Generation Wrecked

Fortune ^ | 2002-10-10 | Noshua Watson

[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 "Social Security is obsolete and ineffective.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."

[BureaucratusMaximus]

My generation: the boomers, have to be the most self obsessed in our history....and the worst parents.

I appreciate your honesty.

I'm a Gen-Xer too (1974). What I see that is most encouraging about my generation is that many more mothers are staying home with their children and the husband is the sole "bread winner" of the family. No matter how you look at it...it produces healthier and more functional families. (most of the latch-key kids that I knew were really screwed up).

[dfwgator]

There is no way I'll manage to save 7.5 million.

Look at it this way, do you really need the same lifestyle in your later years as you did when you were younger? I think the stuff about having to have a lot of money saved up to keep up the current lifestyle is a bunch of BS. When I'm old, just give me a small comfortable house with a TV, and I'm all set.

[Richard Kimball]

The only sector of the economy where there's been huge inflation in recent years is in education costs.

Medical too.

And what do these two things have in common?

DINGDINGDING!!!!

We have a winner! Yes, they are the two economic sectors that Congress has dumped the most MONEY into!!!!

BTW, the original purpose of college (as started in Europe) was NOT to teach people how to make money. That's what apprenticeships, etc, were for. The original purpose of college was to teach people who were already rich how to act like the upper class was expected to act. In other words, college wasn't originally supposed to teach you how to make money, it was supposed to teach you how to spend money.

People with college degrees generally do earn more money than people without, but the law of supply and demand is taking over, and the more people there are with college degrees, the less valuable those degrees become. Unfortunately, the other issue affecting earning ability is government interference. Most businesses probably spend more complying with unfunded mandates than they do on taxes. You didn't used to have to be rich to own and run a gas station or a fast food restaurant. In California, with the recently passed six weeks paid leave every year law, what's going to happen to entry level jobs? The cost of a $10 per hour person to the business will go to nearly $18 per hour, including SS, sick leave, vacation, family leave, and insurance. How many businesses need someone who is gone for two and a half months every year, and how many of these people who are using the family leave can add $18 per hour of value to a business?

[skeeter]

Actually it's more the baby-boomers than X'ers with the SUVs and ME ME ME mentality. I see the boomer across the street who just bought his 18 year old son a brand new jeep Liberty 2002. Gimme a break.

I won't deny that the boomers have the me, me mentality, but their kids have it in spades. Xer's I know a few years back were spending like there was no tomorrow because 'the business cycle had been defeated' & it was all blue sky from now on. Many of them were dumfounded when brokers made the first of a series of margin calls back in '99.

And of course, it will be the boomers who suck up all the available Medicare money and Social Security funds.

Boomers are the last people you should be complaining about re: SS. They were born into the system and have been contributing to it their whole lives. You're better off blaming those who benefit from it but who have not contributed. Believe me there are tens of thousands of those.

[lodwick]

The Freeper Tagline Challenge!
For every dollar donated to FR in support of bringing back the Tag Line I will match those donations up to a total of $500 Please let me know the amount you donate, thanks.	Donate Here By Secure Server Or mail checks to FreeRepublic , LLC PO BOX 9771 FRESNO, CA 93794 or you can use PayPal at Jimrob@psnw.com
Bump the Fund Raiser thread here

[weikel]

They didn't Willie is just a whinie baby boomer( well at least he is against the social security ponzi scheme). Libertarian attitudes( among them that the world isn't going to take care of you and you have to look after yourself) and thrift are good things btw the rich generally get that way by being fanatical about saving money :).

[Anitius Severinus Boethius]

Ideally, someone her age should have at least $100,000 stashed away.

Really? Let's see:

-Out of college at age 22, can't get a job in your field (accounting), so you work a telemarketing job for 6 months ($6.25 an hour), then a warehouse job for 3 months ($7.00 an hour), then do a 5 month stint as a waiter (around $300 a week). Money saved: $0, and this is living with a roommate and driving a 12 year old car.

-Student Loans start coming due at 23, lucky you get a job as a clerk in an insurance company ($9.50 an hour), and can start saving money. After taxes, FICA and insurance, you take home just under $1200 a month, after 5 years on the job you have have scrimped and saved $12,000.

-You are now 28, and you get a job at H&R Block giving you a starting salary of $32,000 a year. You now have to save and invest another $88,000 in 4 years on this salary to make the "idealized" amount that you should have stashed away. Right.

Not every "Gen-Xer" was a software tycoon, or a dotcom businessman, most followed the path I described above. Karen seems to be a bit low in funds, but I know a lot of 50 year olds who are in the same boat as her. My advise to her: start putting away an extra $20 a week into your 401(k). At 7% annually, you will gain an extra $90,000 in your retirement fund in 28 years. That could make the difference between "surviving" and "living" in retirement.

[ThinkDifferent]

A resounding no...college(nowadays) is a joke. On the job experience/learning by trial and error/learning on your own has been what has helped me succeed in my career, not the $30,000 piece of paper.

Absolutely. I had to get the piece of paper to get a job, but the "education" I received is nowhere near as valuable in my field (software development) as real world experience. Maybe 5 of the courses I took were both useful and things I didn't already know.

[general_re]

I'll pay it off eventually, I reckon, if the cigarettes don't kill me off first...

I'm thinking about switching to unfiltered Camels for just that reason ;)

[KC_Conspirator]

Sounds like I agree with alot of what Copeland says. I too think the Baby Boomers are the "worst generation" to come about in a long time and they will rob this country blind before they are gone. Not only that, the leftists who dominate the pop culture of that generation are the most divisive since the Civil War. Like post Civil War, its going to take them dying off and new immigrants to come to this country to erase their memories.

[Nick Danger]

I find this to be more Gen X griping.

Really? I thought it was just some leftist at Fortune magazine trying to sell class warfare, business-bashing, and more government.

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. So even though I'm going to see what looks like some sort of dispassionate economic analysis, I'll need the crap detector on with the "liberal canard" knob turned all the way up.

Before I run into another canard though, I trip over plain old stupidity:

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.

The idea that wages and income are distributed on a bell curve ought to be intuitive. It makes some sense that in the past, those with college degrees gravitated toward the higher end of the curve, but what we were really looking at was some kind of productivity+luck+family-connections matrix that caused some people to make a lot more money than most.

The idea that we could look at a correlation between these people and college degrees, and then produce a subsequent generation of all rich people by putting 60% of them through college, could only come from some stupid social engineer who didn't really understand the phenomenon. Anyone with an ounce of sense could have seen that when 60% of the population is college educated, the value of the degree will be diminished and the degree will no longer be a ticket to riches. Anyone who foresaw a society of 60% chiefs and 40% indians is an idiot, and will probably end up writing for Fortune magazine.

Uh-oh, there goes the crap detector.

Instead of creating catch phrases, the government should focus on creating retirement options that...

Does everyone look to government to create their retirement options, or is that just an artifact of having liberals writing Mommy State advocacy in magazines? If the government needs to get involved, it's because the government hosed things up in the first place by taxing people so heavily. You'll notice that 90% of these "retirement" vehicles coming out of government involve getting the income past the tax man so that it can be saved at all. If the taxes weren't so ridiculously high to begin with, we wouldn't need all these IRAs, 401-K's, and so on. 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. As long as you do what they say, they won't take all your money. What they'll do instead is write articles in Fortune magazine telling you that what you need is more of this stuff... for your own good.

[weikel]

Social security should be abolished along with the income tax and federal reserve( more important then you probably realize) and all entitlements for able bodied adults period. The income tax should be replaced with a NRST supplemented with a lottery.

[weikel]

If you get lung cancer ca ching( if you are into screwing tobacco companies with shysters im not).

[weikel]

Flavored rice is spendthrift food best stick to storebrand mac & cheese.

[CDHart]

I heard part of a program on Fox News earlier in the week, and someone from Harvard said that shortly it will be an older employees' market in technical fields, because the younger people all have MBAs, etc., and the only ones who know how to fix things are the older blue-collar workers and immigrants. My husband was overjoyed, as he is a 57-year-old toolmaker, and thinks he's a dinosaur!

Carolyn

[weikel]

The worst parents unfortunately goes to the WWII generation. They raised the boomers.

[weikel]

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

[AngryJawa]

I agree with all those goals. The trick is in defeating the leftist demogogues who will undoubtedly wail about evil conservatives forcing Granny to eat cat food. Unfortunately, the nanny state has bred logical thought out of the masses. Short of some unknown super-charismatic politician stepping forward with these goals, I have a hard time seeing the inertia of big government ending. Something awful, truly awful, will have to happen in order to force change. God help us all.

Great, I bummed myself out again...

[GenXFreedomFighter]

Bumped and bookmarked for later.

[Willie Green]

The worst parents unfortunately goes to the WWII generation. They raised the boomers.

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