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.

  This sinkhole of declining income and increasing bills is swallowing many more families today, and it has grown wider since 2000. Most of those families are in straits like Sheila and Tony—working in low-wage jobs, struggling with emergency bills and high credit card fees. One indication of this disparity between lower- and higher-income families is the lopsided share of incomes among working-class and poorer families that go to paying debts such as credit cards, mortgages, and car payments. By 2004, about one in four low-income households of all ages spent 40 percent or more of their income on debts compared with 13.7 percent of middle-income households.12 These numbers do not count debts to payday and other predatory lenders, to which low-income families frequently turn, and therefore the burden is probably understated. For many, credit cards are the answer to that gap when the money runs out at the end of the month and the roof leaks or the car breaks down again—or when the unexpected happens, as it always does.

  Peter, the twenty-two-year-old community college dropout from Queens, has had a string of bad luck that is typical of many in his boat—just starting out, few credentials, and balancing on the edge. While he was attending his second round of community college in Georgia, someone rear-ended his car. “I had to get that fixed, so I ended up using my credit cards,” he says. While his car was being repaired, however, he missed work when the friend he was depending on for rides failed to pick him up. As a result, he lost the job, and from then on “anytime I really needed something, I just used the credit card.” If that wasn’t bad enough, the bus company lost his luggage on one of his trips home, including all of the clothes he owned at the time. “Just a whole bunch of bad stuff was happening,” he says. With his grades suffering, credit card bills mounting, and no clear direction for himself, he dropped out of school again and headed home to New York. When we last talked, he was working for his uncle in a new temporary venture. Unfortunately, his work history at Sam Goody, the Gap, and Toys “R” Us doesn’t promise riches.

  Like Sam, Peter refuses to take on more debt until he can pay off his credit cards. “I have to get money to go back to school, so I have to pay my bills. I’m in debt already, so, you know, college is on hold.” College on hold—probably not the best decision since the only real way to get out of debt is to get a better job, and that takes education.

  Car repairs, covering expenses after losing jobs, and home repairs are the most common reasons why young people in middle-to-lower earnings brackets use credit cards. Rent, groceries, and utilities also rank high on the list. In some respects, these everyday expenditures are telling. Contrary to the common stereotype of spoiled big spenders, many young people are using their cards to tide them over through the end of the month. But for many, this type of credit card use is not the answer. It only digs these young people deeper in debt because they are unable to compensate on the other side of the ledger: income. Their credit cards are a sign of, not the cause of, their financial straits.

  Another major source of credit card debt today is health care. Poor and working-class families have many more health problems than their more affluent peers. They are in a catch-22 of bad luck and circumstance. Their daily struggles add stress and strain to their lives, and their low incomes land them in neighborhoods and communities that pose their own risks, such as higher levels of lead, crime, and fewer supermarkets with healthy food. Yet they are much more likely to go without health insurance, in part because they more often have part-time, temporary, or low-wage jobs that do not offer it. Too “rich” to qualify for Medicaid, the government’s health care plan, they tend to go without.

  The lack of health care benefits is not confined to the extreme poor or those with unsteady or part-time jobs. Many working Americans today are going without health insurance, regardless of age or income. The share of workers covered on the job has steadily eroded over the years. In 2008, 17 percent of full-time workers and 25 percent of part-time workers were no longer covered by their employers.13 The erosion of benefits, however, hits those with only high school degrees the hardest.14 Even when families are covered, they are paying more for that coverage. The average annual premiums for family coverage in employer-sponsored health insurance plans rose from approximately $1,500 in 1999 to $3,500 in 2009.15 This may be one reason that only one in five workers with the lowest wages participated in their employer’s health insurance plan in 2004. It’s simply too expensive for some workers to pay $300 or more a month for health insurance premiums when the deductible can hover around $3,000 a year.

  Young adults are the least likely to be insured; one-half of all uninsured people in America are between the ages of eighteen and thirty-four. The Network’s analysis of young adults and health insurance finds they lack insurance for similar reasons as working-poor adults—they more often hold jobs that do not offer it. They are also still job-hopping in their early careers and are less financially stable. The instability of work in the early twenties, the Network finds, is a key reason that nearly fourteen million workers under age thirty lack health insurance today.16 The chances of being uninsured have never been higher. When the late Baby Boomers were age twenty-five, only 23 percent lacked health insurance. Today, fully 35 percent are uninsured. Lack of insurance coverage peaks between ages twenty and twenty-four, when about 36 percent of men and roughly 30 percent of women lack insurance. This drop-off coincides with the mandated end of coverage on their parents’ policies while the prospect of a steady job with benefits is still a few years off. (The new health care bill will expand the point at which dependent coverage ends to age twenty-six.)17

  Tricia, a thirty-year-old woman in Michigan, knows what it is to be mired in health care bills. She and her husband of thirteen years and their three children struggle on his salary from his roofing business. “It’s still hard,” she says. “It’s hard every day.” They were living in a motel at the time of our interview, “and it’s not a place for my children to be, it’s not a place for me to be,” says Tricia. “It’s not a place for my husband to be. But once you get put in that situation, it’s so hard to get out because you’re paying $1,200 a month to stay in place.”

  Tricia’s health issues compound their struggles. Her husband, like three and a half million other self-employed workers, has no health insurance.18 Tricia has reached the point, sadly, that she feels she’d be less of a burden on her family if she disappeared. “I have asthma. I was born with it. And I was born with an underdeveloped lung. I’m going to get past a certain age in my life where I’m gonna need oxygen. I have had cervical cancer twice. I’ve had a little ovarian cyst. I’ve had major female problems. And I don’t have insurance.” Worried that she is a drain on her children’s futures, she skimps on her own care, “although my husband says they need a mother. But in the same sense we’re talking thousands and thousands of dollars of debt. My sister, myself, my mother, we’ve looked for something, even if it was an experimental thing to use me [as] a test bunny or whatever. But there’s nothing out there.”

  When Tricia’s symptoms become too severe, she checks herself into a hospital and “gets a nice big, huge hospital bill” in return. “I have my mother or my uncle who get inhalers and they pass ’em on to me. My uncle tells his doctor, and his doctor is more than willing to give ’em to me. I know exactly what I take.” For many like Tricia, a visit to the doctor or an unexpected hospital bill lands on the credit card. For American families of all ages and incomes, medical bills are a leading cause of bankruptcy.

  Tricia and others like her skate precariously close to poverty as the earnings of high school graduates continue to sink relative to those with higher education and training. The bills don’t stop coming, though. Debt for families like Tricia and Sheila—and increasingly better-off families as well—is mounting all the time. The Network finds that young adults between twenty-five and thirty-four today hold about 70 percent more debt overall than young adults did in 1983.19 But for many, particularly those with the stellar credentials, their incomes were also rising al
ongside their debt, so the pinch was less severe.20

  For the Sheilas and Tricias of this world, however—people who skipped higher education and formed families quickly—debt went north while income went south. Among this group, the Network finds that one in five have debts that would completely wipe out their savings if they were unemployed for three months.21 One statistic makes this division between the swimmers and treaders clear: Whereas 18 percent of the Tricias would be wiped out by their debt after three months, only 1 percent of her top-earning peers would face the same predicament.

  Another striking distinction between swimmers and treaders is how much more often treaders have credit card debt rather than mortgage debt, the latter of which pays for one of the most important assets most Americans will own. Among those young adults who are working in the service sector or other jobs that pay less than $27,000 a year, 20 percent had mortgage debt and 50 percent owed something on a Visa or MasterCard in 2001, the latest data available when the Network study was commissioned. Contrast this with higher earners, and it quickly becomes clear just how tilted the game is. Among the top earners (those earning $90,000 or more), 86 percent had mortgage debt and 40 percent had credit card debt. The destinies of these two groups have likely diverged further since 2001, when these analyses were conducted. What is clear from this picture of lopsided debt burdens is that the emergencies, doctor visits, travel to and from work, burst pipes, and heating bills take a much larger toll on budgets of those barely hanging on. The credit card is a lifeline, but it is also a noose.

  The American Dream of Hearth and Home

  In another example of the vicious cycle some young people find themselves in when they underinvest early on, Sheila and Tony, and other treaders like them, have debt that prevents them from investing in what has traditionally been the quickest way to wealth and assets—homeownership. Before they got into credit card debt, the couple had hoped to get a mortgage. Now, Sheila says, “Houses are so expensive. We were looking into a house six years ago. It’s unreal how much in six years the price has gone up. I can’t see paying $1,000 on a house payment each month. It’s such a huge chunk of money that could go for other things.” Those other things are bills and rent. However, if they were able to devote $1,000 a month to a mortgage, they would have a built-in savings account in a few years. It is in this important asset (like college, another form of “good” debt) where we see another striking divide among the middle class and those of lesser means. Renters, for example, are about ten times more likely to be “asset-poor” than homeowners: Their assets (home equity included) couldn’t carry them for more than three months if they lost their job.22 Assets gaps are evident across various groups as well. The racial disparities, for example, are stark—asset poverty rates for blacks and Latinos are more than twice those for whites. Unsurprisingly, education also plays a role—asset poverty in households that are headed by graduates of four-year colleges is about one-fourth that of those who have not graduated from high school. These assets—and housing is a key asset in America—more sharply divide the well off and the poor than even income.

  Sheila and Tony’s circumstances prevented them from buying when their more financially secure peers—and those whose parents were able to help them with down payments and even help to pay the mortgage each month—were able to invest. Young adults, in fact, were the age group that saw the biggest gains in homeownership during the 1990s and into the first years of the 2000s. Between 1992 and 2008, while homeownership nationally grew 5.8 percent, it grew by 58 percent for those under age twenty-five, and 19 percent for those ages twenty-five through twenty-nine. These were by far the biggest gains in homeownership among any age group.23 The declines in homeownership among those under age thirty-five in the past three years, however, essentially erased all gains accrued in the 1990s, returning us to the same rates of homeownership as in 1982.

  Not to be overlooked, what was also growing at this same time was the amount of mortgage debt young people were taking on. In 1983, a young adult under thirty-five typically owed about $64,000 (in 2007 dollars) on a home or condo. In 2007, the latest data available, that had jumped to $135,000.24 No wonder Sheila and Tony were priced out.

  Are Expectations Too High?

  The young people we interviewed rarely resembled the spoiled youth we hear about in newspapers and magazines, such as an article in the Fort Wayne News-Sentinel, which trumpets “Coddled Twenty-Somethings Enjoy Luxury on Blue-Collar Salary,” and claims that “They find solace in $325 Christian Dior sunglasses, a shot of confidence in a $600 Louis Vuitton handbag. Never mind that they still live with their parents …” In our interviews, we more frequently heard echoes of Ben Franklin and the virtue of thrift than we did about designer purchases.

  Austin, a twenty-nine-year-old in Minnesota, is notorious for his penny-pinching. “My friends all say, ‘Why don’t you buy a new jacket?’ I’m like, until my zipper busts, my jacket works. I don’t need new this and new that. I think some of my friends, as they become mid to upper twenties, they’re like, ‘Okay. I get it now.’ And I think, slowly, young adults will change their saving philosophies.” Living at home to avoid “throwing away” money on rent, Austin is saving for a house. He works full-time for a very nice salary. He has little debt, ample savings, and by any measure is getting ahead. To him, staying at home and saving signals maturity and adulthood. Renting and living paycheck-to-paycheck is immature and foolish.

  Likewise, Tom, a twenty-four-year-old Chicagoan, is living at home to build his savings. “I have a full-time job and a part-time job,” he wrote on a Chicago Tribune message board in response to an article on “boomerangers”—young adults who move back home with their parents. “My parents don’t charge me rent or any bills because they want me to pay off my student loans and save up for a house. I’ve been able to save $10,000 in savings and $10,000 in retirement accounts. I’ll probably be at home for another two years before I decide to get my own place.”

  Many young people like Tom who live at home say they make this choice in order to save money for college, a down payment on a home, and even retirement. Many have heard the warnings from financial gurus like Suze Orman to save, save, save—and they are doing so. The rate of savings has risen for this generation. Ninety percent of young adult households in America in 2007 had some kind of financial savings, either in a savings account, a certificate of deposit, stocks, retirement accounts, life insurance, or a trust fund. Forty percent had a retirement account, with a typical nest egg of $12,000, although that amount has likely declined with the sinking stock market of 2008–2009. Thirteen percent had stocks, with a typical value of $4,800. Another 6 percent had a CD with average amounts of $4,400.25 A study reported in a recent “Your Money” column in The New York Times indicates that, among workers who have the choice to start or stop contributing to retirement accounts, those ages twenty-one through thirty-five were more likely to start saving than any other age group—74 percent began saving, while 26 percent ceased. Another finds that about six in ten twenty-five- and thirty-five-year-olds reported saving, slightly higher than rates among the older groups. The recession seems to have sharpened the focus on savings for people of all ages, but especially for young people.26

  Not everyone is able to save, however. For the treaders of this world, life is a struggle. Their parents are less equipped to support them in ways big and small. They rarely have the luxury, as Tom does, of moving home—if their parents even have a home themselves after the current housing crisis. Their future prospects begin to sink along with their income and savings, while their debts continue to grow. They find themselves in this position not because of a diet of Dior and Vuitton, but because of underinvestment.

  The early-adult years are the prime time to invest in the future, which today means education and training. Ben Franklin’s warnings against debt and the elevation of thrift have hit home for many Americans, particularly in this difficult economy. Young adults have heard those messages loud and c
lear. Yet what they haven’t heard often enough is that there is such a thing as “good” debt. Investing wisely early on can pay off handsomely in the long run. Perhaps a more telling maxim for so many of our treaders is: “Penny wise, pound foolish.” They have forgone education, rushed out of the home, or assumed family responsibilities without the forethought and investment necessary to maximize their success.

  For others, whose parents are increasingly lending more money and support to their adult children, the current recession and financial meltdown may usher in a new era of restraint. When parents, as the Network found, spend one-third of the costs of raising a child to the age of eighteen again between eighteen and thirty-four, the burden on the older generation is too high. In a survey of eighteen-through twenty-one-year-olds in 2005 and eighteen-through twenty-four-year-olds in 2007, about seven in ten had received financial help from their parents in the prior year.27 These amounts were not inconsequential. Among those who received assistance, whether they were living with their parents or independently, the average amount was about $11,000 for the past year. Granted, this is the average, and it is skewed upward by those who received large amounts. But it is also true that about one-half of young adults received at least $5,000 from their parents in the past year. This financial help is most commonly given to cover bills, followed by the costs of higher education. Parents also help their adult kids with car payments and, in some cases, rent or the down payment on a home. Tellingly, these figures are significantly underestimated because they do not include imputed costs of room and board for those who live at home with their parents. Whether parents can continue to afford such considerable support is a decision that each individual family must weigh.

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