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Youth hardest hit

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April 26, 2011 – Comments (5)

 I have a niece that bought in Arizona.  She went to work overseas and I encouraged her to sell when she left, but she didn't and she is part of this statistic.  

This article gets to me in the comparisons it makes to other generations.  I was a child through that stagflation they describe as so difficult on that generation.   What a load of bunk to make that comparison to today's crisis.  I grew up in a a so-called low income household, my mother was a single parent and there were 3 of us, and there was never any problem making the rent, putting food on the table, she managed to buy a new car, save a down payment.  And I also have my teen working experiences at "low" wage jobs and the buying was phenomial compared to today.  In the 70s and I had friend in high school who worked 20 hours per week at a minimum wage job and she was able to support herself.  Most can barely afford rent working fulltime on minimum wage these days, let alone a half-time minimum wage job.

That stagflation helped that generation in that it dramatically reduce relative debt and wages went up enormously.  I was working in banking from the late 70s to the mid 80s and there were tons upon tons of 30 something year olds paying off their mortgage.  Today's youth can barely put together a downpayment by that age.  There simply is no comparison and a real lack of perspective to suggest it.

http://www.azcentral.com/arizonarepublic/news/articles/2011/04/24/20110424arizona-middle-class-decline-young.html

 

 

5 Comments – Post Your Own

#1) On April 26, 2011 at 11:34 AM, alstry (35.03) wrote:

DWOT....

An excellent post demonstrating that the capacity to TRADE for necesseties is becoming more and more difficult for increasing numbers.

When you can't TRADE for Food, Water, Shelter and Security, what options do you have left?

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#2) On April 27, 2011 at 3:12 AM, FleaBagger (29.37) wrote:

It was not stagflation that helped that generation, but increased productivity. Wages do not rise relative to the cost of living without increases in productivity, and stagflation is defined as inflation without increased productivity. Maybe you and yours were in uniquely prosperous places during those times, but most were watching prices rise much faster than their paychecks.

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#3) On April 28, 2011 at 4:04 AM, saunafool (98.94) wrote:

Maybe you and yours were in uniquely prosperous places during those times, but most were watching prices rise much faster than their paychecks.

Actually, I think what dwot is referring to is that asset prices were lower. My wife's parents bought their first house in 1978. They talk about how they had to stretch to make the payments, but that was due to high interest rates.

Within a few years, their wages had increased substantially--raises back then tended to be in the 8-10% range. A few years later, they were able to refinance at a lower interest rate and soon after that pay off the mortgage early.

They only paid $35,000 for the house. Today they could sell for $300,000.

A former co-worker of mine talked about how he could barely afford his $58,000 house in Tiburon, CA (a very wealthy suburb of San Francisco) on his refinery engineer pay in 1975. Today, only the refinery manager could buy his house because it is worth $2 million. The young refinery engineers can barely afford anything in the Bay Area.

Low interest rates result in high asset prices. High asset prices make the initial purchase difficult and destroy future returns.

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#4) On April 29, 2011 at 11:36 PM, dwot (97.03) wrote:

What I was referring to is the huge increases in wages relative to debt over that period.  I worked in banks for 5 years between 79 and 84 and you see in a wide range of personal finance.

I probably should rephrase, as some people I don't think it matters what they have in the way of financial resources that come their way, they will simply blow it and not do anything to manage their finances to enhance lifestyle.  I saw tons of people in their 30s paying off their homes.  There were also some that were coming in every few years to add credit card debt on to their mortgages.  They had good income, just spending beyond their means.  

From what I saw it wasn't until much later that buying power started to decline, like somewhere in the 80s in Canada and I think things were better in the US until the 90s.  But there is tons of stuff in my blog history on declining buying power, which has hit the younger generation harder.  Wages didn't go up much relative to debt.  My entire adult life has been surrounded by news of 2% wage increases and not every year.  In the 70s it was 5 and 10% increases.  Your biggest debt, the mortgage, is cut in half or even less relative to wages.

The "wisdom" that was imparted on me on how I ought to live my life based on the experience of those older and wiser was that only the first few years you buy a home it is hard because your wages go up and your mortgage stays the same.  It didn't work out that way for many people in my generation.  

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#5) On May 06, 2011 at 12:59 PM, JonBarleycorn (69.25) wrote:

My wife and I made out like bandits by borrowing and mortgaging heavily and then paying our debt off with cheap dollars.

There's more than one way to skin a cat.

JB

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