My father is right
After reading yesterday’s post, my dad emailed me to say that he thought the question of whether young adults are better off than their parents depends mostly on what level of education each generation has attained. Specifically, he argued that a young adult with a college degree is likely to be better off than her parents if she’s a first generation college student, but not if her parents also went to college.
Let’s look at the possibilities.
- If your parents went to college, and you went to college, they are probably earning more than you are. (Obviously, there are exceptions when the parent suffers from a disability, or chose to be a starving artist, or got laid off, or when the kid joined Google or Microsoft at just the right time, but on average, 55 year old college grads earn a lot more than 25 year old college grads. To be precise, in 2006, the average 25-34 year old with a bachelor’s degree in 2006 earned $40,276 and the average 55-64 year old with bachelor’s degree earned $50,397.
- I wasn’t convinced that young college graduates were necessarily earning more than their non-graduate parents but I looked up the numbers, and my father is right. The average 55-64 year old with a high school degree and no college education earned $29,283 in 2006. While there are some plumbers and union mechanics who earn good money with just a high school degree, there’s not enough of them to affect the median.
- Young high school graduates are also earning less than their HS-grad parents — the average 25-35 year old with a high school degree and no college earned just $25,0354.
- And, to fill out the options, the HS grad child of college-graduate parents is clearly downwardly mobile.
[Sources PINC-03-part 37 and PINC-03-part 91. All figures cited are medians.]
My dad’s point was that because the fraction of the population going to college has increased so much, a significant portion of college graduates are from families where their parents didn’t go to college. And they’re doing better than their parents. At least in terms of income — they also have more college debt. And, as lots of people commented yesterday, their parents probably own a home that has appreciated significantly since they bought it, while in a lot of the country, homeownership is still out of reach for most young people, even those with good incomes.
Also, check out Figure 4 in this report.
April 10th, 2008 at 6:02 am
smart guy your dad. In the mix for future, though: a lot of college degrees are crap. And lots of people who get them then go on to jobs for which college is dubiously if at all necessary. Some kid goes off and takes on a lot of debt and gets a degree in Sociology or Womyn’s Studies or Marketing from Chico State and finds that the graduate schools want someone who went to a better school and the corporations are Not Interested and ends up managing a chain drug store or hanging sheetrock having lost four year’s wages and with $80000 to pay off. Not a good deal.
When you look at ‘college graduates’, you are looking at engineers and chemists and speech therapists along with the 4-year Sociology BA from a fourth tier school. The average looks good, but some folks are not okay.
April 10th, 2008 at 9:52 am
personal stats, probably out of the norm, though.
I have taught in public school for 35 years. I have an m.a. in education, and am at the maximum salary for my district with no possibility of salary advancement for experience or education OR longevity. my only raises come if money is applied across the board to the salary schedule.
both my children (26 and 29) have four-year college degrees and both make more than i do. kinda discouraging for me, but great for them.
April 10th, 2008 at 10:49 am
Here’s my data point: My husband and I both have four-year college degrees and are much better off materially than my parents (an M.D. and a B.A.) and his parents (a B.A. and an M.Ed.) were at our age. Our house is much more expensive (though smaller and older) than our parent’s current homes and our combined salaries are higher. We live in the D.C. area and our parents live in small-town Pennsylvania, but we also got a jump on earning and saving because we skipped grad school. Our parents have much less expendable income because they are still putting our siblings through school.
April 10th, 2008 at 1:26 pm
I wonder how marriage/partnership factors in, too. Are more young(ish) adults today shouldering the entirety of their own living expenses for longer than their parents did? If so, how much does that affect the standard of living, both now and in the future (because money spent on living expenses now is not being saved, invested or compounded for later)?
April 10th, 2008 at 3:34 pm
The question for me when I wonder if I’m falling behind my parents is this: when they were my age, were they doing better or worse than I’m currently doing? I believe your dad is comparing people at different times of life, right Elizabeth?
For me, the difference between my parents and me lies with housing cost and education. My parents bought a house on one income. They are the ones saying things like, “You should only spend 30% of your gross income on housing.” (!!!! Puh-lease!) Likewise, when my dad finished college in 1970, his first year’s salary equaled his total college debt. (Again, !!!!) Both of these things essentially come down to debt, be it student loans or balance on the mortgage. And debt is left off the balance sheets I’ve been seeing. Is there a statistic that factors it in?
p.s. As an aside, just think for a moment if those original rules of thumb were applicable to each of us: housing = 30% of gross income, and total college debt = first year’s income after graduation. Just imagine!!!!
April 10th, 2008 at 6:15 pm
A lot of people would be in a much better place right now (i.e. not facing foreclosure and bankruptcy) if they had stuck with the 30% formula and just stuck with renting. I sympathize with Jen, since I remember my own incredulity when my dad was saying similar things to me, praising the 15 year mortgage, when in suburban MD, a 15 year mortgage on a barely tolerable 400k house in Montgomery County would have barely left us anything to eat on, let alone buy clothes or anything else. A year later, many of those houses have dropped 100k, and I expect them to keep dropping for a while. Anyway, my point is that the fact that a house is half or more of your income is a signal to either wait or move elsewhere.
April 11th, 2008 at 9:19 am
I think this is generally true but I agree that a whole lot depends on your major. With an engineering degree for me and a computer science degree for my boyfriend we easily out income my college educated parents, my Mom is a school teacher and my Dad is a chaplain.
But looking at my boyfriends parents with a Dad with a PhD in a hard science and his Mom with an engineering degree, we no where near outpace them in salary. And since his Dad has taken his PhD and gotten into senior management I doubt we ever will b/c I don’t really think either me or my boyfriend are senior managment types.
April 11th, 2008 at 2:32 pm
This topic starts me questioning the retirement factor. Will we be better off at retirement than our parents?
April 12th, 2008 at 7:12 pm
Anyway, my point is that the fact that a house is half or more of your income is a signal to either wait or move elsewhere.
Amy, I was just talking about this very topic with my friend with whom I spent the day today. She earns good bucks, her husband is a teacher, together they have a really good upper-middle-class income. And yet they can’t afford a house here (in the SF Bay Area) without seriously overextending themselves! I told her that if, given a good income, they still couldn’t afford a house, that it might be best to continue renting if they didn’t want to relocate. I really don’t think it’s sustainable in the long run when you need 200K a year to buy an average ordinary everyday house.
I myself am thinking of leaving Cali when I get my MA and relocating to a lower-cost area. As it is, I live in a rental that allows pets and isn’t noisy or slummy, so it’s not like I HAVE to buy.
Something that struck me is that, while on balance we are better off than our parents in some ways and worse in others, women are almost universally better off. Claudia Goldin did a study of women’s employment. *More than half* of employed, college-educated women in 1970 were teachers. Now, only about one-fifth are. I’m not disparaging the teaching profession, but pointing out that women these days have their pick of often higher-paying professions that our mothers (or grandmothers) didn’t.
April 13th, 2008 at 7:40 am
I’m going to bang on a couple of things – there are some constraints on how well individuals can do which are set by how well the country is doing. Here are some quotes from a jeremiad by Paul Volcker which I found on the blog Calculated Risk:
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“Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security.”
“I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? – High consumption – high leverage – government deficits – What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day.”
“What I’m really talking about boils down to the oldest lesson of financial policy in Central Banking: A strong sense of monetary and fiscal discipline.”
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So, why have people abroad been sending us $2 billion a day? Well, they were buying collateralized debt obligations based on bundles of mortgages on exurban McMansions – this doesn’t look like a smart thing to do, anymore – and Treasury bonds (not looking so good, with the dollar tanking against the Euro and the Yen), and ownership shares in US manufacturers (the Chrysler investment doesn’t look so swell to Daimler just now). And then folks here who had gotten onto the house price gravy train were doing home equity lines of credit and buying toys – new flashy cars and enormous televisions, etc.
I’m asserting, based on not much more than “..oldest lesson of financial policy in Central Banking: A strong sense of monetary and fiscal discipline..” that we have generally, and young people starting out in particular, been made worse off by all the funny money sloshing around. People have bid up the prices of houses because once on the gravy train they could pull out money for all the fun things they would like. My eleven year old comes home and bangs on me because his friends have bigger and more swell TVs and video games. My perfectly adequate (and paid for!) but ten-year-old minivan looks less adequate on the parking lot next to the bought-on-credit but this model year shiny SUV(my son has also talked wistfully about the cars of others…) There is a big ratcheting up of what seems ‘normal’ life. Meanwhile the McMansion CDOs are going in the toilet, the nice people from the Japanese Teacher Retirement Fund who bought them won’t be buying any more of them, and house prices are levelling or dropping around the country. So people put their long term financial health at risk to reach the ‘normal’ middle class life they saw around them, and their house prices will not bail them out now. Ailurophile, I think this is a good time to not buy a house, deals will be better in two years. The fact that deals will get better means a world of hurt for people who bought in 2004-6, though.
This is a contention that the informative way to slice the world on ‘better-off-ness’ may be on indebtedness, and membership or not in a defined-benefit pension plan, rather than youth. Marin County has a lot of aging boomers who bought hot tubs with HELOCs, and who now have five or ten years left to work, max, and they’re not being bailed out by appreciation. These people will be giving out hot samples at Costco when they are 75.
April 13th, 2008 at 9:36 am
here are some numbers from WSJ suggesting that considering ‘college graduates’ as a single entity makes not so much sense (starting wages, 4-year degree, $thousands) engineering 50, computer programming 47, maths 46, econ 43, accounting 42, mgmt 41, finance 38, business 36, history 34, foreign language 34, sociology 34, psych 32, elem teach 30, art 28, philosophy 28. If everybody has $50,000 in debt, and it takes $30,000 to have a middle class life, how long before their loans are paid off?
April 15th, 2008 at 2:27 pm
Ailurophile,
I have just the website for you and your Bay Area friends: burbed.com. Bay Area real estate will drop, it’s just going to take a while, and the less desirable areas will drop first. Also, large down payments will be needed. You might also appreciate thehousingbubbleblog.com. They do a big California post almost every day.
dave s.,
I day or two ago I was listening to the Dave Ramsey show, and he had on a social worker in Texas who was making 38k and had 80k in student loans.
April 16th, 2008 at 3:37 pm
I agree with Jen — the relevant comparison is how well your parents were doing at the same age.
When my mother was 32, she was a teacher with a masters’ degree, and a single parent. She bought a house.
When I was 32, I was a prosecutor, with a lot of law school debt. I wasn’t a parent, and I wasn’t in any position to buy my mother’s house at its then-current value. I certainly couldn’t have done it as a teacher.
I could probably buy that house now (at 39), and raise a kid too, though I’d be more heavily leveraged than my mother ever was, with more uncomfortable trade-offs between commuting and work and childrearing.
My grandparents, who never finished high school, bought their house when they were in their 40’s.
April 18th, 2008 at 6:05 pm
The difference between being able to buy a house in your early 30s and at the end of your 30s (f you feel, as we did, that we ought to be settled before having a family) is often the ability to have child(ren) at all – it’s a very important change. It seems to me to be a way in which coastal-high-priced-housing people are substantially worse off than our parents were.
November 6th, 2008 at 9:15 am
despite my remarks above about some majors being a big path to success, well, here is someone who majored in ballet who is doing fine: http://www.chicagotribune.com/chi-rahm-emanuel,0,926311.story so I have to concede some of it is the person, and the luck he or she makes…
May 26th, 2009 at 10:06 am
success, well…
http://dilbert.com/dyn_file/str_strip/52201/gif/strip.print/