An Old School Perspective on the Financial Future of Gen X and Y | submitted by Michael Gay

Periodically I assess my savings account, spending habits and personal debt-to-equity ratio. Given the current economic times (a recession like no other), I have been doing this more frequently and with a higher level of scrutiny.

To save money during these tough times, I have sold assets, eliminated a phone, rode the bus to work daily, downsized my house, cancelled cable, not taken trips abroad, eaten more at home, brown-bagged my lunch, and unfortunately reduced my contributions to non-profits of great local and state-wide significance.

Given that it’s just me and my dog and home, I have yet to turn on my heat as well — a little crazy but true. My perception of Madison’s public, particularly the younger generations that are our future leaders, is that they may have cut back earlier this year but once gas dropped to less than $3 per gallon, they have returned to their consumer happy ways.

Growing up as the product of two depression babies — basically two frugal parents and an accountant as a father (we did not have much as a family but did not miss that which we did not have) — it may be easier for me to tighten the belt and live within my means. But when I see: a) kids on the bus with two iPods and two cell phones, b) hear 18-19 year-olds talking in the line at Rocky Rococo’s about $6,000 in credit card debt and how they wish they were still kids with no financial worries, or c) see the continued use and proliferation of predatory lenders in low income neighborhoods, I think something has drastically run amiss.

First of all, Apple Corporation has just posted the highest earnings ever this past quarterÉÉduring a recession! Secondly, I have to wonder what that one financially strapped girl at Rocky’s has to show for the likely $1,500 of debt on each of her four different credit cards? Though she could have used it to pay her heating bill or college tuition, I would postulate that the debt was more likely incurred by buying gadgets and fancy clothing, numerous nights out and fun trips that she could not otherwise afford. Thirdly, predatory lenders will only continue to exist by paying their rent or mortgage through charging exorbitant interest rates. If people avoid these quick cash death spiral outlets, they might eventually go away.

There are many other stories that are more egregious. Like the 40-year old couple that has deferred their student loan repayments so long that they now owe in the six figures but could justify new cars every other year, boats, gadgets, fancy trailers, trips, and private schools for their children over the same time period. Or the non-English speaking single mother that refinances her house every year so she can pay her property taxes. After six years of this, she is now down $35,000 in equity.

Ironically, she was put on this plan by a “Spanish speaking” mortgage financier (one of the people from her homeland who is supposed to be on her side) who was refinancing his $3.000 annual closing fees while taking equity out for her property taxes. Given the devaluation of real estate in today’s market, this is not even an option anymore. She never was informed about an escrow, or un deposito de impuestos in her language.

All of these are signs of financial illiteracy and a business and social culture that supports it.

What to do NOW?

Kids (and adults), put those credit cards away and start paying off your loans, building a savings account, and purchasing needs, not wants. I have seen recent statistics that say Americans may be saving more but I fear this is only temporary as it is unclear on which sector is doing the savings. This upcoming holiday season will provide a true indicator if kids (and their parents) are taking the current economic crisis seriously.

Speaking of parents, what have you done lately to improve the financial literacy of your children? Are you leading by example? How serious are the schools with a related mission? I learned how to balance my dad’s checkbook in 5th grade (because I loved math) and am one of only a handful of people that probably still do this today. Geek or not, this is an important activity to me.

WWBIC (Wisconsin Women’s Business Initiative Corporation), a state-wide organization that works on entrepreneurial and social financing issues, has great courses on “making your money work” better for you and individual savings accounts, and they are under-attended. Click here if you are interested or know someone that should enroll. They are located in Villager Mall on Park Street if you don’t have internet access and want to go visit with them personally.

I am well aware of the national economic policies that desire to spur the economy back into shape by incentivizing the American public to return to their consumer ways. [Unfortunately President Bush, I did not embrace this initiative and used your $600 check for existing debt retirement. Nor did my “clunker” (33 mpg) qualify for President Obama’s “cash” on a desired new car purchase option (27 mpg)]. But, my evolving perspective about saving versus spending, and the realities on today’s younger generations as it relates to getting and holding a solid job, financial management, financial planning, and comprehension of time value of money (TVM), give me great pause.

Do Generation X and Y …

…care about retirement, financial security and other long-term issues, or are instant gratification, new challenges, constant change, and keeping up with the Jones’ their M.O.?

Some days, more than others, I fear that a perfect storm is brewing for this sector of the population … especially the impact on their lives 20 to 30 years from now. My theory is that health care is and will always be a financial issue for much of the country (particularly low income families), especially as we age. I also feel that social security is between 20 and 30 years from insolvency and nobody in Congress is taking the necessary steps to halt the borrowing from this fund nor making sure that this safety net (the only safety net for many retirees) is reconfigured for the next century’s retiring population.

Furthermore, Generation X and Y has a tendency to change jobs every other year (not building savings for their retirement), move frequently (not following in their forefathers footsteps of having their house paid off), while continuing to spend money (consumer debt) they have not yet earned.

If you flash forward to 2040, where is this generation going to be if something does not change? One might postulate that by the time they reach retirement age (and who knows how old that will be) in this scenario, they could still be saddled with an outstanding mortgage or paying rent, they will not have substantial savings in their 401(k), SEP, pension or equivalent to live off of, social security will be gone, health care and drugs will be expensive, and they will have little to burry themselves with nor leave behind for their decedents.

Will the off-spring of Generation X and Y be able to care for their parents if this happens? Will the United States still be a productive nation and the leader in the world economy? Some may not care but it appears that things will change for this nation in the future.

Finally, the information being put out from the national government and public health organizations regarding the health of our younger generation is downright scary, especially as it relates to this country’s long-term financial viability and leadership. Here are three examples:

  1. Today’s younger generation is forecasted to be the first generation to not outlive their parents.
  2. 50% of certain sectors of our population (Latinos in particular) are on pace to have diabetes in the next 20 years (due to obesity).
  3. 75% (that’s three out of every four) of today’s 17 to 24 year olds are not eligible to apply for active military service due to a lack of a high school diploma, possession of a criminal record, or being physically unfit (obesity once again).

Below is a listing of Thomas Jefferson’s Ten Rules for a Good Life. I think today’s younger working population between ages 16 to 40 might benefit by taking stock in some of these truisms that stand the test of time.

Thomas Jefferson’s Ten Rules for The Good Life

  1. Never put off until tomorrow what you can do today.
  2. Never trouble another for what you can do for yourself.
  3. Never spend your money before you have earned it.
  4. Never buy what you don’t want because it’s cheap.
  5. Pride costs more than hunger, thirst, and cold.
  6. We seldom repent of having eaten too little.
  7. Nothing is troublesome that we do willingly.
  8. How much pain the evils have cost us that never happened.
  9. Take things always by the smooth handle.
  10. When angry, count 10 before you speak; if you’re very angry, count 100.

This list was originally entitled “A Decalogue of Canons for Observation in Practical Life” and was written by Thomas Jefferson on February 21, 1825 as part of a letter and poem to Thomas Jefferson Smith.

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