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Life is Getting a Lot More Expensive

I’m constantly telling my kids how I moved out at 19, worked my own way through college and saved up for and bought a house.  I am very proud of this and hoped to set an example for them to follow.  The really bad news for my kids and others in their 20s is that it’s getting a lot harder to live the American dream.

Student Debt is Stifling

The Graduates

Image by Sakeeb Sabakka

Anyone who is attending college or has recently graduated is painfully aware of the absurd cost.  Even local state college tuition is unaffordable to middle class students, without taking out some pretty hefty loans.

The total amount of student loans now exceeds $1.1 trillion and 66% of students with a 4-year degree now graduate with some student loans.  The average amount per student is now over $30,000.  Student debt has almost quadrupled in the past decade and this falls heaviest on minority and low-income students.

Wages are Stagnant

Wages have been essentially flat for the lowest 70% of workers for the past decade and have declined for the lowest 20%.  Wages are way up for CEOs and the other top 5% of wage earners.  Productivity is way up and corporations are making record profits.  But, they are taking care of their shareholders, instead of their employees.  This trend will continue, so employees need to look for high paying fields and entrepreneurial types may consider starting a business.

Source: Business Insider

Housing Prices are Up

Housing prices across the U.S. rose an average of 10.9% in 2013 and are headed higher this year.  In many parts of the country buying a house is nearly impossible for couples in their 20s.  Combined with student loan debt and stagnant wages, most couples will be lucky to be able to afford a house in their 30s.  Buying a house has always been the next obvious step for young couples.  But, many are starting to consider it an expensive hassle.  That’s a shame, because living in a paid off house makes retirement considerably more comfortable.

Source: Kiplinger

Median Savings is Zero

The typical American isn’t saving anything for the future right now, despite having plenty of income left over after paying their bills.  People are simply choosing to spend all of their discretionary income, instead of saving some.  This is a sad reality, where people are choosing to live paycheck-to-paycheck, instead of saving to get ahead.  Saving in your 20s is one of the keys to a prosperous future.  Waiting until your 30s makes it much more difficult to build a nest egg.

Source: Fox Business

Retirement is Expensive

Anyone who is 20 years old right now could need to save $7 million in order to retire and this would only allow an annual withdrawal of $43,600 in today’s dollars.  That is a mind-boggling amount of money to save, for retirement with a median income.  My original retirement goal in the 90s was to save a million dollars, but I have since decided to at least double that amount.  People in their 20s need to save a lot more and may not get to retire until well into their 70s.

Source: Yahoo Finance

The Bottom Line

The bottom line is that it’s getting much harder to earn a living wage and prosper in the working class.  Those without a plan may join the growing millions of working poor.  In order to succeed, you need work towards a higher income, manage finances wisely, save for the future and invest to outpace inflation.

“Success is liking yourself, liking what you do and liking how you do it.”

- Maya Angelou

Recommended Reading

101 Centavos – Invest in the Higher Cost of Food
Stumble Forward – 7 Things to Know Before you get a Mortgage
Barbara Friedberg – Positive and Negative Impacts of Globalization

6 comments to Life is Getting a Lot More Expensive

  • Education should be free of cost. Or at least make it more affordable. Why should students who in fact has no income yet, have to be involved in a huge debts… this logic is not good. We are trained to have debts… this is not making us financially independent as a person.
    William Thompson recently posted..Bow StationMy Profile

    • Thanks for stopping by William.

      I don’t think college should be free, but it shouldn’t cost anywhere near what it does. It’s a complete rip-off and out of step with reality and the rest of the civilized world. My niece goes to college in London and it’s cheaper than in state tuition in California, including travel.

      One problem is the size of the administration is now more than double what it was in the 80’s and it’s inflating the costs dramatically. Since registration and other functions are now online, the schools don’t need all of these people. They are just rewarding their cronies at the expense of the students.

      Another problem is that coaches, deans and college presidents make insane salaries. The pensions are another huge factor driving up the costs and they are rife with end-loading and double dipping.

      Here is a real-world example. The dean who handed me my diploma at a small junior college in California retired a couple of years ago with a $135K pension. The same college promptly rehired her as the dean of another department for $190K and she is collecting both. That is so wrong and the students are stuck paying for it.
      Bret recently posted..Why You Need a Financial PlanMy Profile

  • This particular set of issues are quite discouraging. However, you can do better for yourself. Its a lot better to have more savings than zero. The more you know about the challenges people are facing and how you can work to overcome them.

    • Savings are everything Wallet Doctor.

      The current “Spend Everything you Earn” attitude is severely limiting the lifestyles and choices of a whole generation of Americans. They have been reduced to Wage Slaves for the moneyed interests and it’s so sad. I wish I could help in a bigger way than just this blog. But, young people have been raised to believe saving is lame and spending is fab.
      Bret recently posted..Life is Getting a Lot More ExpensiveMy Profile

  • I’m very concerned about student loan debt and how it’s stifling college graduates. I think it sucks for the individual, and its going to start hurting the economy as well. I think we need to really look at changing the system, but that’s not going to happen any time soon.
    College Investor recently posted..Investing Tip #52: Invest Small Amounts RegularlyMy Profile

    • Thanks for stopping by College Investor.

      I’m very concerned about it myself. There is no doubt student debt is causing young adults to stay at home longer and is depressing the housing market. I also suspect it is delaying marriages and affecting the birth rate. Stacking $30-100K+ of debt on young adults is a horrendous way to start them out in life.

      The reason it will be so hard to change is because it is a highly profitable monopoly. The colleges, professors, administrators, coaches and banks are making tons of money and have zero incentive to control costs. Nor do they have any legitimate competition.

      In my opinion, there will be credible accredited online learning available in the next few years that will undercut established universities and restore some balance. Until then, exploitation of our youth and their parents will continue.
      Bret recently posted..The Great American Money GrabMy Profile