Wednesday, April 9, 2008

The Financial Generation Gap

There's a personal finance generation gap, and it has nothing to do with credit cards.

People my age (I was born in 1981, on the cusp of Generation X and Generation Y) are supposed to have a sense of entitlement, of naive optimism. We were sheltered, people say, and our expectations of the "real world" are too high.

Even in the generally youth-friendly blogosphere, I sometimes see people asking questions like, "Why do young people have such a tough time managing their money?" They assume the answers have to do with too much personal spending and not enough self-control. People who urge 22-year-olds to max out their 401(k)s are also operating on some of the same false assumptions.

I don't think those over 40 or so realize how much things have changed since they were starting out in the workforce. Young people today live in a different universe.

You start life in debt. If you went to college, you probably have student loans. Whether or not you went to college, you probably have credit card debt, too. You were eighteen when you got that first credit card and hadn't really figured out yet what a bad deal a 22% interest rate was.

A college degree doesn't create security. We don't graduate into entry-level jobs at 3M and IBM--we get internships, temp, or work retail. We don't buy houses after graduation--we rent apartments with roommates. Today's recent college graduates aren't in any position to get married, start families, or sock away money for the future.

"Real" jobs are hard to get. Employers, even little non-profits like my employer, *love* to save money by hiring people part-time, three-quarters time, or as "permanent temps" in order to save on benefits. They also love to hire freelancers. All of these people have to be responsible in lesser or greater degree for their own health insurance and retirement plans--any "benefits" offered to them are a shadow of what was offered to corporate employees thirty years ago.

There are no pensions.
You get a pension from working for the government or joining the Army. In any other job, you get a 401(k)--if you're lucky. If you're really lucky, you will have an employer match on that 401(k). If it takes a year or two years for that match to kick in, it might as well not be there as you probably will have moved on.

Traditional health insurance is dead. If you are lucky enough to get insured, it will come with high deductibles, no prescriptions, no coverage for preexisting conditions, or administrative headaches. HMOs and PPOs are the high point.

We're not counting on the government. Most of us don't think Social Security will be around for us. Medicare? Who knows. We're not used to having good health insurance, and the current Medicare would be a step up for many of us.

What's a career? People who write careers love to trot out the statistic "you'll have 7-10 careers in your lifetime" (or 10-12, or 12-15) as though it's a new piece of information. I'm 27, and I've had at least a dozen jobs that have lasted three months or more. I have no idea how many "careers" that makes and couldn't care less--all I care about is how I can combine and describe those jobs on my resume to make me attractive to someone who's hiring for the next thing I want to do.

Whatever we do, and however short a time we've been doing it, we're already thinking about what we're going to do next. We do not relax into jobs and stay at them for twenty years. I have been at my job for five months, and while I have no intention of leaving anytime soon, I still keep track of job openings and have a sense of what my next step will be. The thirtysomething woman I supervise is much less ambitious than I, but she still keeps a foot in the freelance world and my boss predicts (rightly, I believe) that she won't be with the company for more than three years.

This is mostly self-preservation--we know that company loyalty and job security do not exist. To succeed, we need to pay attention and plan ahead.

Are we entitled? Are our expectations too high?

If we demand higher salaries, it's because you can't pay a hefty student loan bill on $30,000 a year. If we are impatient for promotions and raises, it's because we realize how little of a safety net we really have. Your salary is much more important when your health insurance sucks and your company has no retirement plan. A quick promotion is much more important when you know how tenuous job security is. The boss who is grooming us for promotion in 2012 may not be around in 2012. She may leave, or the company may be reorganized or the department absorbed into two others. There is no guarantee that the next boss will have any interest in our ambitions to be more than administrative assistants.

I've painted a grim picture here, but I'm not complaining--I think I've accepted all of the facts above without resentment. I haven't ever known the world to be any other way.

I'm still a cockeyed optimist. I believe that younger people still have a good chance of getting out of debt, buying real estate, retiring comfortably, and even retiring early. But for our generation, financial security requires total independence and total responsibility. We are the only ones we can count on when it comes to our financial futures.


Victoria said...

You've hit the nail on the head my friend!! Everything you said is so true. I don't think your being negative you are just being wise.
I wish I had known everything you listed here before I graduated college...

Kacie said...

Probably my biggest gripe is at companies that refuse to pay their interns. WTF?!

Having to work full-time for free, just to be able to have that necessary experience. Some internships pay, but from my own experience and what I've heard from others, it's usually less than $10/hour.

Excuse me, but how is that intern supposed to live? Oh right, that's what credit cards are for.

I agree with much of your post, but I disagree with your statement that "Today's recent college graduates aren't in any position to get married..."

You don't need money to get married. It helps, though.

Kacie said...

...for some reason, this post just now showed up in my feed reader (on April 8). But, it's dated March 19 on the post

Anonymous said...

Also just showed up on my feed reader.

Good article. Most of this actually doesn't apply to me--traditional job, traditional benefits, 401k matching, even a pension if I stick around for 5 or 6 years (not likely!). But I suspect things will change over time for me too. Even with all this, I can't afford to max out a 401k yet.

Agree about social security/medicare. My parents were ranting about how it would go bankrupt, and I calmly stated "I don't expect a dime from it". My dad was pretty surprised by that. It isn't as though I love paying so much of my taxes to fund a (potentially) dying system but what else can I do?

Anyway, good thoughts.

Sam said...

Excellent post! And I agree with pretty much everything.

I've started to realize that while I am not $30,000 or more in credit card /student loan debt, many my age are and I think marketing plays a huge role in that figure. I think it take incredible will power to stay away from a so called traditional course of college, goodies and debt especially when you are in your late teens-late 20s and the mind is so readily mouldable. Or unless your upbringing was a bit different from the American norm.

Scarlett said...

@victoria: Thanks! I, too, wish I'd had a better idea of what post-college life would be like.

@kacie: Oh, yeah, the internship system annoys me so much! In publishing/ journalism, they usually don't pay at all . . . and are usually in really expensive cities, to boot. I think you're supposed to have parents who are willing to pay your rent.

You're right, you don't need money to get married (except for, what, 20 bucks for the license?)

I started drafting the post in March, and didn't realize it would post with that date. I think it's fixed now.

Scarlett said...

@stacking pennies: Yeah, Social Security is a nice idea, but the way we fund it is, essentially, a pyramid scheme. I'm kind of surprised it works now.

@beany: Thank you! I agree, it must take incredible willpower . . . I benefited from an unusual upbringing and a really sheltered college life. And if I recall correctly, you were brought up in a culture fairly different from the U.S. . .

sara l said...

Whether or not each person in our age group is dealing with all or one of the many issues you mentioned it is still an issue.

On of the things I've been wondering about lately is the idea of career and the related support. What was the chicken and what was the egg. Did companies decide they could pay people less and drop benefits? Or did they realize that people weren't sticking around and decide to reduce their investment in workers?

Dana Seilhan said...

Can someone explain to me how Social Security is a pyramid scheme, honestly? That would be like saying the military is a pyramid scheme. We're funding the present crop of retirees with the FICA taxes we are paying right now. People who work for wages in the future will be funding our Social Security as well, if it's still around. The SSA seems to think it will be, but the benefits will be reduced.

But I just can't see the pyramid scheme. I don't know why people keep referring to it that way. It was only ever supposed to be sort of a safety net in case older folks lost their retirement money, anyway.

Anonymous said...

This is great info to know.

Anonymous said...

This sounds like an overview of a book I just read....Generation Debt. Nice book by the way>

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