Young generation piles up debt
Published November 29th, 2006 in Home News TribuneBy: KEN TARBOUS
"I don't consider it a problem," he said.
He's in the minority among people in his age group.
Young Americans are spending too much and not saving enough, and they're in for even more financial trouble, a recent study found.
The average unsecured debt of people 25-34 years old was $4,733 in 2004, up from $3,118 in 1985, according to the results of a study commissioned by the American Institute of Certified Public Accountants.
Education about money and finances is key for Generation Y, 25-to-34-year-olds, according to Jordan Amin, a certified public accountant at Edison-based Amper, Politziner & Mattia CPAs and Consultants and a AICPA member.
"Unfortunately, financial literacy for this group is something that needs some work, and we're trying to teach them sound saving habits, budgeting habits, so down the road it's not a big problem for this group," Amin said. "Unsecured credit card debt, the interest rates only really just takes a whack out of your savings."
Lisa Reilly, 32, who works at J&J's World Headquarters, said she has some credit-card debt but it's at low annual percentage rates and she's able to make her payments every month.
"It's a matter of awareness of interset rates and how they can cause you to stay in debt rather than get out of it."
Americans in general are spending more than they earn, $1.22 for every dollar they earn, Amin said.
Almost 25 percent of Gen Y's income is spent on debt service on credit cards and student loans, and the number of 25- to-34-year-olds with an interest-bearing account or other savings is declining, from 65 percent in 1985 to 55 percent in 2004, and the group's median net worth has fallen from $6,788 in 1985 to $3,746 in 2004.
Malik Brown, 26, said he is catching up on some old hospital bills he has and is staying current with his student loans.
"Debt is a sin," the full-time Home Depot employee said, "it's a lack of loyalty to yourself and to God."
Low-income people and those from the " 'hood" who've had to live within their means their entire lives understand hardship and struggling much more than others who haven't had the same experiences, he said.
For people in their 20s, student-loan balances average $14,379; revolving debt, including credit cards, averages $5,781 and total installment debt, including student and personal loans, average $17,208, according to an analysis of the credit records of 3 million people that Experian, the credit-reporting agency, did for USA Today.
Bob Shireman of the Project on Student Debt points to skyrocketing tuition as one of the causes for increased debt.
The average price of college has grown much faster than the rate of inflation. Average annual tuition at public four-year colleges and universities is $5,836 in 2006-07, up 268 percent from 1976-77, according to the U.S. Education Department and the National Center for Education Statistics. Private college tuition is up 248 percent to $22,218 a year.
At Rutgers University, general undergraduate tuition runs $7,923, business tuition is $8,085, and engineering, pharmacy and Cook College $8,798.50, according to the university.
At Middlesex County College, students pay a per-credit fee of $101.75 with a year's 30-credit load costing $3,052.50.
At nearby Princeton University tuition and fees for the 2006-07 year come to $33,000, but 52 percent of undergraduate students are on financial aid, with the average aid award among those students at $30,980, according to Cass Cliatt, university media relations manager.
One way to save money, and get "free money" is through participation in employer-sponsored 401(k) plans in which employees can qualify for company-match funds, tax-deferred on top of their pay.
But according to a poll by USA Today and the National Endowment for Financial Education, 55 percent of people in their 20s aren't saving in either an individual retirement account (IRA) or a 401(k) account, and 40 percent don't have a savings account they contribute to regularly.
Amin said enrolling in a 401(k) is a no-brainer.
"All of a sudden you get a 3 percent raise (for example), and no one would turn that down normally, so why would we turn that down in a retirement account," he said.
The AICPA has embarked on a national financial literacy campaign — Feed the Pig — using a piggy bank motif to help young people learn the importance of saving money and how to do it.
With adults 25-34 going through a lot of life events — getting married, buying homes and having children — the campaign's Web site, www.feedthe pig.org, has tools and information and give examples of sound budgeting and savings habits, showing how money grows over time, and how to begin long-range planning for children's college educations and their own retirement, Amin said.
"We're really just talking about understanding . . . the consequences of your financial decisions," Amin said.
Home ownership is a dream for many Americans, and would-be home buyers need to save for a down payment and maintain a good credit rating to qualify for a mortgage, Amin said.
People can make small changes in their behavior to reap big rewards in their bank accounts, Amin said. For example, people can brown-bag it for lunch rather than spend $7 a day eating out. Or skip the $5 coffee and look for a cheaper alternative.
"It's the little simple things," he said.
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