How being a millennial is both different and the same from young adults of earlier generations.
In this episode you’ll learn:
- How do Millennials differ from young adults in earlier generations.
- How large is the student loan debt burden
- Why is housing more expensive today.
- What is the paradox of choice.
Today is episode 168 and it is tentatively titled, “Is Life More Difficult for Millennials?”. I recently got an email from Ryan. He writes the “Dollars and Cents L.A.” blog, a personal finance blog for millennials in Los Angeles. He did a really nice post where he profiled my show and all the things that he learned from it (I’ll link to that in the show notes of this episode).
But he writes, “Given that I am a millennial, I understand many of the financial struggles my generation collectively face because I’ve gone through them myself: specifically, increasing student debt, stagnant wages, and increasing housing costs in big cities. If I may, I would love to hear from you on a future episode addressing these hurdles, the implications on millennials, and possibly some tips to manage them”.
Then, later in his email, he said if you don’t know many millennials, he gave some examples of some of the struggles, student loan debt– which I believe his, he has all paid off–and mentioned the average price for a starter home in Los Angeles area is $600,000. Now we’ll get to that.
What Is a Millennial?
I have three millennials as my kids, LaPriel and I. Two sons: we have a 25-year-old a 22-year-old, and a 19-year-old daughter. I spoke to all of them about being a millennial and every single one says, they don’t really like that term. They don’t like to be put in a box; they don’t like to say “our generation”, because it is so diverse.
Yet, there are some statistics. So, that was my first thought: “Well, are millennials that different from perhaps when I was growing up?”. I’m not a millennial. I guess I would be called Generation X and I never really related to that. I thought it was kind of a silly name.
But, the U.S. Census Bureau did a very comprehensive study comparing young adults ages 18 to 34, which is generally the millennial age. Millennials were born around 1983, the early 80s, through kind of the early 2000s. They did a study comparing the young adults in 2015 or 2016, age 18 to 34, and compared them to young adults in that same age cohort in 1975, which would clearly be the Baby Boomer generation.
Comparisons: Housing in 1975 and 2016
As you look at it, compared to that generation, the millennials today make more money. Their incomes are higher, even adjusting for inflation. They’re more educated. More of them work full-time jobs. They do have more student loan debt and housing prices are higher, but not because houses are more expensive. It’s because houses are larger than they were in 1975. In fact, this is pretty fascinating.
The average square foot house in 1975 was 1660 square feet. In 2015, it was 2687 square feet. Plus, households have become smaller. As a result, the amount of house per person, square footage wise, has gone from 507 to 971 square feet.
So, we’re used to having more space and I was speaking with a listener, a member of the Money for the Rest of Us Plus and he told me this story.
He was visiting some friends and they had a brand-new house with four or five bathrooms. It was a big house, certainly bigger than the 1975 average. Well, he needed to use the bathroom. He started walking off towards the bathroom and they, his friends, said, “No, no, no. You can’t go to that bathroom; we don’t use that one because we don’t want to have to clean it”.
So, they sent him to the other bathroom and he thought, ‘How amazing is it that houses are so big–and you can afford such a big house, but can’t afford, or choose not, to pay someone to clean it, because you don’t want to clean it–that you don’t use half of your house, because you don’t want it to get dirty?’.
I remember back, I had friends growing up that their parents would get new furniture, especially this one friend, and you could never go in the living room and you certainly couldn’t sit on the living room furniture, the new living room furniture, because it was covered with plastic, so that it didn’t get dirty.
So, houses are bigger. The price per square foot in 1973 was around $107-$108 per square foot to build them. (This is all adjusted for inflation, so we can compare apples to apples.) In 2015, it was around $120 per square foot, so about the same. It got higher and in the bubble, we had over $130 per square foot, but they’ve come back.
It’s not as if the houses are bigger, in fact there are more energy efficient. They come with more bathrooms, closets and fireplaces. They have more appliances, air conditioning. 93% of houses in 2015 have air conditioning versus less than half in the early 1970s.
Location, Location, Location
So, one of the things we have to think about is whether life is more difficult for the millennials. Clearly, if you’re in Los Angeles, it is more expensive to buy a house versus Idaho, but that is because people want to move to and live in Los Angeles. But you don’t necessarily have to.
Now, if you have a full-time job there it may be different. My son has a friend that just got a job with Pixar in San Francisco, Pixar Animation Studios. He’s an illustrator and he’s having trouble finding houses, affordable houses, in San Francisco. So, there are definitely pockets, particularly in big cities, because that’s where people are moving.
Younger people want to move there, but you don’t have to move to a big city. One of the people I follow online is a millennial, Colin Wright. I came across his blog number of years ago, called Exile Lifestyle. He used to have a design agency in Los Angeles. He shut it down, became a freelancer, started writing and lived all around the world.
He spent the last six months living in Kansas City, then he moved to Memphis and that’s where he has been for a few weeks, to a month. He is exploring a new city, an extremely lower cost city, and has a loft that he is renting–I don’t know what he’s paying. But, if you have some flexibility, you don’t have to live in the high rent district. You can find a cheaper house.
Employment Strides and Education Gains
Let’s take a look at the census data. This is comparing the older millennial ages 25 – 34, generally, those that have already finished college–if they went to college–and what’s clear is that more millennials are working than back in 1975. So, 77% of millennials are employed and 57% are employed full time. That compares to 1975, when 67% were employed and 46% full time.
The biggest difference is women. In 1975 49% of women were working and 26% were working full time. Compare that to today. In 2016, 70% are working 48% full time. So, that’s a difference. Now when we look at the men. It’s about the same. So, 84.9% of men were working in 1975, versus 83.7% today and 67% in 1975 versus 2016 are working full time.
Millennials are working. The unemployment rate for millennials, that 25 – 34 age cohort, is 4.5%, compared to 6.3% in 1975. So, there are jobs there. They’re working. Comparably, it’s not harder today than back in 1975, in terms of being able to get employment.
Millennials are way more educated. In 1975, 23% of men and women ages 25 to 34 had a bachelor’s degree or higher. Today, that is 37%. In terms of having only a high school diploma, 40% of those in 1975 that were 25 to 34 had only a high school diploma, versus 25% today. That’s only, so high school diploma or less. 18% didn’t have a high school diploma at all in 1975, versus 8.5% in 2016. That’s a bit different. Now they are more educated.
Indebted to Schooling
Now, that college education has required millennials to take on student loan debt and that student loan burden is significant, but not as significant as I thought. The average student loan debt coming out of college today is around $30,000. It definitely varies by state.
The high-debt states for student loan debt are New Hampshire, at $36,101; Pennsylvania, at $35,000; Connecticut, at $35,000 and Delaware, at $34,000. So, the more indebted states–and this is according to data from Institute for College Access and Success–are in the Northeast, where we have a lot more expensive private colleges.
Of the low debt states, the lowest is Utah at $18,873. The reason why that is so low is that is where Brigham Young University is, a private school that is heavily subsidized by The Church of Jesus Christ of Latter-day Saints. As a result of that subsidization, they are sort of the low-price leader, so neighboring state colleges are a little more reasonable, compared to perhaps other state colleges in another area. The next lowest states are New Mexico and California, with the average student loan burden in California being $22,191.
So, that student loan burden is there. And I talked about that in episode 45, “Funding the Startup of You” and, in my opinion, it makes no sense to go to a very expensive private liberal arts school where you are paying $40,000-$50,000 a year in tuition, if you’re going to come out with $200,000 in debt. That’s just it. There are other ways to go about this. You can start off at a junior college and transfer.
Perhaps it makes sense to go to a more expensive college, if you’re set on a profession that you know is going to pay a lot coming out, an engineer or technology. But, if the liberal arts are where you want to go, there are better ways to go about that, instead of paying student loan debt.
There was an article in The New York Times–I think it was The New York Times–just recently about the average student loan burden of graduates from Harvard. I think it was–I’m not going to give the right degree– but it was, basically, acting, a Master’s in acting degree. That’s not the name of the degree, but the students are planning on going into the theater and they are leaving that program, on average, with $80,000 in debt. It’s so much that they can’t even pursue their acting career, because of the student loan burden.
You have to match the debt load with the potential income. If you don’t know what you want to do, it makes no sense to take out a bunch of student loans. If you know what you want to do, you’re set on it and you know that it’s a very lucrative profession, then leveraging up in that way, an expensive well-known school, makes sense.
More Education, Higher Income
Now, because millennials are more educated, they make more money. When you look at the data, this is interesting, the Census Bureau put the median personal income in 1975 as higher than 2016. The median, being the middle person, was $37,000 in 1975 versus $35,000 in 2016. The men are down; men in 1975 had a median earning of $46,000. Today, in 2016, it’s $40,000. Women are higher: $29,429 in 2016 versus $23,000 in 1975.
But, it’s definitely skewed. The percent that were earning less than $30,000 in 1975 was 53% and now it’s 50% percent. The percent earning between $60,000-$100,000 was 12% in 1975; it’s 13% today. Those earning more than $100,000– and again, these are inflation adjusted– was 5.4% in 2016 versus 1.7% in 1975.
So, you have some income inequality–I guess you can call it– but it’s just the fact that more education means those that have that education are earning more and that is skewing the higher deciles. A greater percent of people is making more money. The average is higher, but the median is a little lower today, which is generally those that don’t have a college degree or maybe even don’t have a high school diploma. Millennials in that camp are definitely struggling, and those are those that tend to live at home.
A Place to Lay Your Head
The Census Bureau points out that 23% of millennials, in 2016, live in their parents’ home or they are away at college, versus 15% in 1975. The study says, “In line with attitudes about the importance of education for becoming an adult, many young people wait to set up their own household until after they finish school. Living on their own can be expensive, so young people who live independently tend to have higher incomes, even among young millennials.
“Among older millennials, more than half of those who live in their own household have incomes of at least $30,000, compared with only one-third of their peers living with roommates and one-quarter living with parents”. So, if you’re making less than $30,000, you’re more likely to live with roommates or at home and that’s partly due to houses being more expensive.
In 1975 52% of young adults ages 25-34 were homeowners; compare it to today, it’s 29%. Houses, because they’re bigger, are more expensive and the student loan burden is definitely there, but then millennials are making more money and more of them are employed.
So, I wouldn’t say financially it’s that much more difficult today than in 1975. I think, because of the education, a lot of these major milestones, forming a household and getting married, they’re pushing that out further. But there is one major difference between millennials today, what they face, versus 1975.
Choices: More Options, More Problems
The biggest difference between millennials, and young adults, and when I was growing up, or baby boomers, is that there are so many more choices and we’re so much more aware of those choices. In 2004, Barry Schwartz wrote a book called “The Paradox of Choice” and Paul Hiebert gave a review of this ten years later, 2014, in Pacific Standard Magazine. He does a great job of describing the book and the challenge that millennials face.
It says, “In the book, for example, he explores the stress people feel when confronted with ample opportunity and the regret that follows from choosing poorly (whose fault is it other than mine?). He also discusses our loss of presence (why am I doing this when I could be doing that?), our raised expectations (with so many options, why settle for less?), and our tarnished sense of self that comes from comparing our choices with the choices of others (why do we continue to pick the wrong things when Alex always picks the right ones?).
“In sum, Schwartz’s work poses a serious challenge to the notion that more choice brings about more freedom, and more freedom brings about more happiness. As the book’s subtitle implies, sometimes a lot is simply too much”.
My son, who recently graduated, mentioned that there are so many choices that it can be intimidating. There are different economic formats, projects you can do, it’s very easy to pick up and move to another country. He admits that he was somewhat unprepared for that dip when you graduate from college. It’s a pretty regulated daily routine, you’re studying, you do internships and then suddenly you graduate you have the entire world in front of you with so many choices.
I didn’t know of many choices. I chose finance because a stockbroker got up in the business school at University of Cincinnati and said you could make $100,000 as a stockbroker, and I thought, “I’d like to make $100,000”. So, I studied finance and that was it. I didn’t have this instantaneous information, this ability to look at other ways of doing it.
I did go to a broker about three years in and did a day of work at a brokerage firm. I realized that brokers were salespeople and I did not want to be a salesperson, so I didn’t do that. But it is so much easier to find people that are living different lives, things that we could do, and so it’s hard to make those choices.
Wayfinding: “You’ve Always Arrived. You’ve Never Arrived.”
Seth Godin recently wrote a post titled “You’ve Arrived”: “It’s easy to fall in love with the GPS version of the universe. There, just ahead, after that curve. Drive a little further, your destination is almost here. Done. You’ve arrived. Of course, that’s not how it works. Not our careers, not our relationships, not our lives. You’ve always arrived. You’ve never arrived.
“Wherever you go, there you are. You’re never going to arrive because you’re already there. There’s no division between the painful going and the joyous arriving. If we let it, the going can be the joyful part. It turns out that arrival isn’t the point, it can’t be, because we spend all our time on the journey”.
I’ve talked about that in terms of wayfinding and that is what it’s like. So, with this paradox of choice, so many choices, we have to weigh–and we talked about this a few episodes ago–maintaining our optionality, keeping our options open and actually choosing and making a choice. We’re sometimes afraid to make choices because things feel risky.
But Godin points out, in another post, that the gulf between ‘risky’ and ‘feels risky’ is huge. And it’s getting bigger. What we choose might not work and so we have to make choices that don’t bet the farm, but a consistent pattern of doing. Sometimes, when we have so many choices, we just don’t know what to do because there’s so many things we could do. Or perhaps there are so many choices that nothing actually seems interesting, which would be another paradox of choice.
As millennials, or non-millennials or post-millennials, or pre-millennials we have to get in a pattern of doing, of experimenting, of making choices and wayfinding, not knowing. There is no destination where we’ve actually arrived, that it’s in the journey, and part of that is just taking breaks from this whole social media, constant connection. Learn to have the discipline to read a book, to have the discipline to do a project and to develop the self-control to not get distracted and to do things.
Coming Home Again
Let me conclude by circling back to this topic of housing. I recently had lunch with Clayton and his father and brother. They contacted me and they live locally. Clayton just started a new job and was married. He formerly played a few years of professional baseball in the minor leagues and now he’s starting his career as an accountant, or his first job as an accountant–I don’t know. You can’t even say what your career is going to be, but he’s starting his first job and he was wondering about buying a house: should he rent or buy?
I also talked to my son about this–not about Clayton, we were just talking about owning a home. My son’s view is that he does not want to own a home right now. He’s married and doesn’t want to own a home because he wants to keep that optionality open. He considers it the flexibility to be able to move anywhere.
But, at some time, you actually want to own a house and when you look at the cost of housing, one of the things I noticed is millennials–not just millennials, I suspect all ages–they often want to own a newer house, even a newly built house.
I think back to our first house. We paid $70,000, and it was below median, in terms of the house. It was kind of on the outer portion of a decent neighborhood, but was kind of near the city. It was a transitional type area and the owner that lived there had lived there for 30 years. The house was outdated and I think he smoked a ton.
We spent the entire summer painting the walls with Kilz. We got high on Kilz because it was just a mess, in terms of all the painting. We bought a pickup truck just to be able to clear the yard of all the shrubbery and such. But it took work. We did sweat equity.
So, if you’re a millennial and you want to buy a house, don’t look at new houses. Go find one in a neighborhood that’s starting to transition and find one you can fix up. Get your house that way, if that’s what you want. If you don’t want a house, then continue to rent, because the one way you make money with houses is certainly having a mortgage, they’re highly leveraged transactions and that can help if the housing market’s going up.
But, irrespective of what the housing market is doing, if you can buy an inexpensive expensive home in an up-and-coming neighborhood and do the work to beautify and make it better. As a millennial, or anyone else, that’s how you build equity in your home.