loans for that.

But you are starting to get statements… pay off some of the loan now? That's crazy, you are young, time to enjoy life. You don’t have to pay that off till graduation.

On campus one day, “hey, fill out this credit card application for a free sub sandwich” Hey, sure why not?  Drinks at the bar? Open a tab. Shopping spree on new clothes? Put it on the card.

Graduation, finally. Only took five years, but it took you an extra semester or two to declare your major, and then there was that semester abroad. No matter, now it’s time to make money.

Young Professional
Congrats, on your first real job. But a new life needs an updated image. Get a new car. You deserve it. And the dealer says you can afford it with your proof of income. No problem, they wouldn’t let you buy it if you couldn’t afford it, right? Note, that many of people have their first car before graduating college (or high school), but stay with me on the illustration.

But where are you going to live? Well you’ve got to get something nicer than that ratty apartment from college. Forget roommates, you need the space to yourself. So how much can you afford? 1/3 of your gross income, no problem, they wouldn’t let you rent if you couldn’t afford it, right? There are so many nice places out there. You need a happin’ place. In the city, near clubs, with a pool, and other hot singles hanging out at the pool…

I could use some professional clothes and maybe a computer. Where’s that credit card?

Marriage, Baby Carriage, House

Maybe you’re ready to get married, or maybe she’s been dropping hints you can’t ignore, either way, you need a ring… “three month’s salary,” oh don’t worry, you can buy that on credit as well. “No interest for six months.” No problem, they wouldn’t let you buy it if you couldn’t afford it, right?

But now there’s a wedding to plan! Dress, flowers, hall, food, music, and 100+ guests. Parents will pay for some, right? Maybe, but they set a limit on the budget, oh well, you can make up the difference. And so many things to buy… “But the $7 invitations are just so much nicer.” Your friends don’t want to think you are cheap, right?

Maybe you were living together (in a bigger apartment than when you were single, you both need your space right?), or maybe not. Either way, you need a house now. Isn’t a house just something people buy when they finally get married? No down payment? No problem! They wouldn’t let you buy it if you couldn’t afford it, right?

Baby time! Maybe a surprise, maybe expected… either way, you need some baby furniture, right? And clothes, and books… what else, a wipe warmer? But a baby will take up your time, how can you afford that? You both need to keep working to pay the mortgage, and now there’s daycare costs...

What are you now… 35 years old?
Congrats, according to the repayment plan you are just now paying off your college debt. Your house will be paid off in your fifties, unless you take a home equity mortgage to pay for your kid’s college....

Am I crazy or are most people living in a constant state of debt from 18 till old age? If you get student loans, buy a car and a house before they are even paid off, is there ever a period of adult life when you are not owing someone money?

I know that debt is not completely avoidable, and I know that debt aversion is not particularly advisable. I am not advocating never opening a credit card and some purchases need to be financed (house?). But if people continue to finance purchases today and spend the extra “rewarding” themselves, there is never any extra to finally pay the constant debt we are incurring.
Doing what everyone else is doing is not the answer. 

If we justify our lifestyle because of what we perceive is “normal” we are setting ourselves up for a life of financial hardship. What is “normal” is not financially secure. What is “normal” is not being prepared for big life expenses (car, medical, house). What is “normal” is not being prepared for retirement. And I fear what “normal” will become for our generation that works till our 70+ and retires in poverty.

The only way to get ahead must be to break convention. Obviously what is conventional is not sustainable. You cannot have freedom in your career or life if you are so dependent on your job because you have put yourself in so much debt. You can avoid the debt if you simply don't spend money on something unless you weigh it against the other things you want in life. Prioritize what you really want in life, while preparing for the unexpected.


  1. It's popular nowadays to project gloom-and-doom. A generation ago everything was rosey (and debty). Things never change BUT I think the banks are getting tighter again.

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