Young people and debt

[canent]

I've believed this for several years now...I live in Alberta where there has been an oil and gas economic boom and I see people my age (20's and 30's) spending money like there is no tomorrow and racking up lots of debt. They make loads of money, but they are spending loads of money.

I mentioned this to someone and they laughed at me...they said the boom was going to last forever. It was *different* this time around...sigh...

Here's a great article I found on www.canada.com, its Canadian content but it applies everywhere, I think.

+++++++++++++++++++++++++++++++++++++++++++++++
From Eric Beauchesne at the Canwest News Service, July 7, 2006

OTTAWA -- Young Canadian families, untested by either a recession or high interest rates, are not saving enough, and not starting to save soon enough, an economist with a major financial institute warned Wednesday.
Instead, they are relying on the housing market to bolster their savings, said Benjamin Tal, of CIBC World Markets.

The warning followed the release of CIBC's latest analysis of household credit, in which it reported the debt of Canadian households has increased faster than their incomes and faster than the value of their assets.

read the rest here

[maddythebeagle]

It probably takes some bad event in people's lives to but a little fear into them...to save for tomorrow.

[Cool Dood]

One of the saddest parts is that usually people who spend uncontrollably buy mostly junky stuff that depreciates almost completely (in value to them, not just in market value). There's nothing wrong with spending money on things you want, but a lot of people seem to be very bad at calculating what it is that will bring them happiness. Oh well, it's their money and their choice, and it's fine by me that they get to make their own choices.

[Sarah in SC]

Cool, you must know my brother! :P
Yep, he just got an above-ground 4' pool to go with the trampoline!
God, it drives me crazy! And when I needed his two kids SSNs to start custodial accounts (on the offf chance they get to college), he says yeah, the kids will probably need it, knowing who their parents are!
Squander, squander, squander.
Sarah

[canent]

I just don't understand why they can't see the bigger picture. I've never been through a recession or high interest rate period either, but anyone with 2 braincells rubbing together can see that any boom in history has been followed by a bust.

Especially here in Alberta...there was boom and then a bust back in the 70s and 80s, yet "it won't happen this time" is the attitude.

I'm not trying to come off as a know-it-all, but where's the 'rainy day' thinking? The rainy day may not come for 5-10 years but it will come.

[justin]

It happened 5-10 years ago with the tech/dot.com bubble. All the software/computer science/tech computer grads were expecting $80,000/yr with a B.S. or $60,000/yr with a 3 month computer training diploma. Needless to say, it didn't last that long. Just another bubble.

[Cool Dood]

I think it's a human trait that's pretty universal. We here have probably put in enough rational thought that we can overcome our natural tendencies (most of the time), but I think it's a pretty fundamental maladaptation that's difficult to overcome, and that it isn't too blameworthy to fail to understand, even if the consequences can be pretty ugly.

[canent]

Yeah - I think you are right about it being a natural tendancy. I have been known to buy useless crap on occassion too!

It's a really hard thing to avoid - my killers are the glossy Future Shop flyers that come by weekly. But I guess my fear of the rainy day generally wins over so my wife and I pile as much as we can onto the mortgage each month, or other such things. It sure makes us feel cash-poor, but there are worse ways to be cash-poor.

[maddythebeagle]

Quote:

It sure makes us feel cash-poor, but there are worse ways to be cash-poor.

read some of unclemick's post on the subject (about making yourself feel cash poor while growing a nice port) I grew up poor and "paying yourself first" is a lot better than actually being poor...

[SteveR]

Well I for one hope they all keep buying (mostly US products) so the economy keeps afloat. The more they buy the happier I am.
If they want to continue working (and paying SS and taxes) until they are 67+ then that is fine with me. I encourage their spending and their working until they drop.

Don't count on me doing it. I am still keeping my corner of the economy moving while paying I am still working. We each save 20% of our incomes so I feel justified in spending on what we feel we want or need (within reason). After FIRE next year...the faucet will be cranked way down so we are in the final year of significant consumerism.

[macdaddy]

I am with Steve on this one. If everyone LBYM'd then we'd be in a recession for sure. I try to pester advise my close friends about roth accounts and so forth but as far as the US public is concerned -- spend away.

[PsyopRanger]

Here is my 2 cents.

I believe the baby boomers (most of our FIRE on these forums) watched and heard from their parents about the depression, they learned to save, invest and live frugally; this is why many now have FIRE.

Unfortunately, my generation X, didn’t get all of this great advice and many are simply trying to keep up with the Jones. With all the latest gadgets and new technology, new cars in stead of 2-3 year old cars, a new cell phone every 6 months, etc.

I think the “commercialization” of wealth and lack of delayed gratification has lead to a generation of “I want it now.” Does anybody use layaway anymore?

My biggest struggle in my early 20’s and sometimes even now, is to not follow this pattern. When I see someone’s brand new car they financed at 15%, I say to myself, wow that could be going into there 401(k) so they can ER.

I started investing at age 20 and at that time I was a very big minority in my endeavors. Now at 29, some of my peers are starting to see that I am years and $$ ahead of them.

I think it has to be an individual decision and those that don’t control spending now will pay later. I will personally be rubbing it in there faces when some of my friends are still working and I am getting Monday morning Tee –times in Lanai.

[Robert the Red]

It has been a tradition for thousands of years to moan about the young people. But I think that the young adults of today are, on average, better than those of my generation (mid 1970s). The ones I see as interns are pretty focused, smart, hard working, and heading in the right direction. I see some that look like losers, too, but I saw plenty of those in my college -- and I went to Caltech, not a school with a high reputation for partying.

[Calgary_Girl]

Hi Canent! (Happy Stampede by the way).

Yes, the good times are rolling in Alberta (I'm in Calgary which you've probably figured out). Unfortunately, us "kids" in our 20's and 30's don't really remember the early '80's and the dreaded NEP.

I'm sure the good times will end one day but I'm not sure when Luckily, DH and I are pretty level-headed and although we have a nice house (and no mortgage) we definitely don't drive BMW's or Mercedes' since we like going to bed knowing that we don't have any debt. We have no desire to keep up with the Joneses but sometimes it's tough especially when DH comes home and says another one of his co-workers just bought a vacation home for $600K plus.

[canent]

Quote:

Originally Posted by Calgary_Girl Hi Canent!* (Happy Stampede by the way). Yes, the good times are rolling in Alberta (I'm in Calgary which you've probably figured out).* Unfortunately, us "kids" in our 20's and 30's don't really remember the early '80's and the dreaded NEP.* I'm sure the good times will end one day but I'm not sure when* * Luckily, DH and I are pretty level-headed and although we have a nice house (and no mortgage) we definitely don't drive BMW's or Mercedes' since we like going to bed knowing that we don't have any debt.* We have no desire to keep up with the Joneses but sometimes it's tough especially when DH comes home and says another one of his co-workers just bought a vacation home for $600K plus.

Happy Stampede to you too. Its hard to believe, but I've never made it down to the Stampede...I've been in Alberta for 4 years now, but I've missed each year.

Congrats on the lack of a mortgage! My wife and I are paying ours down as aggressively as we can but still have a ways to go. I knnow what you mean about the Joneses - our friends are the same way...4-wheel drives, jetskis, weekends at the lake. The have higher incomes than we do, but I'd bet that they aren't that much further ahead in being FIRE'ed.

[accountingsucks]

I too live in Alberta and am regretting ever going to University. I am an accounting manager and make a little under 75,000 a year and I know that many of the trades people are making close to $200,000 per year because of the boom and shortage of skilled laborers. All these people of course have brand new trucks, speed boats, houses, ATV's, skidoos, lake property etc but sadly they still likely save more then I do and I save about $3000 a month. I just wonder what I was thinking wasting that time at school when I could have been making 50K easily as a 20 year old. I also would think their jobs are less stressful than sitting in an office all day....

[BunsGettingFirm]

Accountingsucks, I feel your pain, but the thing is working outdoors isn't a picnic. I did that from when I was 14 to when I was 20. During the summer, you have to slather on sun screen so thick that it makes sweating difficult. During the winter, you run the real risk of losing a toe or getting hypothermia. You and I can go into office work not 100% (late night, bad sleep, or whatever) and still muddle through the day, but when you're dealing with heavy machinery and other people's lives literally in your hands, you can't afford to be not 100%. Besides, when you make CFO, $200k is going to be your expense account.

[NinjaPigeon]

200k for trades? Do you have any links to show that? Admittedly, I know only a handful of canadians, but none of those I've met in trades make anywhere near that amount.

Heck, for 200k I would take a couple years off my desk job and do a trade

[Andre1969]

My coworker I and wouldn't necessarily be considered "young" anymore. I'm 36 and I think she's 44. She acts like a high school girl sometimes, though. Anyway, I know she has to make at least as much as I do, yet she's always complaining about her financial situation. And then to victimize herself, she tells me that I don't realize how lucky I am!

Luck had nothing to do with it. Now granted, I live in a house that I'm 1/3 owner in with my grandma and my uncle. And it would be paid off except for an HELOC I took out, which I have whittled down to about $85K. And when I sold my condo, I think I only owed about $80K on it at the time, so I guess you could argue I've got MORE debt now!

However, she bought a condo for about $90K way back in 1990! Heck, if she'd put her mind to it, she could have that sucker paid off today! But she refinanced and took cash out whenever the value went up. I know at one time she refinanced to a 30 year mortgage around 2002-2003. Which means that she'll have a mortgage until her 70's. As for me, I'll probably have mine paid off by the time I reach her age! And heck, she might have taken more equity out since then!

Oh, and the last time we switched companies ( in our line of work, contractors come and go, and the new one just picks up most of the workers), she cashed in her 401k instead of rolling it over.

She doesn't realize it because of this victim mentality of hers, but she's making her own problems. I have a feeling her golden years won't be so golden.

[Cal]

Quote:

Originally Posted by PsyopRanger I believe the baby boomers (most of our FIRE on these forums) watched and heard from their parents about the depression, they learned to save, invest and live frugally; this is why many now have FIRE.* Unfortunately, my generation X, didn’t get all of this great advice and many are simply trying to keep up with the Jones.* With all the latest gadgets and new technology, new cars in stead of 2-3 year old cars, a new cell phone every 6 months, etc.*

I think each generation has a group that "gets it" but the majority are just sheep in the flock. My situation is the exact opposite of what you described. My parents, baby boomers, have very little in their retirement accounts, plan to work until the die : because they cannot afford to retire, refuse to reduce their consumption.

My sister and I are the total opposite. My sister took out a 15 year mortgage and will have it paid-off in 10 years. I save over 40% of my income. In addition, we both contribute to an IRA for our parents. We hope that the smaller amounts we are contributing today will help offset the economic outpatient care we'll have to give our parents in a few years.