Posted on 10/10/2002 8:18:53 AM PDT by Lorenb420
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 "Social Security is obsolete and ineffective.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."
"If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man"...Mark TwainM
** change prosperous to educated, another point.
Credit Card Debt. Despite inflation of around 3%, many Gen-Xers have 18% credit card debt. Interest expenses are huge on these balances. This is solely the Gen-Xers fault: they got into the mess themselves. I got the frequent credit card advertisements in college. I even got credit cards, so I could buy things mail order and so that I didn't always have to pay cash. But I also realized that I had to pay the money back every month for what I bought. If I didn't have enough money, I didn't make the purchase. Unfortunately, many of my fellow Gen-Xers didn't follow this model. And many of them still haven't learned.
Taxes. Let's face it: taxes are higher now than they were before, at least for most people. Sure, the top bracket used to be 88% or some ridiculous figure, but most people had shelters to avoid this. If taxes were lowered, this would have a major impact on everyone.
Social Security. FICA is 7.65% of your income up to about $85,000, and your employer has to match. This is much higher than the level a few decades ago. Add to this the probability that Gen-Xers won't collect, and you've got a giant sucking sound in your paycheck going nowhere.
Housing Costs. In many parts of the country, there aren't vast new Levittowns being created, alleviating housing shortages. While there aren't shortages everywhere, the lack of housing has caused to push up housing costs. In many places, there's simply no new room to build. In other places, "open space" laws have served to restrict new development, which has prevented many from being able to afford a new home. Add to this increased property taxes, and housing becomes even less affordable.
Stupid Financial Choices. Rule of thumb has been if you rent, rent something small, and if you own a home, buy as big as you can get. But I know a lot of people who rent huge places, when they should be renting smaller places and saving for a down payment on the first home. I also know lots of people that lease huge cars or SUVs, creating a drain on their cash flow and building zero equity. Yeah, I paid $20,000 for a used Saab, but I paid cash that I'd saved up, and that was four years ago. I'll have that car for at least five more years barring a major wreck.
Living for now. So many people have no concept of putting money into a 401K. Even people that work at financial management companies. It's scary how few people participate, even with employer matching. This is because they use all the money they make to support their lifestyle, and don't have any concept of saving. People need to save more, but they don't. Most can afford to if they don't eat out so much, etc.
If you max out IRA's starting at age 21, in stocks with a 15% return, by 32 you should be close - don't have my growth chart handy but it sounds ballpark.
Of course, the stock market train wreck has pummeled retirement savings into the dirt, so to have $100k today, you would have had to save close to that in principal which is ridiculous, unless you live with your parents and eat at the YMCA.
A Gen Xer who makes $100,000 and wants to retire at 59 needs $7.3 million net of taxes to sustain that lifestyle.
Who did this math? $7 Million in prinicipal, at 6% interest, should generate about $35,000 A MONTH in interest alone, or about $420,000 a year.
To sustain $100,000 lifestyle, you'd need about $1.5 Million in principal, at 6%, to generate the required interest.
Am I missing something?
Unless I win the lottery, $7 Million is looking doubtful...
And, that's her problem: she thinks someone else is supposed to provide for her. Too many people, from every modern generation not just Gen X, are waiting for someone or something, other than themselves, to magically and effortlessly whisk all their troubles away.
I'm a Gen X-er. I went to college on a fully paid scholarship (plus worked part-time to pay for my mostly macaroni and cheese diet of 4 years), so I'm not saddled with student loan debts.
I did well in the dot coms, didn't get greedy, and got out before the collapse. I lost some employee stock options (what the bubble giveth the bubble that bursteth taketh away), but I was alright with it (since I don't rely on things that haven't been fully realized and had already cashed out what I could at just the right time).
I don't have credit card debt, and don't charge any more than I can pay off at the end of the month. I figure if compounding interest can work so beautifully in your favor, imagine how badly the borderline usury rates of your credit cards' compounding interest can work against you. That's one hole I don't want to fall into.
I don't have any of the other usual debts, either. The car and the "evil" SUV are paid off. I do have a mortgage, but it's manageable. I have some "toys", but put off buying these goodies for years. I don't buy stuff I can't afford, and sure as h3ll would never borrow money to pay for a luxury item. Though, you won't be seeing me on the cover of Forbes magazine, you'll never see me cashing a welfare check, either.
The keys are living within your means, prioritizing, and putting off instant gratification. Maybe, I should also add, knowing the difference between luxuries and necessities, to that list. Most people don't seem to know the difference; they think they have to have a Sony Playstation. Many years ago, I couldn't afford a bed, so I slept on the floor until I could. Contrary to what some of my peers who were quoted in that article may think, it didn't kill me.
My husband is 31 and $100,000 is totally laughable. I imagine there are some single people who were making 80K per year for a number of years...maybe they are close?
But for those of us who married in our early 20's and have been raising a family, I doubt it.
Better that than the Baby Boomer twits who insist more government and higher taxes is the solution to everything, mortgaging the future of the younger generations so that they can party a little longer on someone else's dime. Morons. The libertarian tendencies of GenX is a self-defense measure against the bankrupt politics of the Baby Boomers.
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