Economic Perspective: Today’s Financial Challenges

MARY WALDEN:

“Today’s program looks at today’s financial challenges. Mike, every generation faces its own financial issues. When you and I were beginning our careers the big issues were double-digit inflation, interest rates for loans were almost 20 percent and fuel prices that seemed to never stop rising.”

“For young people today just beginning their work careers, are the financial challenges different?”

MIKE WALDEN:

“They are. Of course what you have to remember about today’s young people, by young people I mean primarily of college-age, is that seventy percent of them who graduate from high school do go to college. So most of them are going to go to college. Not all will graduate, but most of them will go.”

“So one of the unique features, financial features, of this generation is that they generally end college with some debt, college debt. College is a lot more expensive now than when we were in college, and the average college graduate starts their career with debt of about $30,000 and $35,000. So that’s a challenge and that’s different.”

“Although mortgage interest rates, for example, are very, very low compared to the the 17 percent rates that we faced when we started our careers, but because they’re carrying that debt they really can’t access mortgages. They can’t really buy homes.

“This generation is facing another challenge in terms of where they live cause studies show that most of them want to own a home; most of them just can’t do it right off the bat. So most of them are renting.”

“Now investing is always a challenge for every generation. I think this generation, this new generation in particular though, they’ve watched big jumps and falls in the stock market so I think they are very leary of the stock market right now because they’ve experienced, at least seen, big drops in the stock market during the Great Recession.”

“And then finally retirement. I think one of the differences, again, with this generation is they have listened to forecasts from people like me about Social Security, and how Social Security does have a looming financial problem. Most of them don’t think Social Security is going to be around for them so they know they’re going to have to save on their own for retirement, but again that’s difficult to do when they start off with a lot of debt. Company pensions aren’t what they used to be. So that’s a further challenge that this most educated generation is facing.”

Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.