Generation Bankruptcy: Wake Up People!
November 21, 2008
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Recently, I’ve been very troubled about how people in my generation have been behaving with respect to their futures. I don’t want to sound like my grandfather, but we really are turning into a generation of dilettantes, lay-abouts, and twenty five year old children. I am terrified that in the next 1-3 years, bad credit card debt will be up alongside of bad mortgage debt, and that my generation will be largely responsible for it.
Things are getting bad Last week, a competing firm let go of twenty full time personnel in less than a week. Our firm just cut our highest paid senior staff member for failing to meet management expectations. I fully expect the axe to fall again. Now that the economy has turned I have been working tons of unpaid overtime, doing anything I can to justify my salary to my employer. Surprisingly enough, I am the only one in my office doing it. No one seems in the least bit concerned about the loss of business or accounts receivables in excess of 90 days except the management staff and myself. Young co-workers come in at 9:30 and leave at 5 and expect to keep their jobs, and friends are of the opinion that they are entitled to a job. It is unthinkable to them that they could be left without one in the next three months. It appears even more unthinkable that they will have to pay back their credit cards, car payments, and student loans even if they are unemployed.
How I was taught to do things As one of the more responsible twenty something year olds, I pay off my credit cards in full every month, over-pay my student loans, and save and invest about twenty percent of my income when possible. Living in one of the beach cities outside of Los Angeles, I have to live well below my means to make this work.
Addicted to spending What been mystifying me for a long time is that my friends and neighbors are not. In fact they are living way above their means. At first I thought they all made more money than I do; they had 60” plasma screens, satellite television, nice German cars, and live in almost beachfront apartments in Hermosa Beach and Manhattan Beach. These kids are spending hundreds a night on dinner and drinks and go out to the clubs at least four days a week (another fifty bucks a night), and regularly attend concerts at Nokia theater.
These are the traits normally associated with young executive professionals making over six figures. Stunningly, many of these individuals are making less than $60,000 a year. At first I was confused by this, now I am growing very concerned.
Note: Some of my coworkers make money in multiples of 60,000 and are worse off. This seems like a generational issue more than a salary issue. It also seems to cross gender and race lines as well. I know professional men and women of diverse heritage that are all completely screwed. If my friends and co-workers are any indication, the majority of sub-thirty adults are about to either default heavily on their loans, or go completely bankrupt. I would estimate that maybe 50% of the credit card and long term debt has any chance of being paid back on time.
Addicted to debt
People in my generation are not only living above their means, or experiencing “lifestyle creep” but are in complete denial that they will have to pay back what they are spending. It’s essentially a youth oriented version of keeping up with the Joneses. Many people my age are spending more they make every month, and paying for the remainder by shifting around credit card balances, when this is no longer possible they call mom and dad for a “loan”. This keeps them in the clubs and their SL-class for another month. But what happens when their parents can no longer afford to pay for a grown child.
I know twenty five-year old that has over $300,000 in long and short term debt right now and just lost his job. His parents are retired and refuse to mortgage their house to make his payments. He is staring bankruptcy in the face.
Below is an actual financial snap shot of another of my friends who asked me for help with his finances.
Assets:Salary 55,000 usd = $4,584/mo
loans from parents->Unlimited?
Liabilities->
Taxes: 1145.75/mo
Rent: 1,100/mo
Car: 300/mo
Student loans: 300/mo
4 Credit Cards: Minimum Payments at 200-300/mo
Entertainment Expenses: 1300-1500/mo
Food: 600/mo
Total Salary: $55,000/yr
Total Liabilities: $59,349-62,949/yr
He is either costing his family, or falling further into debt between 4,000 and 8,000 dollars a year!
For those parents out there thinking, “This could never happen to my kid!” Ask junior to review his financial situation with you, and see what kind of damage is being done to his/her future. Get ready for that empty nest syndrome to turn into "my thirty year old kid with a masters degree is living in my basement syndrome."
No thought for the future The most shocking thing to me is that many of my friends have no planning at all for retirement. They take their pay checks in full so they can spend more, and live a life-style that attracts the twenty somethings of the opposite sex in the area. As we all know, the social security system will be bankrupt long before we retire, so who is going to take care of these people? They don’t have kids, don’t have wives or husbands to help out.
So please, if you are a kid about my age or have a kid my age:
1. Start funding your 401K
2. Trade in the BMW for a used Honda.
3. Pay for things in cash, not on credit cards
4. Live below your means
5. Try to save at least 10% for a rainy day
If more of don’t start doing these things, a big chunk of our generation will be bankrupt, and the rest of us will be paying for it.
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