Not Quite Adults: Why 20-Somethings Are Choosing a Slower Path to Adulthood, and Why It’s Good for Everyone

by Settersten, Richard; Ray, Barbara E.

  Network economist Cecilia Rouse, who has recently joined the Obama administration’s Council on Economic Advisers, agrees: “We as a society really like to consume our income today. When you think about the level of consumption, it’s very high. I think a lot of parents aren’t thinking intergenerationally when they think about college costs. But after all, that is what they’re doing: investing in this generation’s future.” In an era of consumption, when we spend everything we earn immediately, that long-term perspective is a difficult shift. But it is, we argue, a necessary one. Not sinking $20,000 to ensure your future is shortsighted.

  Charlie figured that out quickly. He was set to go to Ball State University after high school to major in theater. However, his world turned momentarily upside down the night of his senior play in high school. Shortly after his big moment on stage, a member of the audience passed out. It turned out to be his mother. She would die of an aneurysm later that evening in the hospital. Although he continued on to Ball State, his heart wasn’t in theater. “I hit a spot where I didn’t know what I wanted to do and I was almost broke. I just thought it was time to leave. I’ve never been one to take out loans. I just don’t like owing people money. I wasn’t ready to grow up, and had no idea of what direction to go in and be happy with.”

  Charlie dropped out of Ball State the second semester of his second year. He moved in with some friends in a house not far from campus and took a job dealing poker in a small casino for $25 an hour. Not a bad gig for a twenty-year-old. “I was paying bills, being a true bona fide adult,” he says. After six months, unfortunately, Charlie’s job dried up when Indiana outlawed poker clubs. He tried telemarketing but, he says, “You cannot possess a soul and do this job. I worked it for a week and the money was good, the people were great; the job was horrific.”

  He knew he always had a job waiting for him at the country club where he’d worked throughout high school, and he didn’t want to be “broke-ass when I have a girl [I’m] getting serious with. It was time to go home.” He moved in with his dad and started back at the country club as a line chef for $10.50 an hour.

  Although the money in his pocket and lack of college debt momentarily felt good, his $600 a month quickly disappeared to bills, car loans, car repair, gas, and a credit card. Having “$450 a month in bills when you’re making $600 tops a month at work just doesn’t cut it,” he says. Charlie was learning what many in his situation soon realize. While even $25 an hour at age twenty-two seems like a lot of money, by one’s mid twenties it becomes nothing more than quicksand. The raises slow down or stop altogether, the better-paying jobs require more training, and yet the bills and the responsibilities keep climbing. He was also realizing something else: Taking on a little debt for a bigger payoff down the road is smart. When we talked to Charlie in the winter of 2009, he was on his way back to Ball State for the winter term, and he’d taken out a loan. “If I was really living an adult life,” he says, “there’s no way I’d be making it. The adult world sucks. I’m going to college to grow down.”

  The Mercedes Versus the Corolla

  Although investing in higher education of some kind is the smartest thing a young person can do, the plan must be strategic. Racking up costs at an elite school such as Yale or Princeton, with their hefty price tags, may not be smart if financial aid is limited and family income is tight. The type of degree and its earnings potential down the road should also factor in to any decision. Caitlan, for example, has a master’s degree in creative writing at a time when publishers are in dire straits and newspapers are laying off en masse. The degree is from the School of the Art Institute in Chicago, an elite school with a price tag of roughly $68,000 for the two-and-a-half-year program. The costs did not faze Caitlan at the time. “I vaguely remember someone at the school of the Art Institute sitting me down and saying, ‘This is what you’ll be paying every month on your loan when you’re done. Are you sure you can afford this? Do you want to do this?’ ” She still owed the University of Texas $25,000, a federal subsidized loan that was growing at 3 percent interest. Caitlan was right in line with the national averages on debt for public colleges when she completed her undergraduate program. Add to it another bill from the master’s degree at an elite school, however, and the debt suddenly leaps from manageable to unmanageable.

  Today, Caitlan is struggling to manage that debt in a profession that does not pay well by any stretch of the imagination. A career in journalism and publishing, which her degree in creative writing pointed her toward, does not easily support a price tag from the Art Institute. Caitlan has learned the hard way a buried truth in this overly credentialed world: Going to a top-tier university does not significantly improve one’s life chances over a school just a little farther down the ladder. The HARVARD or DUKE bumper sticker is not in itself the magic bullet that will propel that young person to the head of the class in life. Those who get into the elite schools will likely do well wherever they go.7 Those abilities and habits of success (not to mention their parents’ connections) that made them shine in high school and got them into the elite college will more than likely follow them in the job force. Sure, it helps to have Harvard on a résumé, but high ability and skill levels, coupled with positive personal traits and habits of success, will more often than not bring equally positive outcomes no matter where someone ends up going to college. After controlling for family background, SAT scores, or family income, studies show that lifetime earnings rarely reflect where students go to college. What they do reflect is whether or not they have the degree. That’s the single most critical factor.

  “Since I’ve been here in my position,” says David Shulenburger, “our clipping service, particularly in last year, has produced all these tales of woe that little Johnny or Susie are going to have to go to some poor old public university. The point is that we don’t know that students learn more and we don’t have any evidence to suggest that their earnings or career are any different in an elite school. Given that, the rational consumer, certainly the one who doesn’t have the money, ought to look at less expensive schools.”

  Jamil’s parents, immigrants from India, understood that early on when they encouraged their son to choose the local University of California–Riverside over Northwestern University in Chicago for his undergraduate work in pre-med. “We all wanted to go to the school that would give us that decal we can put on our car,” says Jamil. “You know, Northwestern or Harvard.” But to his parents, he said, the school was not important; the education was what mattered. “Looking back, they’re right. I didn’t really sacrifice anything by taking the route that I did. You know, maybe life in Chicago would have been different than life in Riverside, but I don’t know if that justifies spending my parents’ money that they could be using, say, for their retirement, or paying off their house.”

  He does, however, notice a difference in the perspective of some of his American classmates. “A lot of my classmates, they have a desire to go there [to the elite schools] and their parents also have that same desire to see them there. They’re willing to take out the loans and do what was necessary to put them through those schools.” The choice of college is much like anything else in life. You can pay the price for a Mercedes if it fits your budget, but a Corolla is just as effective in getting you where you need to go. Jamil for one is happy with his Corolla—and particularly about graduating from medical school relatively debt-free. UC Riverside offered him a full-ride scholarship for his first four years, which cinched the deal for him, and his parents have been able to manage the final years of medical school with minimal loans.

  Another example of a student who made a strategic choice in colleges is Lily. A second-generation Mexican American living in San Diego, Lily knew from the start that she wanted to be a teacher. Hers is in many respects a modern story of America—child of hardworking immigrant parents makes good in the world, gets a college degree, chooses a degree that “gives back,” and returns to a less fortunate school to teach. Lily’s h
ard work in high school paid off in scholarships that covered much of her undergraduate expense. She feels the luxury of those earlier circumstances now. She’s returned to school to get a master’s degree, and though she has paid for this one out of pocket, she says she’s “got it made.” She is enjoying life after a straight shot through college and into the workforce. She is traveling more, spending time with friends, and saving for a home. “I manage to save a lot of my money, so I do pretty well,” she says. At age twenty-five, she has a career and very little debt. “I feel like I’m pretty successful. I know I could do more to increase that success, but for now, I think I’ve done pretty well.”

  Lily decided early on that she would take on some debt to get her bachelor’s and master’s degrees. She was strategic, however, in her choice of schools, and she knew that if she taught in a low-income school she would be eligible for a loan forgiveness program. Along the way, Lily no doubt used her credit cards to pave the way through some tight times. She knew that she would eventually earn enough to pay off those loans and debt when she started working as a teacher with a master’s degree.

  Debt Is Not Always a Four-Letter Word

  Another result of this race for the Mercedes over the Corolla is less obvious, but may be even more detrimental. Not only has the race raised the expectations of young people for that brand-name degree, but the focus in the media and elsewhere on the debts of those who were less strategic may be scaring some kids off from what may be the single most important investment in their lives.

  In fact, some young adults may not be spending enough on themselves. They may be too “risk-averse” when faced with the prospect of taking on debt.8 Debt, in other words, has become an oversized fear among those who should be investing the most. This fear is, in part, a hangover from our puritanical upbringing. To be in debt in America was a curse worse than death. Debt was a sign of weakness, a stain on one’s character. Like a fat man giving in to the éclair, a man in debt lacked the willpower to control his baser urges. Defective, delinquent, and dependent were words of scorn in eighteenth- and nineteenth-century America, and debtors were all three. Thrift, on the other hand, was a virtue. Benjamin Franklin tapped into this vein with his best-selling Poor Richard’s Almanac, which gave us a host of thrifty aphorisms that countless schoolchildren still memorize today: “A penny saved is a penny earned.” “Beware of little expenses; a small leak will sink a great ship.” His twenty-first-century counterpart, Suze Orman, tries in vain still to set people straight with the same message. Although credit cards and other devices would burst onto the scene in the 1980s, at once widening access to credit and making it easier, and more private, to spend more than one’s paycheck covered, the fear and shame of debt would linger in the national consciousness. Witness the personal shame so many feel today at the loss of their homes, even when it was predatory lenders who brought them down.

  It is, in part, this lingering sense of shame about debt that has made a select group of young people afraid to take it on, even if it will pay off in the end. Granted, the country is currently reeling from its spending spree, so this might seem like a rather fanciful argument. But an old adage fits here: “You have to throw money out the window to have it come back in the door.” In the current economy, the government must incur debt to jump-start jobs and earnings—and the same applies to young people who are just starting out in life. When spent strategically, as on a college degree, taking on thousands of dollars in loans early in life is not always cause for alarm. According to the late Nobel laureate Milton Friedman, people should borrow the most early on when their earnings are the smallest, save a lot when they are in their highest-earning years in midlife, and then start spending all those savings after they retire. That theory of investment makes sense—except few do it. People drastically underconsume in their twenties and early thirties by failing to borrow against those assured future earnings for things that will lead to a secure life—homes, education, even taking a chance on a small business. That is not to suggest they should run out and buy the latest iPhone, but young adults should not be gun-shy when it comes to sinking some costs early in life, particularly college costs.

  Sam, for example, might do well to rack up the right kind of debt. At age twenty-four, he is living with his parents, his four-year-old son, his eighteen-year-old brother, and his twenty-one-year-old sister in a house his parents recently bought in a modest neighborhood in San Diego. With sole custody of his son, Sam feels the responsibility of being both a father and the eldest son in an immigrant family. His story, like Lily’s, is another common first-generation immigrant tale. Sam keenly appreciates the value of a dollar since he watches his father work six, sometimes seven, days a week to keep the family barely afloat. He lives in dread of a similar uphill climb in sand, and so has vowed to “to pay off [his] debt before continuing anything.” Very responsible, we nod. Yet for Sam, in his early twenties, his fear of debt may be exactly what is holding him back. He is unwilling to return to school until he has money saved up, and even then he is hesitant to return full-time without also working.

  “Realistically, for me,” says Sam, “I can’t afford to just go to school. I have to work in order to maintain enough money to go to school. My parents wouldn’t let me go to school full-time without some sort of income to help support the family, especially with a son now. You know, I definitely need the money. So I might hold off on that bachelor’s degree.”

  Sam is like a lot of young people: trying to be responsible, forced by circumstances to cut corners, work while they attend school, or, in his case, put off going until they can pay out of pocket. These costs, unfortunately, are deterring too many qualified applicants, often from low-income or minority backgrounds, from even applying. A study by the Institute for Higher Education Policy, a Washington-based nonprofit dedicated to access and success in post-secondary education, finds that the primary reason that qualified students do not enroll in college is the perception that it’s too expensive.9 The findings were based on a national survey of students who were qualified for college on the basis of their performance in a college preparatory curriculum and a survey of high school counselors.

  Yet this is exactly the time for Sam and others in similar boats to throw caution to the wind and track down financial aid, take out a small loan, and go into debt. His lack of degree keeps him in low-paying jobs. The low pay means he will take longer to save for the tuition. By then life will probably have interceded, which will make returning to school for that increasingly necessary degree or certificate even harder and the resulting life chances even dimmer, the bills more pressing, the credit card more necessary, leaving him constantly treading water against the undertow.

  Underwater

  Sheila and her husband, Tony, are high school graduates in their late twenties with three kids. A generation or two ago, they might have been able to get by comfortably. But today, their high school degrees don’t fare well in a job market where low-skilled but well-paid jobs with benefits have all but vanished—putting them squarely in the growing ranks of the working poor. Tony, the main breadwinner in the family, was recently promoted from a seasonal job as a street sweeper for a subcontractor to a full-time position with the company, making $10 an hour. Sheila makes $360 a month caring for three small children, along with her own three children. This brings their total income to $25,000 a year without benefits. Although to them, Tony’s steady job is a step up, they are far behind on some bills, including several credit cards they used in slow times to make ends meet. They are not alone. For the working class, credit cards are often the rescue plan, at 25 percent interest and a slew of fees.

  Sheila says, “We got the credit cards because a mortgage company said we needed credit cards to build our credit so we could buy a house. Well, we ended up getting credit cards and screwing up our credit. Then my husband was laid off in the winter because his job was seasonal then. That really put us behind with credit cards, and now we’re trying to get back out of debt,
but it’s so hard. You’re getting charged with all these fees every month. They don’t understand. We pay them a $50 payment and the next month it’s $100 more. How are we supposed to get caught up?” In fact, they rarely do. Young adults like Sheila and Tony (under age thirty-five) who cannot pay off their monthly credit card bills had median credit card balances of about $1,800 in 2008.10

  Like a lot of Americans of all ages, Sheila and Tony are sinking into the hole, one bill at a time, as their incomes fail to keep pace with the cost of living. Wages for men like Tony have steadily lost ground since the 1970s, to the point that today their paycheck buys them $350 less each month than it did in 1975 after adjusting for inflation.11 Men with just a high school degree are earning less, their jobs are less steady, and costs like health care are now theirs to shoulder as employers steadily shift these costs onto workers. Today’s recession brings home that message even more. In July 2009, fourteen million people were vying for 2.4 million jobs. Young adults barely stand a fighting chance with these odds. Those with more experience will win out, and those without a college degree are the last in line. Even before the recession, young adults without college degrees were struggling mightily.