End of The Good Life

Riva Froymovich

• Publisher: Harper Perennial
• Year: 2013
• ISBN:
  9780062217851
• Topic: Economics
• Subtopic: Economic Conditions
• Index: Economics

Financial journalist Riva Froymovich has good reason to be anxious about the financial turmoil facing Generation Y. This is her generation.

Indeed, Generation Y has suffered the brunt of the financial crisis and great recession. For those in the U.S. born after 1976, the American dream is a is becoming a nightmare. Swamped in student loan debt they're postponing marriage and buying homes, unable to save money, and delaying having children.

The End of the Good Life: How the Financial Crisis Threatens a Lost Generation--and What We Can Do About It examines short-sighted government policies and initiatives that will wreak havoc on our youth. In addition to offering concrete policy suggestions, this book is driven by the touching personal stories of Americans and other young people around the globe affected by the financial crisis.

1

This New American Life: Generation Y and the Great Recession

DR. HIBBERT: To raise the money, we’ll need a bond issue.

LISA: But won’t that shift a burden to your children?

BART: No, you idiot. We just pay with another bond issue. (Points to Maggie.) Let her figure out someone to dump it on.

MAGGIE: (Looks to her side and sees nobody sitting next to her. She crosses her arms.)

—The Simpsons, Season 19, “E. Pluribus Wiggum”

Shane Patrick has been volunteering at Occupy Wall Street for several months. He sits in its Manhattan office, just a block away from the New York Stock Exchange, hunched over a computer with two Internet browsers running simultaneously.

Occupy is a protest movement that has spread around the world. It has no single message or leader, but channels a growing dissatisfaction with economic inequality and government policies that favor a small and privileged segment of the population. The office is like most in downtown Manhattan: a maze of cubicles bordered by glass-encased offices, gray carpeting, fluorescent lighting. But there are also posters emblazoned with We The 99 Percent, a slogan the movement has taken on to highlight how most of the world’s wealth is held by just 1 percent of its inhabitants.

When Shane is not responding to emails from media organizations and volunteers anxious to help Occupy, he switches to the other browser for his ongoing job search. He’s been looking for work, almost any kind of work, for more than a year. He’s 32 years old, has fifteen years of work experience, and becomes more frustrated every day.

Shane grew up as the only child in a working-class family in Queens, New York, and didn’t want to rely on his parents after high school, so he moved straight into the job market. He booked concerts for bands and worked on their publicity campaigns. As time went on, he tried his hand in other fields, including social work. He served as a residential counselor in a housing complex for homeless people in and out of psychiatric hospitals. This was before the financial crisis, and finding work came fairly easy. But Shane hit a glass ceiling when it came to wages, because he didn’t have a college education. He couldn’t advance to a higher position or receive a larger salary. Seeing no alternative, after dabbling part-time for years Shane decided to take the plunge and enroll full-time at City College of New York.

He didn’t have enough savings to pay for school. But, like many others, Shane reasoned that a higher-paying job was at the end of the tunnel if he took the risk, applied for loans, and secured a degree.

In August 2008, Shane applied for a small private loan, which he asked his father to cosign, in order to test the waters. He was approved and awarded the sum. Four months later he went back to the same lender, with all the same credentials, and resubmitted an application for a second loan for the next semester of school. He was denied.

“They told me their internal rules were reset,” said Shane.

Shane was a victim of horrible timing. In the months since his first loan, financial markets had crashed in the United States.

In September, the United States government was forced to rescue loan behemoths Fannie Mae and Freddie Mac, the country’s two largest mortgage finance companies. In the same month, the fourth-largest investment bank in the country, Lehman Brothers, was allowed to fail; it filed for bankruptcy after losing billions of dollars, most of its clients, and the trust of other market participants due to its exposure to the United States housing market. Other institutions also came under pressure on account of their exposure to the collapsing housing market and declining liquidity in the United States money system. Merrill Lynch sold itself to Bank of America, Washington Mutual was seized by the Federal Deposit Insurance Corporation and sold to JPMorgan Chase, and Wachovia was sold to Citigroup. In the following month, legislators agreed on a $700 billion bailout bill, but the effects of the United States crisis had already started seeping into Europe. It became a global economic crisis. In 2008, the Dow Jones Industrial Average had some of its most volatile trading days in the stock index’s more than century-long history. But this was only the beginning, and uncertainty in the financial sector transformed into a recession that struck people far away from Wall Street.

Shane’s parents argued with him to stay in school and accept their money to pay for his education. He relented, concluding he would be able to pay them back easily once he got a decent job with his college diploma. Shane was able to tap some federal loans and somehow scrape by. But over time it became a strain on his parents. His father’s income as a superintendent in an apartment building in Queens couldn’t cover all the costs, and they had to dip into their retirement funds to pay for Shane’s college.

“My parents were helping me to barely survive with what little they could spare from my father’s social security payments and whatever other small amounts that could be spared from their income, which was combined with what little I could get in loans,” said Shane. “His social security was coming every month and it went straight to me.”

Shane felt guilty, but he did as his parents asked. He graduated at 31 years of age with a degree in history and political science.

Before, Shane had no degree and steady work. Now he has a degree and no job, amid the highest unemployment rate in decades, and is thousands of dollars in debt. He wanted to become a teacher, but Shane hasn’t limited his job search. He has also looked for jobs that matched his previous experience in social work and publicity. He scours the Internet for job advertisements daily and asks family and friends to look out for openings, and while he has been called in for a handful of interviews, none of them has yet proven fruitful.

“In hindsight, I had a deluded expectation that having a college degree and this job experience would help me get a job,” he said. “There’s this whole rhetoric that if you structure your resume a certain way or wear something specific it will help . . . but it’s just magical thinking because there are just so many people unemployed,” said Shane.

In debt to his father for more than $30,000, he has also accrued about $7,000 in credit card debt and has another $30,000 in outstanding student loans to private lenders and the government. He keeps deferring the payments, but Shane is worried that he won’t be able to do so for much longer.

Shane takes up temporary and part-time work contracts whenever he can to help pay the bills in a Brooklyn apartment he shares with his girlfriend of six years. He recently assisted a New York computer software company, doing work completely unrelated to his academic training or experience, and still relies on his parents for occasional help.

Shane is often removed and introspective. He wanted by now to be in a place in his life where he and his girlfriend could have bought a home. He can’t even broach the topic of children.

“I’m perpetually thinking, ‘What did I do wrong here?’ and reevaluating options, and I’m kind of exhausting every which possible way. . . . This amount of uncertainty at this point in my life leads to an existential crisis. You see people around you . . . and you feel like you’re running on a treadmill.”

At the Occupy demonstrations, Shane found others who shared his frustration at this new American life. On www.wearethe99percent.tumblr.com, a website that evolved alongside the Occupy movement, hundreds of people have posted their worries, giving voice to an even larger portion of the population.

From a 26-year-old woman on the site: “If I want to go any further in my chosen job field, I need a master’s degree, which I can’t get without taking out loans. The thought of doing that terrifies me. So many of my friends are struggling with more debt than I am, or can’t find jobs despite looking diligently, or are stuck in jobs they hate but can’t afford to quit. We were told that going to college was the way to ensure we had bright futures. That taking out loans would be worth it. That if we worked hard and did our part, it would pay off. We did our part—what now?”

The Facts and Figures of This New American Life

It’s little wonder that almost half of American adults between the ages of 18 and 34 believe they may end up worse off than their parents, and 68 percent say it is harder to make ends meet since the recession began.¹

Members of Generation Y have good reason to be concerned for their future.

The financial crisis ushered in a United States unemployment rate that saw one person out of every ten out of work. But for those between 16 and 24 years of age, nearly one out of every five couldn’t find work. Those figures don’t even capture the whole story for recent high school and college graduates. Many have dropped out of the job hunt altogether, frustrated with a lack of results. Youth employment has fallen to a more than sixty-year low, with just 54 percent of Americans between 18 and 24 years old in jobs. And then there is underemployment—those who settle for part-time work or temporary contracts, which young people are disproportionately saddled with. These types of posts usually offer no security or benefits and are reserved for newer entrants into the workplace, who have few alternatives in this economic climate and limited work experience—two assets employers sometimes take advantage of. For Generation Y, the impact on income is already clear: 37 percent of United States households led by someone under the age of 35 have a net worth of zero or less than zero.² That means more than one-third of Generation Yers trying to be independent after the crisis are failing. They are in debt or just barely getting by.

The longer the unemployment rate remains elevated—and it’s expected to stay so for up to another decade—the higher the risk that Millennials will suffer from long-term joblessness, which portends such long-term scars as lower wages, diminished appeal to employers, loss of confidence, and even a shorter life span. In a study of a mixed-age group of Pennsylvania workers who lost their jobs in the 1970s and 1980s, it was the youngest who suffered the biggest impact on life expectancy.³ Part of the reason may be because they earned less for the rest of their life. If a man spends one year unemployed before the age of 23, ten years later he can expect to earn 23 percent less than someone who was steadily employed. For women, the gap is 16 percent. And for both sexes, the penalty persists into middle age.⁴ Workers with large losses in earnings tend to have more job instability and chronic stress associated with lower levels of income and volatility in their lives, imperiling their health and ultimately their life.

Even those young people who have remained employed through the crisis will likely experience reduced wages. About half of American workers between the ages of 18 and 34 say their salaries have been stagnant or decreasing since the crisis, a development at a young age that has been shown to decrease earnings potential for workers even fifteen years later.⁵

At the same time, the cost for essentials is rising, making the effects of lower salaries all the more dramatic. Households are paying record fees for electricity, which has been consuming a greater share of Americans’ after-tax income than at any time since 1996.⁶ Food prices are also on the rise, hitting multi-decade highs, driven up by the impact of irregular weather patterns on supply, increasing demand from faster-growing nations, and speculation on commodities markets by investment banks ever since laws on the trading of commodities that could affect food prices were loosened in the early 2000s. Moreover, rents remain elevated, and in some cities they are even higher since the crisis, after many people lost homes they owned and were forced into the rental market. Nearly half of 25-to-34-year-olds living on their own in the United States spend more than a third of their income on rent. In big cities, the percentage is even higher.⁷ And some landlords are tightening the criteria for rental applicants, requiring higher credit scores or higher deposits to secure an apartment, making it even more difficult for members of Generation Y to become or stay independent.

The upshot: the American dream, as we know it, is moving further and further out of reach for a generation that was pushed to achieve higher and higher levels of education to cash in on its promise but is now left asking, “What was it all for?” Generation Y is one of the most educated generations in history: 18 percent of 25-to-34-year-olds in the United States have a bachelor’s degree, compared to 16 percent of 35-to-54-year-olds and 10.6 percent of people 55 and older.⁸ But this a privilege it is paying for—and one that has not paid off as expected.

Heather Elizabeth was urged by her parents to get the best education money could buy. And why not? That’s part of the American dream. She attended Middlebury College in Vermont, where the tuition is more than $53,000 per year, to study early childhood development and education. To become a special education teacher, she needed a master’s degree too. With her parents’ encouragement, she again applied to the best schools in her field. She landed at Bank Street College in New York, a small and competitive school where annual tuition is more than $25,000, so Heather took out $17,000 in loans for graduate school.

What Heather didn’t know is that her parents had already taken out about $20,000 in loans in order to pay for her top-notch undergraduate degree, a debt that is now in her name—all for a profession known for its relatively modest salary.

Now Heather is 25, living in Brooklyn, and married, and luckily she is working at a school doing the job she trained for. But her loan deferments are up, and it’s time to start paying. In order to pay back as much as possible up front and not accrue higher interest payments, since the annual penalty payments on her loans rise each year, Heather has liquidated most of her assets. She has sapped all of her savings and a certificate of deposit, and sold all the stocks her relatives invested in for her when she was a child. Still, she owes about $20,000 on the principal of her loans, and much more with interest.

She and her husband, Ted, have very little financial cushion left should something unexpected happen. Plus, he’s also a schoolteacher with another set of student loans. Living in New York on two modest teaching salaries is proving difficult. “We don’t have much left over at the end of a month,” said Heather.

She’s looking ahead as Ted considers going back to school for a doctorate in education. “I’ll need to find a new job, a challenge in this economy, clearly, pay for our health insurance, and cover whatever expenses we have.”

Heather’s story is not unusual. While college degrees are more important than ever to attaining a job in America, even a lower-skilled job that shouldn’t require one, that education is also more expensive than ever. During the last thirty years, college tuition and fees have nearly tripled as universities take advantage of the rising demand, and scholarships and state funding can’t keep up. Tuition is now the average American family’s second-biggest investment, after their home. Total United States student loan debt is increasing at a rate of nearly $3,000 per second.⁹ The average student loan debt today exceeds $25,000 and total outstanding loans topped $1 trillion for the first time.¹⁰ The crisis has precipitated this trend, as more people are forced to go into debt.

Further illustrating the troubling effects, the Consumer Financial Protection Bureau solicited thousands of comments from consumers about their private student loans and published the comments in the summer of 2012. One commenter said: “I am 27 years old with a [bachelor of science] in meteorology. I currently work full-time in my field making $39,000 a year. I currently owe about $100,000 in student loans which most of it is private. I had no help from my family to pay for college so taking out a loan was my only option. . . . I paid about $10,000 in interest in 2011. That is 25.6 percent of my income. This is outrageous and something needs to be fixed. I am unable to consolidate for a lower rate because my debt to income ratio is too high. I did not qualify for Sallie Mae’s lower interest program because I am able to currently maintain the payments. If nothing is done I will be done paying this in 2024 and would have paid over 100 percent of my original loan. I will be 39 years old. At that point I could start saving for a house. Lenders have way too much power and want people to default because they make more money that way.”

But Millennials feel they have little choice but to go into debt for an education. The unemployment rate for college graduates is half that of those with only high school diplomas, and one-third of those with no diploma at all. Moreover, college graduates can expect to be paid almost twice as much as people with only high school diplomas—and those who attended graduate school can expect to earn two times more than that.¹¹ So for seemingly good reason, Millennials have ...