The trend of 20 and 30 somethings returning to their parents’ home has been well noted for the past few years. Frequently older generations will comment that today’s young seem to lack ambition or drive since they keep living with their parents. Which misses a huge part of the equation here. It’s not drive that’s lacking in most cases, it’s financial ability which is being impaired by some major macro factors. To wit:
- Tight and competitive job markets (extenuated by slowing consumer demand in the west, automation, globalization and under-saved boomers living and working longer than past generations), mean that young people are required to have post-secondary education for most job opportunities.
- Post-secondary education costs are obscenely inflated relative to average income levels for most workers today (aided and abetted by the credit bubble and government-debt underwriting for education loans).
- According to government data, full-time students in Canada paid an average of $16,600 for post-secondary schooling in 2014–2015. That is more than $66,000 for a four-year program. In my own experience the past two years, annual costs for full time students living away from home are more in the 25K a year price range–100k for a 4 year program.
- While 45% of Canadian parents surveyed say that they expect to help with their kids’ post-secondary education costs, most haven’t saved properly for it, and just 14% said they will cover more than 3/4rds of the expenses.
- In reality then, most kids are paying for all or most of their own education costs. This means that most end up borrowing, and owing tens of thousands in debt when they graduate into weak job markets.
- Making matters worse, many young people in need of work and career experience today, are expected to work for free. Ross Perlin, author of “Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy,” estimates that of the million or so students doing internships, half aren’t being paid for their work and that includes college graduates according to U.S. News & World Report. [The Labour party in Britian has proposed to make free internships illegal. More of this to follow].
- Lastly, the credit bubble of the past 15 years, has allowed housing costs to escalate far faster than wage growth.
All of this means that even where young people are able to successfully complete post-secondary education, most are coming out of school with huge debt obligations, into a weak labor market, facing low and sometimes non-existent wages, on top of ridiculous shelter costs.
So the next time that someone mentions a young person seemingly unable to support themselves, there is much to consider, including some blame to be shared among parents, top-heavy schools and policy makers.
There are no free lunches: debt-enabled price bubbles in education and housing end up costing all of us plenty, including kids that can’t launch and a loss of first-time home buyers, taxpayers and young workers to fund our social programs. Perhaps now boomers should understand why kids are coming back like boomerangs and Why Millennials won’t be buying your house (at least not at these prices!)