The Millennials: An Economically Lost Generation
The wealth and earning power of the Millennial generation, also known as Generation Y, is eroding day by day during the Obama presidency. The magnitude of this erosion is nothing short of startling for those Americans born in 1983 or later.
A lackluster at best job market is making for scarce opportunities for many Millennial college graduates. This, in turn, is pushing back their opportunities to earn and subsequently save, while at the same time increasing their debt load -- a lethal financial concoction, indeed.
This past May, as college graduates were walking up to get their diplomas, they were also being handed an average student loan debt of $35,200. That amount of money could buy a nice automobile or represent a down payment on a house at some point. Instead, it's unsecured debt with which the freshly minted graduate is burdened. This has become all too often the "Welcome to the Real World" gift graduates have received over the last several years.
Now assume that the Millennial graduate has ten years to pay the loan off at a 6% interest rate. It would cost him or her $390 month for the next 120 months to pay off that loan. That is $390 a month that could be used for something else -- a car, perhaps, or money that could be moved into a 401(k) account or to open up an IRA. Instead, it's a $390 monthly drain on the Millennial's finances.
This high level of debt has especially mounted throughout the Obama presidency. Consider that in 2011, the average student loan debt in the U.S. clocked in at $26,600. Therefore, from 2011 to 2013, we've seen the average student debt load rise by $8,600. That's a 32% increase in only two years!
There are myriad reasons for this high student loan debt, several of which can be traced to the weak Obama economy. One of the reasons for this massive increase is the dismal condition of the labor market. Students look at the job market, see its relative weakness, and then decide to pursue a graduate degree in order to push back the onset of paying back the loans on their undergraduate degree.
The Brookings Institute, in a study released earlier this year, stated that, among other factors, the Great Recession resulted in families having less resources, such as personal loans and second mortgages, to pay for college expenses.
As credit scores have declined and homeowners have had less equity in their properties to borrow against, their loan options and the quality of those options have declined, pushing student loan debt higher.
Increased debt, however, represents only part of the equation showing the wealth drain of the Millennial generation.
From the beginning of the recession in December 2007 through 2012, this generation saw average incomes slip by 8%, twice that of the overall adult working population over the same period. Couple those figures with above average unemployment for the Millennials, and there is a recipe for weak disposable income at present. Also perhaps far more concerning, it means less opportunity to save for retirement.
A large majority of this decline in salaries has occurred during the Obama economic reign. While he rarely if ever takes any ownership for this economy, his policies and decisions have exacerbated the economic challenges the Millennial generation faces.
ObamaCare, aka The Affordable Care Act, has caused many a small business to shun expansion by keeping its total employer count below 50, so as not to be under the influence of the atrocious legislation. The president's signature program has also contributed towards more part-time workers in the economy.
Perhaps more discouraging to business is the great unknown of when and to what level Obama will look to raise their taxes or eliminate tax breaks these businesses have. That, in turn, has caused numerous companies to hoard cash and forgo expansion, which of course results in fewer jobs created and less money circulating through the economy.
But let's get back to the Millennials. Putting numbers to this problem of low wages and large student loan debt, let's assume that a Millennial college graduate is making $40,000 per year in his first job. Due to his low salary and his student loan debt, he passes on saving 10% of his salary for retirement (5% of his own and his company's 5% match, for example) and instead uses those funds to pay down his loan debt or just pay for living expenses.
If he forgoes saving $4,000 per year for four years and plans to spend 40 years in the workforce from day one on the job, he will miss out on over $310,000 at retirement, assuming an 8% annualized rate of return. That is a considerable amount of wealth lost merely by delaying a saving program for retirement, which many Millennials are doing because of either lower than expected salaries or the necessity of paying down their student loan debt.
Even with potential catch-up provisions in a retirement plan later in life, it will be difficult to make up that amount of money for the Millennial. Of course, if he does try to make that up in his 50s or later, then that will amount to less money filtering through the economy via consumer spending, and that could conceivably amount to a drag on economic growth in those years.
Another result of the lost wealth could be that this generation works much later into life, perhaps even into their late sixties or early seventies. That would produce a phenomenon we're seeing now but possibly to a far greater extent, as workers staying on the job longer makes for fewer opportunities for younger workers to get a foot in the door and begin a career.
Whether Millennials save more later in life or work later in their lives, either could produce economic challenges in the decades to come. Though, with the difficulty in even finding a job now, saving more as they grow older or working longer probably isn't on their minds.
Sadly, this generation is facing long economic odds, both now and in their future, thanks, in part, to the condition of the Obama-led economy.
Chad Stafko is a writer and political consultant living in the Midwest. He can be reached at firstname.lastname@example.org.