Generation Wrecked

Ten years ago grunge musicians and college-age Cassandras who had never held a day job preached that corporate America would crush their generation's soul and leave them without a pension plan. Films like Singles and Reality Bites chronicled their transition from college graduate to Gap salesclerk.

A few years later the core of Generation X--the 40 million Americans born between 1966 and 1975--found themselves riding the wildest economic bull ever. Salesclerks became programmers; coffee slingers morphed into experts in Java (computerese, that is)--all flush with stock options and eye-popping salaries. Now that the thrill ride is over, Gen X's plight seems particularly bruising. No generation since the Depression has been set up for failure like this. Everything the dot-com boom delivered has been taken away--and then some. Real wages are falling, wealth continues to shift from younger to older, and education costs are surging. Worse yet, for some Gen Xers, their peak earning years are behind them. Buried in college and credit card debt, a lot of them won't be able to catch up as they approach their prime spending years.

FORTUNE recently encountered the bitter and (now) experienced voice of Generation X in a chain restaurant in suburban Dallas. Age 32 and piercing-free, Karen Doss has found out that the alternative rockers were right. To pay for college she worked full-time as a secretary at Pillsbury world headquarters. After graduation in 1993, she accepted her sole job offer as an advertising copywriter, even though she despised the industry. She finally quit last year to get her real estate license so that she could better support her husband while he fulfills his dream of owning a bar.

Halfway to pension age, she has just $5,000 in a 401(k) and $20,000 in home equity. Ideally, someone her age should have at least $100,000 stashed away. "I don't have a corporate pension, and they aren't what they were," she says. "Social Security is obsolete and ineffective. And I already know that I'm going to have to have a private health-care plan. I'm angry that I can't seem to get a break."

Yes, yes, yes, we know what you're thinking. The free-spending slackers have only themselves to blame, since the dot-com boom should have made them rich for life. On the surface that's true. A 30-year-old today is 50% more likely to have a bachelor's degree than his counterpart in 1974 and earns $5,000 more a year, adjusted for inflation. But that's where the good news stops. He also has more in student loans and credit card debt, is less likely to own a home, and is just as likely to be unemployed. His salary probably topped out during the boom, whereas his predecessor's rose throughout his career. Social Security will start to evaporate as he turns 50--or before, if the lockbox gets raided--so he'll have to depend almost completely on his own savings for retirement. The comparison with a 30-year-old in 1984 isn't any rosier.

Gen X "has done worse than their parents have done according to a number of dimensions, like net worth and home ownership," says Edward Wolff, a New York University economist who studies trends in income and wealth. In a recent paper Wolff notes that young households lay claim to a smaller percentage of total U.S. wealth than they did in 1989.

Additionally, the inflation-adjusted median net worth of a Gen X household ($9,000) is lower than that of a comparable household in 1989, according to the Federal Reserve's Survey of Consumer Finances.

Silicon Valley and Manhattan aren't the only stomping grounds for disgruntled young professionals. FORTUNE interviewed more than 50 Gen Xers in Dallas, Louisville, and Seattle, with jobs ranging from construction manager to software engineer (see table). Battered by the economy and the bad luck of being born between Madonna and Britney Spears, they're Generation Wrecked.

The kids who toted STAR WARS lunchboxes are the most highly educated generation in American history: Almost 60% of Gen Xers have some college education, and 6.6% have graduate school degrees. The Census Bureau calls their pursuit of higher education the "Big Payoff," since historically a college-educated full-time worker earns 1.8 times more over his lifetime than a high school graduate.

When you can't find a job or pay your student loans, though, college can seem like the Big Rip-Off. Today, the median student loan debt is at its highest level ever, $17,000, compared with $2,000 when the baby-boomers were in their 20s. According to educational lender Nellie Mae, graduating students average $20,402 in combined student loans and credit card debt. Those who have borrowed to pay for professional school, especially doctors and lawyers, are increasingly likely to have immense debt that is not reflected in proportionately higher salaries. Twenty-eight percent of those surveyed by Nellie Mae had combined undergraduate and graduate student debt of more than $30,000, and for 22%, their loan payments ate up more than one-fifth of their monthly income.

After midnight at a young professionals party in Louisville, Steve Flores, 31, and his wife, Jessica, 32, mingle, while the rest of the revelers line up for last call. Steve is a communications specialist for the party's sponsor, Brown-Forman, the big distiller. While working full-time, he is also pursuing an MBA. Although Steve worked to help pay for college, five years after graduation he has $40,000 of undergraduate debt to pay off; Jessica, an art therapist and professional harpist, has $50,000 in student loans. "I haven't started paying back my student loans for undergrad because they're deferred. I'm not taking any student loans for grad school," Steve says. He isn't so jovial when he thinks about the total tab. "We're dreading the day we actually have to start paying."

Those Big Payoff estimates rely on what 50-year-old college graduates make today to guess what 50-year-olds will make 20 years from now. That's not all that useful. "Whereas their parents experienced rising wages over their lifetime, Generation X may not. So college may have been a bad investment," says Wolff, the NYU economist. Adds Bruce Tulgan, a Gen Xer and founder of RainmakerThinking, a consultancy that studies labor trends: "I had a college president say to me, 'I don't know how much longer I can pull this off because people will start to ask, Is it worth this much money to be that much smarter?' "

A common misconception is that Gen Xers left college to find work in the dot-com go-go years. Not so. In fact, the climate in which they began working--the late '80s and early '90s--was pretty similar to today's: an economic downturn followed by a jobless recovery. Gen Xers managed to survive in that environment by denouncing long-held workplace tenets like corporate loyalty.

It would take a skilled cartographer to map 28-year-old David Li's convoluted dash through org charts at both big and small companies. After college in 1996, Li started out as an analyst for Accenture, worked as a health-care IT consultant for two other firms, and then became CTO of Claimshop.com, a medical claims processor.

Now, unemployed for a year and living in Dallas, Li says, "I'm not really looking for an entry-level position. But I need to realize that the job market now is a lot tighter than it had been when I first graduated from school." He's looking at jobs that pay around $50,000, 40% below the salary he was collecting at Claimshop. "I'm just hoping for something more along the lines of what you would normally expect to see from someone who has been out of school for four to five years."

Li will probably find a job--at 6%, the unemployment rate among Gen Xers is around the national average--but he and others are discovering that previous experience means next to nothing. Jenifer Garcia is temping as a bartender in Seattle after having worked as a hardware tester for Intel, a programmer for MSN, and a manager for Barnes & Noble's online division. Now the 29-year-old is applying for a full-time file clerk position again. "I feel like I'm 18 again, and not in a good way. I've gone through all of my savings and moved back in with my mom."

Even some of Seattle's dot-com winners have been humbled. Across town in a tonier part of Seattle, Rachel Best-Campbell and Alex Campbell bought their $700,000 house with proceeds from Alex's stock options. They sold most of their shares of Cache Flow, now known as Blue Coat Systems, at $96. (The company's stock now trades at $3, after a recent reverse split.) The Campbells' luck dried up in April, when Alex was laid off, rehired as a contractor without benefits, then rehired yet again as a full-time employee but at a lower level.

After months of wondering whether Alex would have a job, Rachel feels no guilt about getting rich during the boom. "Clearly someone out there had $96 to pay for that share of stock, and they wanted it, and they bought it. My dad likes to say, 'My 25-year-old daughter--she's retired now.'"

Those who didn't fulfill their early-retirement dreams in the late '90s are beginning to realize that they may be in the workforce longer than their parents. "You don't find many 65-year-olds working in advertising, so at some point the money must get good enough for people to retire. I don't know," says Luke Blackburn, a 32-year-old senior manager at a Louisville advertising firm. Luke has a house--he used money he received as a gift for a down payment--but little in the way of retirement savings. (Total: $0. He should have $50,000. Although he and Doss are the same age, his savings estimate is less since his living expenses are lower.) "I don't see much future return for investments, either stock or even Social Security benefits. I plan for the kids, but there's not much room for extra." Luke doesn't have a financial planner either. "The brokers only call you if they think you have money," he says. "They started calling me when they saw my job promotion announced in the newspaper."

At least the brokers' attempts aren't laughable. At a recent Department of Labor summit, a group of the country's top economists, politicians, and marketers decided that the best way to get Generation X to plan for retirement was through targeted advertising campaigns. Slogans included "It's your money, it's your choice, and it's your future," "Save for independence day," and "Wazzup." Whatever.

Instead of creating catch phrases, the government should focus on creating retirement options that give Gen Xers --and baby-boomers too, for that matter--the flexibility to withdraw money from their accounts if they're temporarily unemployed, starting a business, or just taking time out, say financial planners. Most important, the retirement accounts need to be portable to match the winding job paths of Gen Xers.

A New York Life Investment Management survey of high-net-worth Gen Xers found that the respondents thought they needed $2 million to retire. Not even close, says Beverly Moore, who conducted the study. A Gen Xer who makes $100,000 and wants to retire at 59 needs $7.3 million net of taxes to sustain that lifestyle. (That means saving $2,600 a month and assumes an 8% return.) The truth of the matter is that very few Gen Xers are saving enough to reach even the $2 million benchmark.

And a return to economic good times doesn't guarantee that most Gen Xers will reach that level. Remember that many of the problems that existed in the early '90s including falling real wages and the slow disappearance of the middle class, weren't erased by the boom. In the case of wages, they only inched up during the dot-com years. (Economists are still trying to figure out why they didn't rise more. One possibility: the influx of skilled foreign labor.) And of the wealth the boom created, the richest households gobbled up a disproportionate amount.

Back in Dallas, Karen Doss says she's angry that she hasn't been able to rely on family, an employer, or the government to help with her future. "The biggest problem with Social Security is that we have no control," she says. "Sure, you can put your money away, but Enron will not go away, and there is going to be another WorldCom. [Corporate America] will still lie and steal our money."

So is Karen prepared? On this subject, she does her best slacker impression. "I can't even tell you how much I have in my 401(k), and I have two of them floating out there with companies. I'm just going to hope it works out at this point. I just wanna die young so I don't have to deal with it."

I agree a woman's place is in the home the boomer plague of career women is unnatural and unhealthy.

Well hold on now...I would't go that far. If a woman chooses to work (nowadays its sometimes a necessity due to 20+ years of taxpayer funded entitlement programs) and effectively raise a family...more power to them. I would think that most mothers would WANT to stay home with their kids if its financially feasible.

Ten years ago grunge musicians and college-age Cassandras who had never held a day job preached that corporate America would crush their generation's soul and leave them without a pension plan.

Not far from the truth - Congressmen funded by corporate donations.

Everything the dot-com boom delivered has been taken away--and then some. Real wages are falling, wealth continues to shift from younger to older, and education costs are surging.

Yes, the greatest generation and baby boomers reminded us who is really in control here.

Halfway to pension age, she has just $5,000 in a 401(k) and $20,000 in home equity. Ideally, someone her age should have at least $100,000 stashed away.

That sounds a little high unless they are talking about the top of the bubble. Some of us were there, but now are off 50-75%. Part of the problem is that people refuse to live within their means. If you simply max out your 401k for the rest of your life, and live modestly on the rest of your income, you will retire comfortably. It's really that simple. Of course we should not be forced to put off marriage, kids, and house to pay for the greatest generation's drugs, social security, cheap imports, etc. while we hop from job to job the rest of our lives trying to avoid layoffs, but that is no excuse for not saving and investing for the future.

That was an outstanding rant and I agree with every word. Particularly this:

The whole thing is about liberals trying to control your life: first they set taxes so high that they are nearly confiscatory, then they tell you what behaviors you can engage in -- that they approve of -- through which you can evade their high taxes.

If you watch West Wing (socialist propaganda, but entertaining and well acted, and it's good to know how the enemy thinks), they had a sequence where they decide to "solve" the problem of college costs by making all tuition tax-deductable. (Of course there was an income cutoff to make sure the Evil Rich couldn't possibly benefit). I wanted to scream at them "Why don't you just CUT TAXES!!!", which would help people pay for college as well as other expenses that Washington didn't consider. Of course, simply letting people save or spend their own money doesn't allow politicians to take credit for solving problems that they created in the first place.

Hey, this is a story about my city (Louisville) AND my generation ( 29 years old, here). I don't know where to start on a story like this.

In regards to going to college, it is true that the high schools push it BIG TIME. There are many days that I wish I had not gone to a major university, but had gone into a trade instead. Then again, my high school had a reputation for sending many boys into the military, therefore many of my buddies went straight from graduation (almost literally) to Operation Desert Storm. And, when people ask me what I did with my degree, I tell them (all together, now): I put it on my wall! :>

It is interesting that they chose Louisville as one of the cities for their study/story. It is true that there are no jobs here, and that most college graduates leave for greener pastures. But then again, remember that our representative city government has been 100 % Democrat since 1965, and that our county government has been at least 75 % Democrat for as long. And that the last time Kentucky had a Republican for Governor was from 1967-1971.

I don't know about you, but when I read something like this...

Social Security will start to evaporate as he turns 50--or before, if the lockbox gets raided.

...I reach for the crap detector. Use of the term "lockbox" immediately tells me that the author does not understand how the Social Security program operates, but does want to peddle liberal canards.

I missed this completely. I guess I just did'nt want to believe that Fortune magazine would parrot liberal assumptions that are proven to be false. However, since that wishy-washy but amiable Jeff Birnbaum writes for Fortune, I should'nt have ruled it out.

Holy sh*t - you're kidding, right?

I'm going to send a letter of Aaron Sorkin, offering my services as a basic economics consultant for their writers - they clearly desperately need one...

Gen-X was raised by pot-smoking '60s hippies.

'Kay... Next time we'll do a better job picking parents. Or maybe they just should have aborted the other 2/3's of our generation.

FYI. My dad was a Korea era vet and was a beer drinking Beatnik who worked with nuclear weapons.

In regards to going to college, it is true that the high schools push it BIG TIME. ...And, when people ask me what I did with my degree, I tell them (all together, now): I put it on my wall!

Mine's in storage. High schools do push college. I wish now I had gone to conservatory and studied. It's a place far more suited to my talents.

Generation X is the most entreprenuerial generation in the history of the United States. Technology has literally lowered the barriers of entry into most fields, so that if you have a computer, a phone and a fax machine, you can be in business for yourself.

As for the dotcom bust, can you name any entreprenuers who were sucessful the first time out? Anyone who is a risk taker fails. The reason for the failure on such a grand scale was the sheer number of people who started their own businesses while in their 20s and early 30s. IMHO, this colossal failure will serve Gen X well in their late 30s and early 40's.

Now, if we can just stop drinking microbrews, smoking cigars and whining, we'll be 3/4 of the way home.

I'm going to send a letter of Aaron Sorkin, offering my services as a basic economics consultant for their writers - they clearly desperately need one...

Good luck, they had Peggy Noonan as a consultant but sent her packing. Apparently they're in full campaign mode now for the elections (yet another reason liberals love campaign finance "reform").

I’m a Gen Xer (1970) and followed my parents, grandparents and great-grandparents path.

My wife has a leased mini-van

Sounds like you're doing well, and I congratulate you on that. But that leased mini-van isn't something I'd bet your parents, grandparents, etc. would do. Leasing is fleecing. Sounds like you had the right idea on your car though (i.e. paid for). People spend entirely too much of their money on cars, in my opinion. When I got out of the new car buying business, my net worth rose considerably. They're just tools after all.

Social Security will start to evaporate as he turns 50--or before, if the lockbox gets raided--so he'll have to depend almost completely on his own savings for retirement.

There is no lockbox. What really matters is the size of the economy in relation to Social Security obligations. Our economy isn't growing and the politicians are either twiddling their thumbs or dunking CEO's in water to see if they'll float.

This is rather depressing. There is no way I'll manage to save 7.5 million. If my tax rate was reduced I might be able to come close.

That figure is grossly wrong. If you had $7.5 million and found a CD paying (for round numbers purposes) 5% return, you would get $375K gross return. I believe the article stated the guy made 100K now. Something's not right...

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