STATEMENT: America's Young Adults Face Serious Economic Challenges

New York, NY — Today's young adults are feeling the full, deep impact of a massive shift in the US economy, and are no longer able to start and sustain a family, build a career and grow assets in the same manner as the previous generation, according to a new report series published today by Demos, a national, nonpartisan public policy center.

The new five-part Young Adult Economics Series shows that America's young people are feeling the full effect of a 30-year shift from an industrial to technology — and service-based U.S. economy. The series shows that the combination of stagnant wage growth, growing debt, and high costs of education, homeownership and healthcare are new realities. These are now common factors that challenge the ability of America's 20-and 30-somethings to start, and sustain, an economically stable adult life.

"Young people today are being hit by a one-two economic punch," said Tamara Draut, director of the Economic Opportunity Program at Demos and author of the series as well as a book entitled Strapped: Why America's 20-and 30-Somethings Can't Get Ahead. "For the young generation of workers, the economy no longer generates widespread opportunity and security, and our public policies haven't evolved to pick up any of the slack. In fact, many of the problems we see today are a direct result of a disinvestment in the policies meant to ensure that the opportunity ladder is firmly in place."

"This research shows that, unless we address these problems — and we can — this will likely be the first generation to not surpass the living standards of their parents."

The series provides a comprehensive portrait of the economic status of today's young adults — and offers policy solutions that Congress and state legislatures can act on. The five-part series covers the following topics:

Higher and Higher Education. In today's knowledge-based economy, a college degree is a necessary qualification for entry to the middle class, and more young people than ever before are going to college. Yet, serious gaps remain for lower-income young people and for middle-class students facing high student debt burdens.

* Inflation-adjusted per-semester tuition at public universities has nearly tripled since 1980, up from $1,758 in 1980 to $5,132 in 2004. Thirty years ago, the average cost (tuition, fees, room and board) of attending a private college in 1976-77 was $12,837 annually, in inflation-adjusted dollars. Today, the average cost of attending a public university is $11,354.
* Since 1992-93, the average college graduate's student loan debt has grown from $12,100 to $19,300 (in 2003 inflation-adjusted dollars). Over a quarter of graduates had debt higher than $25,000, up from 7 percent in 1992-93.5 One-third of community college students borrow to pay for school, with an average debt of $8,700.
* The Pell Grant Program, the nation's premiere student aid source for lower-income students, now covers less than one-third of the cost of tuition; 30 years ago, it covered three-quarters.
* Despite record enrollment, too many college — qualified high school graduates — about 168,000 — are not planning to attend college at all, and more than 410,000 more go on to community college because of the high-cost of 4-year universities.
* Every year, more students who start college do not complete their degree due largely to rising costs, a majority are from lower-income and African-American and Latino families. One out of five student loan borrowers drops out before completing their degree.

Paycheck Paralysis. Compared to their generational predecessors, young adults' incomes have largely been on the decline. Typcial incomes for workers without college degrees have dropped by a third, while young workers with college degrees have seen their incomes remain flat. In addition, young workers are less likely to have employer sponsored health care, retirement benefits and other employment-related benefits.

* In 1974, the typical male high school graduate in the 25 to 34 age group earned $42,697 in inflation-adjusted dollars. In 2004, earnings had declined to $30,400. In 1974, a young adult male with a bachelor's degree or higher earned, on average, $51,223 (in 2004 dollars). In 2004, young male college grads earned $50,700.
* Retirement and health care benefits have been slashed across employment sectors: In 1987, 68 percent of 25-to-34-year-olds had employer-based health insurance; in 2003, this figure was down to 61 percent. Young adults are the largest group of uninsured America — over 18 million. In 1974, 44 percent of workers in the private sector were in a defined benefit pension plan. Today, only 17 percent are in such plans. And in 2000, just under 50 percent of all private sector workers were covered by any sort of pension, including 401(k) plans.

Generation Debt. Many young people starting out on their own can't turn to parents for start-up money and launch their adult lives often relying on credit cards, amassing large balances of "survival debt". Already owing substantial student loan debt, many young adults are saddled with a debt burden that threatens their ability to manage the costs of day-to-day living and threatens future financial stability.

* In 2005, low- to middle-income 18-to-34-year-olds with credit card debt reported an average balance of $8,182. In 1983, median consumer debt for 25-to-34-year-olds was $3,989 (in 2001 dollars).
* By 2001, the median consumer debt for households under 35 had tripled to $12,000.
* The average 25-to-34-year-old spends nearly 25 cents of every dollar of income on debt payments — more than double what baby boomers of the same age spent on debt payments in 1989. By 2001, nearly 12 out of every 1,000 young adults aged 25 to 34 were filing for bankruptcy, a 19 percent increase since 1991. Young adults now have the second highest rate of bankruptcy, just after those aged 35 to 44.

The High Cost of Putting a Roof Over Your Head. Once they leave home, many young people realize that they need to move to a major city to launch a career. Unfortunately, many people find that the rent charged for apartments is rarely in alignment with what their salaries can afford. Between 1995 and 2002, rents in nearly all of the largest metropolitan areas rose astronomically: Median rents in San Francisco ballooned 76 percent; Boston, 62 percent; San Diego, 54 percent; even in less costly Denver, rent shot up by 49 percent. Once an essential first step for many young families starting out, home ownership has become financially unfeasible for millions.

* According to the Census Bureau, most young adults do not leave home until age 24, and the percentage that move back home at least once after being on their own is much higher: four out of 10 do so at least once.
* In 2002, the median percent of pre-tax income young adults spent on rent was 22 percent, up from 17 percent in 1970. Rising rents, particularly in central cities, has resulted in a higher percentage of young adults who spend more than 30 percent of their income on housing — the standard threshold of "affordability." In 2000, one-third of young adults aged 25 to 34 spent more than 30 percent on rent — up from less than one-fifth in 1970.
* Since the 1970s, the amount of time it takes for young first-time homebuyers to save for a down payment has steadily increased. What took the previous generation two years now takes nearly four years.
* Gen Xers housing debt is 62 percent higher than it was for Baby Boomers at the same life-stage.

And Baby Makes Broke. Most parents with children under the age of five are in their late 20s or early 30s — making the issue of affordable and quality child care a core concern for young families. When most couples today decide to start a family, they are accustomed to having two full-time incomes to help pay the bills. After a child is born, however, they will have to deal with a reduction in income as one parent cuts back on work to stay with the child for at least the first three months. Besides struggling with slow or stagnant income growth in their 20s, parents today have to contend with new costs associated with raising a family, such as child care and unpaid leave.

* In 1970, 19 percent of first births were to women aged 25 and older; by 2000 this percentage had increased to over 50 percent. Today, the average age at which a woman has her first child is 25, up from 21 in 1970.
* According to the USDA, having a child under age two today costs a middle-income couple about $800 a month, about 18 percent of their pretax income. A family with two children under age five will have to deal with costs of nearly twice that amount.
* For middle-income families, the cost of raising a child born in 1960 to age 18 was $155,141 (in 2003 dollars). In 2003, the cost rose to $178,590, a 15 percent increase caused mainly by health care and child care expenses. Today, the average two-parent family with two children under age five spends 11 percent of their budget on child care, up from only 1 percent in 1960. Paying for a child's medical care now requires 7 percent of the monthly budget, up from 4 percent in 1960.
* About 60 percent of working families nationwide with children under age 5 pay for child-care, at a cost of $325 per month on average.

"These reports highlight the challenges that threaten the life possibilities of America's young adults; taken as a whole they outline grave concerns — and a need for innovative, immediate action," said Draut. "Congress has a real opportunity to address these problems head-on — to restore the promise of work and revitalize the concept of 'career ladder'; to make education affordable and accessible; to extend and develop useful tax credits to make homeownership and asset-building a reality; to address the debt crisis; and to give today's young people and future generations a shot at starting a family that can thrive. When the 110th Congress convenes in January, the economic concerns of young people should be at the top of their to-do list."

The five reports, and an executive summary, are available for download at archive.demos.org.

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