Are Today’s Youth Equipped to Face the Future?
July 28, 2008 · Print This Article
The newest generation of earners and spenders might be ill-equipped to exist in today’s economy. At the same time as our economy becomes ever-more complex for individuals to navigate, as debt increasingly becomes a nigh-inescapable part of our financial lives, and as more and more complicated structures spring up to handle our financial demands–people in their twenties are growing up more and more financially illiterate.
Even though 85% of people in their 20’s today have finished high school, and 27% of people over 25 have finished college (the highest percentage of college graduates-per-general-population ever), a mere 52% of kids leaving high school could get a passing grade on an exam testing the most basic financial knowledge. If these statistics are any reflection of reality, many young people today don’t know how to balance a checkbook, let alone take out a home mortgage, or invest in the stock market. These statistics show that many young people do not even understand how debt works, or how credit cards work. At the same time, the average individual in the 18-34 demographic, earning an average income, owes more than $8,000 in credit card debt as of 2008.
This trend has alarmed observers. People in their 20’s and 30’s comprise a large proportion of the American economy today, and that proportion is only going to get bigger. At the same time, 68% of parents of “kids” in their 20’s and 30’s are having to subsidize–or completely finance–their offspring’s lives. If young people are going to continue to be making poor financial decisions, and being poor earners, our economy will suffer. Especially if and when those young people end up trying to buy a home of their own. With the recent housing crisis, we have witnessed what could happen if people failed to make their mortgage payments on a large scale. If the younger generation of homebuyers remains uneducated, we could be seeing a worse crisis still, with even more far-reaching impact on the rest of the economy.
Some say that “baby boomers’” attitudes towards their children are partially to blame. In their attempts to provide for their children financially, many parents have shielded their children from vital financial knowledge. At the same time, debt has come to be seen as inescapable rather than as something to avoid. Credit cards have become common, even for high school kids. Growing up, kids spend more, and are not taught to economize.
Meanwhile, personal finance has become more complicated. There are many more options for individual consumers, and all the information can begin to seem overwhelming. For example, most home mortgages twenty years ago have been the standard 30-year fixed-rate mortgage, which demanded a down payment of at least 20%. Today, consumers have a barrage of options to choose from. It’s difficult to untangle the complexities of these exotic new mortgages, and easy to simply pick one demanding the least amount of cash up-front. Unfortunately, that means the homeowner will likely end up paying more in interest further along the line, or suffer greater consequences if the value of the home decreases.
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