The Kids Aren’t Alright: Why Middle Class Security is so Last Generation

by Heather C. McGhee

Bet you can’t afford the house you grew up in. A lot of middle-class young adults can’t. We are Generation Debt, and we start young: the average college senior now graduates with $3200 in credit card debt and $18,900 in student loans.

It didn’t used to be this way. I’m not even harking back to the Good Old Days when one (man) could hold up an entire family with nothing but a high school diploma in one hand and a union card in the other. No, I’m talking about only ten years ago, when the American people had less than a third of the consumer debt that we now carry. Or fifteen years ago, when college tuition was half, on average, of what it is now. Or twenty-five years ago, when 37 states had legal limits on how much interest lenders could charge their citizens. Banking industry deregulation coincided with the birth of a new generation that is poised to be the first in American history to not be better-off than their parents. Who says we’re an unremarkable generation?

So how bad is it? The real value of wages in the middle of the income spread has been stagnant since the ‘70s, and although women’s incomes have risen faster than men’s, they’re still only 73 cents to men’s dollar. Meanwhile the jobs that pay us those wages have been harder to come by and harder to hold on to. First there’s unemployment: while the tech blip briefly distracted us from a twenty-year trend of corporate layoffs and downsizing, that game is clearly over. In March 2004, the number of unemployed college graduates was 1.17 million, surpassing the number of unemployed high school dropouts. Awesome.

And the officially unemployed, as we know, are the ones lucky enough to be counted— they had enough job tenure to apply for benefits, haven’t yet exhausted them and haven’t given up looking for work. For the rest of us, there’s chronic underemployment, which for millions means temporary and part-time work. Nearly 40% of the temporary labor force has a college degree, and a quarter is aged 25-34. In 1970, unionized General Motors was the nation’s largest private employer. In 2000, it was Manpower, Inc., a temporary staffing service. These jobs of the future offer little security, irregular paychecks, and—most worrisome—few or no benefits. The benefit question is a huge one for our generation, as we now make up 41% of the much-talked-about 44 million uninsured. That means one in three of us is without health coverage, not because we imagine ourselves invincible, but because employers aren’t offering and we’re too old for Congress to care.

Where’s the outrage? I know, I know, it’s a tragic litany, but it doesn’t really feel that bad, does it? You know plenty of people with good jobs, and we’re not exactly seeing twenty-somethings in bread lines, or for that matter, picket lines. Where, you might ask, is the outrage? Why aren’t we taking to the streets?

Little plastic shield. For one thing, our parents’ middle-class homes are inherently connected to our ability to whistle while we look for work. Daunted by big rents in big cities where the jobs are, more and more of us are moving back in with the ‘rents, allowing us to devote our entry-level wages to paying down debt. According to a MonsterTRAK survey, 40% of recent college grads anticipate that they’ll have to move back home at some point. Of course it’s easier to think you’ll one day be able to duplicate your parents’ standard of living if you’re still living it. Nevertheless, most of us do strike it out on our own, and increasingly, most of us pay for college on our own. So all those rising costs— health care, debt service, housing— are coming at us full-force. What have we got to defend ourselves with? For most of us, not much more than a little plastic shield. Where our parents have assets, we have debt. Here too the story is familiar: educated young adults from middle-class families making $36,000 a year in publishing or marketing or I-T, living in New York or Chicago or San Francisco. How does it all add up? Honestly, it doesn’t, as a budget for my friend Emily shows:

Sample Budget for Emily, a 26 Year- Old College Graduate

Monthly Take Home Pay: $2,061 [$36,000 a year, also the average starting salary of college grads in 2001, minus taxes and a monthly health care contribution of $39]

Fixed Expenses

Fifty-four dollars a month. A disposable income of $54 a month is less than Emily’s health insurance deductible if she gets sick. It won’t even get her in the door of a garage if her ’99 Camry breaks down—which it does, often. Like most of us, Emily has no savings (she doesn’t even have a savings account connected to her checking because she couldn’t afford the fees) and can count no assets more valuable than a year-old Nokia cell phone, her only phone line. So what does she do when anything unexpected happens? She charges it, of course—on either her MBNA Visa, her BankOne Visa, her Discover, or her Citibank MasterCard. Despite making the minimum payments each month, Emily’s balances keep growing and her interest rates have recently gone from single-digits to 24-29 percent because her compounding interest had broached her credit limit by $17. She wasn’t sure why that happened, first on the MBNA card and within two months, on all the rest, but card agreement fine print does disclose that “terms, including APRs, can change at any time, for any reason.” How’s that for a contract? But, even paying 29% APR, she can walk down the street with her head held high on $54 a month because for our generation, credit cards—“yuppie food stamps”—are priceless.

Blithe downward mobility. Of course, Emily is not alone. Yuppie food stamps are a shame-free way for millions of supposedly upwardly mobile Americans to keep their heads above water. We may be drowning, but we’re still holding out for that yacht. Our schizophrenic popular culture reinforces these illusions—from the rapacious reality shows to the bizarrely secure women of Friends: an out-of-work chef, a coffee shop waitress, and a part-time masseuse, all living the good life. We simply aren’t willing to accept that even if you play by the rules (get good grades, apply yourself, go to college, work hard) you still might not “make it”—something we’ve been bred to believe is our inalienable right. And so we continue to bet against the odds on our future selves, laying money down each month.

The mindset it takes to keep servicing debt as it grows by 29 percent a year is undeniably Forrest Gumpian, and perfectly American. Americans are nothing if not optimists, and individualists if optimism fails. We believe that each of us is the master of our own destiny: “I will survive the next round of layoffs”; “I will finish my novel and Oprah will love it”; “I will be the next Gates or Bezos or Jobs”; and (unlike the citizens of every other industrialized nation) “I will be responsible for my own fate when it comes to education, health care, and retirement security.”

The costs of a middle-class life have become even more individuated in our generation’s time, with the shift from college grants to loans, the 40% drop in employer health insurance coverage, and the transfer from defined-benefit pensions (companies guarantee you a certain payout amount) to defined-contribution (you invest your money and hope for the best). In our lifetimes, the solution to those shortfalls has become personal debt—student loans for higher ed, medical debt for gaps in coverage, and even credit card debt in retirement, as the average card debt among the elderly rose by 149% between 1989 and 2001.

Not surprisingly, the deregulated lenders of America are taking in money hand over fist. Last year, the credit card industry collected $119.5 billion in income before expenses, aided by a debt-driven economic recovery and a record $10.7 billion in profits from penalty fees ($35 for a day late, etc.) MBNA, Emily’s nemesis and a heavyweight on campuses nationwide, reported a 66% increase in profits last year. Of course, in this historic wealth transfer from students and families to multinational banks, the buck doesn’t really stop until it reaches Washington, where the biggest recipients of lender largesse reside. MBNA was President Bush’s number one campaign contributor in 2000, and the credit industry overall was the single largest contributor in Washington that year. It’s no wonder, then, that legislative proposals like a national usury limit get laughed out of town while a bill that would make it harder for people to declare bankruptcy has broad bi-partisan support.

The long hangover. While we have yet to see how this record run-up in debt will play out for our generation, there are signs, and they aren’t pretty. Young people in debt often have less-than-perfect credit, which can pose serious problems in the already sky-high rental markets in major cities. I know someone who, after 18 months of un- and under-employment finally found a job and then had to commit fraud—downloading his credit report and deleting all the past-due notices—in order to get an apartment. Now that as many as 35% of employers run credit checks before hiring, the long hangover of college debt can become an impediment to the employment necessary to pay it off. Finally, bankruptcy among the under-25 set— that’s right, 25—has shot up by 96% in the past decade.

Those of us servicing student loan debt and credit card debt are losing thousands each year to interest payments. If Emily were investing her $240 a month in her company’s 401(k) or putting it aside for a down payment, she’d have anywhere from $12,000 to $40,000 when she reaches 30. She’d be able to buy a house, or afford to have kids. But that’s just not in the cards, so to speak, for her or for millions like her. Nearly 40% of indebted graduates have delayed buying a home because of their student loan debt, and just over 20% have delayed having children. As she lives now, Emily can’t imagine when she’ll be able to save for the future. But this is America, and Emily still calls herself middle-class.

At 24, Heather McGhee is the youngest member of the Economic Opportunity Program at Demos, a think tank you don’t know but should. Her experiences working in film & television, in the EU, and in politics & economic policy have convinced her of one thing: it’s all about who tells the best stories.

A version of this article appeared previously in Iris.