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Generation Bankruptcy: Wake Up People!

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November 21, 2008 – Comments (21) | RELATED TICKERS: AXP , V , MA

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.

21 Comments – Post Your Own

#1) On November 21, 2008 at 6:30 PM, Donnernv (< 20) wrote:

I (a very old dog) had not realized it was so bad in your generation.  I'd hope that things are different in the country outside of LA, SF, NY and other areas of yuppie strongholds.

But nonetheless, we as a country are in for the biggest recession since the Great Depression...lasting five years at least.  A lot of these kids are going to be very damaged.

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#2) On November 21, 2008 at 6:56 PM, johnw106 (57.01) wrote:

Its not just the younger generation. Its everyone from 20 to 65 living like this.
This is why I say the government needs to stop with this nonsense of bailing out home owners. The ones who are in trouble ( I am not talking about health care issues or death of the income bringer here) are going down the bankrupt path regardless of what happens. Handing them a easy way out just reinforces bad spending habits and the cycle continues.

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#3) On November 21, 2008 at 7:33 PM, hansthered0 (< 20) wrote:

I have employees who don't seem to get it either. We're in the middle of laying off 50% of our workforce (and possibly more) and people are acting like they are entitled to something.

"The only shield we have in this world is our impeccability" - Don Juan Matus

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#4) On November 21, 2008 at 10:55 PM, johnw106 (57.01) wrote:

I wonder how many people would be behind bars if we still had debtors prisons?

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#5) On November 22, 2008 at 12:22 AM, Tastylunch (29.20) wrote:

nice rant.

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#6) On November 22, 2008 at 1:08 PM, Nainara (< 20) wrote:

I think the thought process for the younger generation usually ends up here: "What's so bad about bankruptcy?"

I can't fault them for it on a moral basis, considering the raw deal they're being handed.

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#7) On November 22, 2008 at 3:10 PM, richovertime wrote:

I am 35, have an MBA and I am employed. I put into my 401K 6% and get a 5% match. I bought a home with a 50k down payment, and I own two cars (98 cavalier, 98 escort) that are paid for which I will drive until they rust out or explode. I took a government position and I was feeling down on my self because most of my classmates are in high profile jobs in NY, LA, Atlanta, and Houston. They live in huge houses and drive exotic cars.

After all this hit the fan unfortunately I feel a ton better for my choices. I took a secure job that I am most likely not going to suffer a layoff. I can easily afford my mortgage, I have no car payments, and I paid off my graduate student loan. My classmates unfortunately are looking at corporate layoffs, trading down on their cars and are having trouble paying their adjustable rate mortgages, student loans, and credit cards.

Unfortunately I think that the 20 some things comment from the blog post should be raised to at least 35. I think at least within my circle of friends that I may be the exception.

Many people I know are filling for bankruptcy or defaulting on their homes and are blaming the greedy Europeans that wanted to buy the mortgage back securities. Although I feel for my friend’s trouble I can't reconcile the thoughts that they are grown up and should be held accountable for their action.

I think in addition to the entitlement issue there is a lack of accountability also. I understand cognitive dissonance. I get the fact that people don't want to blame themselves for the bad in their lives but WAKE up people!!!

A lesson learned makes you a better person. By denying the lessons you are doomed to repeat your mistakes. This time defaulted mortgages next time a car or credit card. Please for all our sakes open your eyes and take some personal responsibility for your actions. If you made a poor choice in a house you couldn't afford at least learn from it and understand that you are to blame for your choices. Don't dwell on it and beat yourself up. Learn and move on. Save every penny and in a few years buy a house you can afford.

The American Dream is out their for everyone.... but it isn't just a hand out. People have to earn it with hard work dedication and frugal/prudent financial choices.

Which reminds me I have to tell my significant other that we have to trim our restaurant expenses?

Darn I hate cooking.

 

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#8) On November 28, 2008 at 12:18 PM, uclayoda87 (29.14) wrote:

If you live for the present and do not expects to live beyond 30 years of age, then why save for the future (Logan's Run)?   "Bailout" may be remembered as the word for 2008, but the current generation of older parents taught their children this long before the federal government made it a national policy.  If you have a little common sense and some basic math skills, there are some conclusions which appear inevitable:  1.  Social security is unlikely to be viable retirement option for people currently less than 50 years old.  2.  Most baby boomers will not be in a financial position to retire at 65, if they wish to live above the poverty level.  3.  Most baby boomers will continue to work into old age for financial and emotional well being (do you think they would be able to rely on their children for support?).  4.  With more baby boomers staying in the work force, there will be fewer job opportunities for the younger generations, especially in a down economy.  5.  The younger generations (<50 year old) will find that bankruptcy doen't mean you can start spending other peoples money again to support your lifestyle, unless your in Congress.  6.  There will be opportunities in the future for those who choose to save now and live within their means, unless we move further left from socialism to communism.

 

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#9) On December 06, 2008 at 12:14 AM, cruikshank (< 20) wrote:

Excellent rant. Makes me feel less guilty that I have said NO the last few time my 23 year old daughter has come and asked me for money. I said No because I knew the things she was asking it for were setting her up for future financial woes. She wanted me to sign for a parent plus loan for more schooling when she has deffered her current student loans twice, and is not even working in that field anymore. The second time is when just over a month ago she want help with a down payment to buy a house in this economy. I was stunned that anyone would even think to give her a mortgage. So thanks for making me feel like I've been a more responsible parent by just saying no. Dave

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#10) On December 06, 2008 at 12:43 AM, Mary953 (77.81) wrote:

Cruikshank - Thanks for bringing this blog back to the light of day. It is well written and so timely. I had a friend that maxed out all his credit cards in 1999 to buy survival gear.  He was sure the computers would crash on 1/1/00. His comment was that he would be the one laughing on the first of Jan. 

I find the rant encouraging.   Every person thinking in these  financial terms is one more who will be taking care of himself and teaching his kids how to face life.

Twenty years ago, in similar circumstances, I listened to friends at work talking about the fact that they were not even making ends meet and a layoff was coming like this great financial axe of doom. I came home shaken and very glad I had been living below my means.

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#11) On December 06, 2008 at 12:57 AM, TimothyVR (< 20) wrote:

$1300-1500 for "entertainment" every month?

$600 for food - for one person - every month?

I don't understand.

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#12) On December 07, 2008 at 12:45 PM, SGLV (< 20) wrote:

What a great post!  I have watched many co-workers give and give and give to their kids.  One paid for her kids' entire college education, living in absolute poverty - and he never held a job during that time.  He now has a Phd, and she still helps him pay his rent, insurance, etc., every month.  At one point, she was taking the money from a retirement plan her mother set up for her, not sure if she still is.  Just the other day she was talking about how there is no way she'll be able to retire when she turns 65, she just doesn't have anywhere enough.  I kept my mouth shut, I've made my own mistakes.

In this economy, as parents see their life savings melt away, there are going to be a lot of shocked young adults who will be very depressed when they no longer have those credit cards to rely on, or mommy and daddy.

BTW, I don't even spend $600/month for food for a family of 4.  More like $300/$400.

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#13) On December 07, 2008 at 1:28 PM, dcfoolz (70.51) wrote:

Unfortunately, based on the responses to your rant, you're preaching to the choir.  I likewise concur with all your thoughts and those of the commentors.  

There doesn't seem to be anything we can do to shift the mindset of the financially troubled, since government and corporations are unwilling to enact policies which reward frugality and discourage unrealistic expectations & overconsumption.  I guess we just have to watch the "slowmotion train wreck" and try to get out of the way.

Any suggestions how we can help create change?  Or how to prepare for the "wreck?"

 Thanks.

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#14) On December 10, 2008 at 9:34 AM, cbwang888 (25.80) wrote:

Bailouts are coming for everyone who is financial irresponsible. This is all over news for the election year.

There is an old Chinese saying: Wealth cannot last more than 3 generations for a given family.

I think that may be true for even a country. We took things for granted for too long and we forgot to learn how to survive in a tough time.

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#15) On December 10, 2008 at 3:39 PM, jeffduby (22.20) wrote:

To people asking about 600$ per month on food:

I just want to say that it is really easy to drop 150$ a week if you are single and can't cook. Eating out two meals a day is standard form under those circumstances.

That comes out to less than 30$ a day, or 15$ a meal. You can spend that at a chinese buffett nowadays.

As far as entertainment goes, if you go out to the clubs in hermosa beach three nights a week, that looks something like this:

20$ cover charge (you and date)
10$ bar food
(5 drinks + 5 drinks)*7.50/drink  (you and date)
15$ Pizza after bar to sober up
20$ Cab Ride Home
-------------------------------------------------
$140/night*3 nights/week = 420/week

420/week*4 weeks/month= 1,680$ month on Bars alone. This does not include xbox 360 (300$), games (60$ each) gas, taking you better half to movies and dinners.

 It may be shocking how expensive things are in major cities, but let me assure you that they are very expensive.

 

 

 

 

 

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#16) On December 20, 2008 at 6:17 PM, EnigmaDude (93.40) wrote:

gee - maybe you should spend more time at the beach and less time at the bars! I spend $600/month to feed myself and my daughter and we live in a big city (Denver).  I went thru a BK and that was without the luxury of going out 3 nights a week!

But hey - if you can afford to live the good life while you're young and don't have any worries about the future, good for you. Just don't expect me (or my kid) to bail you out in 20 years when you're broke and destitute.

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#17) On December 30, 2008 at 6:22 PM, jeffduby (22.20) wrote:

I do not spend this much on my own food, I meant for this example to show how a typical twenty something can easily spend a lot of money without extravagent purchases. Also, L.A. is a lot more expensive to live in than Denver.

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#18) On December 30, 2008 at 11:38 PM, Mary953 (77.81) wrote:

I have two kids; both twentysomethings, both married (one expecting), both in large cities - different states, and one of those cities is one of the most expensive in the country.  They would be welcomed back home if they needed to come, but I don't think they will need to.  As to the budgets they adhere to, they have chosen to consider the following to be luxuries as needed (over the years) - cable TV, second car when there was no second job, Internet, landline phones, eating out, shopping for new clothes, shopping in specialty stores for anything.  One daughter has become an excellent chef, specializing in Italian dishes, because they enjoy good food, but do not have the budget to eat out nightly.  Her husband enjoyed taking leftovers to work for the sheer fun of watching the other guys try to trade prime assignments for his lunch. Am I painting a clear picture here?  These kids have excellent credit, homes that they hope to pay off in a fraction of the time allowed by their fixed rate mortgages, and they save the maximum allowed through their company matching programs. Oh, and most of the luxuries listed above are now back in the budget, but could be removed as needed and they would survive.  They know because they have done it.

One more thing - Each couple drew up their own budget, chose their own cuts, luxuries, needs without input from in-laws or parents.  Parents are available for emergency help and they know that we are here "just in case" but they (and we) are very proud of their independence.  Our kids are self-sufficient adults and they do not answer to anyone.  They like it that way.  They do what they feel is needed to maintain that independence.

Do not tell me that it is Necessary to spend $18,000 a year on entertainment and nightclubs to avoid looking "cheap" and that you must budget $600 a month for food because you live in a very expensive city.  Perhaps you are shopping at the wrong grocery.

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#19) On December 30, 2008 at 11:39 PM, Mary953 (77.81) wrote:

I have two kids; both twentysomethings, both married (one expecting), both in large cities - different states, and one of those cities is one of the most expensive in the country.  They would be welcomed back home if they needed to come, but I don't think they will need to.  As to the budgets they adhere to, they have chosen to consider the following to be luxuries as needed (over the years) - cable TV, second car when there was no second job, Internet, landline phones, eating out, shopping for new clothes, shopping in specialty stores for anything.  One daughter has become an excellent chef, specializing in Italian dishes, because they enjoy good food, but do not have the budget to eat out nightly.  Her husband enjoyed taking leftovers to work for the sheer fun of watching the other guys try to trade prime assignments for his lunch. Am I painting a clear picture here?  These kids have excellent credit, homes that they hope to pay off in a fraction of the time allowed by their fixed rate mortgages, and they save the maximum allowed through their company matching programs. Oh, and most of the luxuries listed above are now back in the budget, but could be removed as needed and they would survive.  They know because they have done it.

One more thing - Each couple drew up their own budget, chose their own cuts, luxuries, needs without input from in-laws or parents.  Parents are available for emergency help and they know that we are here "just in case" but they (and we) are very proud of their independence.  Our kids are self-sufficient adults and they do not answer to anyone.  They like it that way.  They do what they feel is needed to maintain that independence.

Do not tell me that it is Necessary to spend $18,000 a year on entertainment and nightclubs to avoid looking "cheap" and that you must budget $600 a month for food because you live in a very expensive city.  Perhaps you are shopping at the wrong grocery.

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#20) On December 31, 2008 at 12:59 PM, jeffduby (22.20) wrote:

mary953, if you read comment 17, I have repeated again that I do not spend this much on food. According to mint, I have spent about 316 dollars in food and bars this month.

However, it is becoming typical for young, single adults to spend this much. I know that this is a problem, that's why I wrote the blog. I am happy to hear that your children are doing so well :)

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#21) On December 31, 2008 at 4:13 PM, Mary953 (77.81) wrote:

From #14: Chinese saying: Wealth cannot last more than 3 generations for a given family.

Frugality, hard work, and common sense can help create comfort if not wealth.  What if first generation comfort creates children raised on that triumvirate (frugality, etc) and the second generation marries some one creating first generation comfort?  Extend further.  The members of the original family's third generation choose very smart, very capable, very independent but decidedly Not financially comfortable spouses.  The wealth of the first family has now run the full 3 generations, but been reset at each marriage altar to zero with the vow of "for richer or poorer" because each couple is stubbornly independent. You now have my family, and a situation that will continue ad infinitum because we stress the importance of work over wealth.

I owe you an apology.  You did say that you were citing an example rather than your own budgeting.  I have a bad habit of returning to read followup posts to blogs that I marked as being of special interest.  I read, "LA is a lot more expensive than Denver" and translated it to mean 'weak excuse.'  Returning later, I actually re-read the first post and remembered the reason I was so impressed.

You have the awareness to see what is happening around you.  You have the knowledge to understand that extra work is called for to insure your job, and that the only chance you have to influence your future in the work environment is to be the most valuable employee you can be - the last to be let go, the one with the best recommendation if, in fact, the entire office closes. 

You have the wisdom to understand that the smartest money management right now is to reduce or eliminate debt, save, and invest as much as possible in your future.  Wisdom is not the sole property of the old.  Maturity is not gained only by years (and some may reach great age and never mature at all).

You were questioned on numbers that seemed too ridiculous to be correct, so you explained how they could be completely true and even logical in a strange way.  For myself, I would have been embarrassed to cost a date so much money; and I would hope that I could find less expensive ways to enjoy myself. 

My young and very independent adult children are doing about as well as you are.  They could have written large portions of your original post.  The fact that they sink or swim on their own does not make me worry less, it just makes me respect them more, a respect that I extend to all young adults, single or married, who do not see Mommy and Daddy's home and retirement fund as a crash pad and funding for nights of partying.

You have my best wishes in an uncertain time, but I know that you are one of those who will not have difficulty facing the person in the mirror each day. 

Happy New Year.  Now Go Party! 

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