Christine, a 24-year-old West Palm Beach lawyer, hates owing money.
“I’m just not comfortable being in debt,” says Christine, who didn’t want her last name published. “It scares me.”
Her fear is grounded in her upbringing. She was raised by fiscally responsible parents who did something few parents do today: They taught her about finances. They balanced their checkbooks to the penny, kept receipts and zeroed out their credit cards every month.
Even so, when Christine finished law school with $60,000 in loans, she did what too many new grads do: She went deeper into the hole.
She and her husband, a salesman, had a combined income of $105,000–a hefty paycheck for a young couple just starting out. Yet after the $1,600 mortgage on their town house, food, utilities, entertainment, clothing and gym bills, they were cash poor.
“We had nothing left,” she says. “We just got into the habit of spending everything we got.”
Join the crowd. Studies show that today’s college graduates are leaving school with more debt than ever, thanks to student loans (average debt in 2002 was $18,900) and credit card marketers who flood them with offers of easy money (the average 25- to 34-year-old has $4,088 in credit card debt).
Marketers, researchers and newshounds have coined all kinds of cute phrases to describe the phenomenon: Generation Debt. Generation Broke.
One thing is clear: The babies of Boomers are going bust.
With a limp job market and stagnant salaries, paying off debt and making a living at the same time seems more difficult each year. Forget about socking some money away for a home or retirement.
“I have friends who are in a ton of debt,” Christine says. “They work tons of hours and try to make it and then get so upset with how hard they’re working, they go out and spend more money. It’s a rolling cycle of spending money and going deeper in debt.”
Some talk about filing for bankruptcy (in 1999, 461,000 Americans under 35 filed bankruptcy). But they’d better hurry. New restrictions passed by Congress will make it harder, if not impossible, for them to clear their balances by heading to bankruptcy court.
Why are so many college grads committing financial suicide? There is plenty of blame to go around.
Start at home.
Root of the problem
Parents are spoiling their kids and teaching them nothing about personal finance. The message is life is an open checkbook.
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“Parents are abdicating their responsibility,” says Joline Godfrey, author of “Raising Financially Fit Kids.” “I had one dad say to me, `What’s wrong with giving my kids everything they want? I can afford to.'”
Schools are failing the test too. Think about it. What is the one subject that a child receives no training in, but will use every day of his or her life? Money.
And then there are the kids, who seem to believe that they deserve to live the lush life exactly like those multimillionaire Hollywood celebrities on “MTV Cribs.”
It is no wonder that 7 out of 10 parents believe that kids expect to get “whatever they want, whenever they want it,” according to a 2004 survey by Northwestern Mutual Insurance.
But, says financial guru Suze Orman, author of “The Money Book for the Young, Fabulous & Broke,” don’t blame the kids. “When it comes to money, you parents have given them everything they ever wanted. Why? Because you are embarrassed, parents, to let your child go to school without the latest and greatest because of how it might reflect on you. You created this little financial monster and now you are blaming them.”
Godfrey agrees that parents have to stop the madness.
“Five years ago everyone talked about how outrageous it was that a kid wanted $100 Nikes,” Godfrey says. “Now they’ve got Nikes, $300 iPods, laptops.”
Orman says that in a world of instant communication and instant information, “you cannot expect them all of a sudden to have grown up in this world of instant everything and not translate that into instant gratification.”
So, upon graduation, adults in their 20s expect to land a starting job paying $100,000 and continue the lifestyle they’ve become accustomed to living at home. There is no such thing as starting at the bottom and working your way up, living in a shack with a bunch of roommates and eating Ramen noodles to make ends meet.
Quite the opposite. They must have the cool car, hot digs and latest fashions.
With such an inflation of expectations in a tight job market, it’s no wonder so many young adults are crashing and burning, drowning in debt and depression. Others simply jack up the credit cards, figuring they’ll pay the tab when they get the salary they deserve.
But even when the cards are maxed out and the rent is overdue, there is salvation. Many who can’t hack it on their own are getting handouts from their parents, or simply moving back home to Hotel Mom and Dad.
Some parents have raided their retirement accounts and taken out second mortgages to pay for their children’s lifestyles–dangerous moves when you consider that we’re living longer and saving less than we used to.
Bouncing back
But financial experts say there is a way out. By doing a few simple things, parents can help their kids avoid crushing debt and the depression and hopelessness that come with it. And young people can get back on the right track, cut debt and pave the way for a brighter financial future.
“I do a system called `Welcome to Planet Earth,'” says Neale Godfrey, author of “The Ultimate Kids’ Money Book” and chairman of Children’s Financial Network. “It’s called a budget: This is what you earn. This is the amount you can spend. You should be saving for other things in life, like a home, a car or a vacation.”
It seems too obvious, but it isn’t. Take, for example, one young woman with a $35,000 salary who had racked up $19,000 in credit card debt but had nothing to show for it. She didn’t have a clue where the money went.
“I was sitting on the floor of her tiny one-bedroom apartment and she had nothing except for an air mattress and a workout bicycle. She kept saying, `I never go out.’ Turns out she had racked up $19,000 in debt over two years by charging Jamba Juice and coffee every day.”
The solution: Keep a money log.
The simple act of tracking earnings and spending worked magically for Christine, who went from having nothing left after paying bills to wiping out her credit card debt and saving $1,000 each month.
She and her husband drastically cut their out-of-home dining and started shopping at Costco. They rented DVDs at Blockbuster instead of going to the movies. They tracked expenses, set limits, lived within their means. “To me, what we did didn’t seem to be much of a sacrifice,” she says.
The result?
“We’re doing very well,” she says. Even though they spent thousands fixing up their home, they have managed to pay off their credit cards and tuck away $3,000 in a savings account.