Gen Y: Young and Poor in America?

At my stage of life, with kids in college and in the midst of a recession, I am thinking more of downsizing than upsizing, paying down rather than taking on. I have just about every non-consumable item I'll ever need, and I prefer to 'repair' over 'replace' unless absolutely necessary. The economic engine will have to look elsewhere for a jumpstart.

Several new reports suggest the jumpstart won't come from Millennials. Each analyzed publicly available government information to assess the economic condition of today's young adults relative to past generations at the same age. Warning! The reports make depressing reading. Here are some 'highlights':

Economic State of Young America. This report, by DEMOS, a Washington DC-based research group, takes a comprehensive look at jobs & income, health care, debt and savings, college access and attainment, housing and raising a family. It found 20-somethings in 2005 were worse off than those of 1975 in every area except education, and even the trends for educational access are alarming.

Typical earnings (in constant dollars) for young men have declined over the course of a generation, falling 19 percent between 1975 and 2005 and falling 34% for young men without a college degree. Typical earnings for young women increased a mere 4 percent over the same period. Much of the decline came recently, between 2001 and 2005, despite increases in educational attainment.

The income figures, while bad, don't tell the whole story. There has also been a decline in benefits and job quality. In 2006, 34% of young adults 18-34 years old did not have health insurance coverage. Pension coverage has fallen from 36 percent in 1979 to 18.8 percent in 2004.

Increasing debt levels, both credit card and student loan debt, are handicapping young adults' ability to build wealth. The proportion of young adults with college and the amount of debt has skyrocketed. Although amounts vary by state, in 2006, 58% of students graduated debt that averaged $19,646 nationally. Households age 18 to 34 carrying education-related debt had median financial assets that were 28 percent lower than those households without such debt.

45% of young adults between the ages of 25 and 34 say they use credit cards for day to day living expenses, most likely a result of lower income, student loan debt and the high cost of housing. In 2004, 25-to 34-year olds averaged $4,358 in credit card debt—47 percent higher than it was for Baby Boomers who were in that age group in 1989. Compared to a generation ago, a higher percentage of young people are spending more than 30 percent of their income on rent (designated threshold of affordability). In 2005, 43 percent of 25-to 34-year olds spent more than one-third of their pre-tax income on rent, up from 18 percent in 1970.

"A Generation Apart: Expenditure Patterns of Young Single Adults: Two Recent Generations Compared.". The main source of data used in this article is the Federal government's Consumer Expenditure Survey (CE). The data has been collected periodically for decades, which makes it perfect for generational research. The complexity of the data makes conclusions about income difficult. But it does show clear evidence of changing demographics and spending patterns. There were fewer young adults in the population in 2004–05 than there were in 1984–85, and they were marrying later in life possibly due to financial stress. The report makes much of the quadrupling of tuition prices at a time when overall CPI merely doubled, making education more expensive as a proportion of earnings, or future earnings.

Over the period examined, the proportion of expenditures going to shelter and utilities increased (consistent with the report cited earlier) and the shares for food at home and for food away from home both decreased. The expenditure category showing the biggest decrease by far was travel. The percentage reporting any travel expenditures decreased sharply, from more than half (53 percent) to about one-third (35 percent). Travel as a proportion of total outlays decreased significantly from 5% to 3%.

There is much more here, and I urge anyone marketing to Millennials, particularly discretionary purchases, to take some time to review these reports. It gave me perspective on why the young people I talk to all think of themselves as 'poor'. The reality is maybe they are?