Buying a home, chasing credentials, and eliminating debt are not always the right decisions in today’s economy.
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Good article, insightful. Student loans are a big problem, but even a reasoanble interest rate on a student loan is 7-8% which is too high to pay off easily. Student loans (at least government loans) should have low interest rates close to inflation. Why should government try to make money off the people just entering the work force?
The same can be said for credit cared interst rates. Balances with 25-30% rates can not be paid off easily, if at all. Banks/credit card lenders should make a spread over their borrowing costs. Credit card rates today are comparable to the loan sharks from the past. It's a shame and there will be a price to pay eventually.
We helped my son buy a home in an actively gentrifying neighborhood last fall, lending him the down payment. He has 2 roommates who are essentially making the monthly mortgage payments so his contribution is going towards the principal. He will pay us back our portion when he sells and use the rest for his next home.
Let's take the money out of it for a moment. The benefits of home ownership are that he is truly invested in his neighborhood, has responsibility as a landlord, and is learning how to do his own home repairs. He also was able to get a dog, which has also been great for him on multiple levels.
Of course “young” people (in places like NY) are renting! Rent is often the last expense people pay! And in cities like New York with laws that punish landlords for owning property, it can take YEARS to evict a deadbeat. So essentially, you can live rent free. Yes, it may ruin your credit but these are the same people who never intended to “own” anything anyway. No wonder Mandami sought to increase property tax to increase spending and he just froze the rent for rent stabilized tenants.
The problem is these young people grew up on social media with images curated to look like perfect effortless lives. And these “influencers” can easily make 6 figure incomes making college degrees obsolete.
Shrug.
Homeownership at least the primary residence is a good investment. Yeah HOA sucks. Young people who do not become home owners will lose out on an asset that will appreciate. Been there, done that mistake.
I appreciate the author’s points, but nobody gives that advice she lays on parents. Nice rhetorical trick, but much like a Trumpism of “some people say…” when making a claim he invented.
Maybe every grad from Brown with a clean drug test had full employment in 1987 but almost all of my fellow 1987 grads from state schools struggled to find jobs better than what they could have gotten with a high school diploma - and none of them used drugs. This includes the business majors and even some of the engineers. The job market was tough and there was a lot of floundering around - except for the nursing majors and the precious few who had family ties to big corporations who managed to find entry level jobs in those companies right away. I might agree in theory with her advice to forget what many parents might say about money but I would also tell my kids to avoid listening to the author as a definitive authority, too. I can think of several young adults for whom it is a terrible idea. Or maybe she just lost me with her narrow viewed statement about the 1987 job market.
What is rent? Rent is the landlord paying off his principle, interest, insurance, and taxes, plus a profit he pockets.
When purchasing a home you don't pay the landlord's profit. You keep this profit.
So why rent? Freedom, flexibility, ability to move at a moments notice, and besides you are profiting from the tragedy of the commons, which states that no one washes a rental car. IE you have no skin in the game, so why throw good treasure, time, and talent into a domicile that you don't really care that much about. After all it is owned by someone else.
Put these together when you think about buying or renting.
Wow, this is some awful advice.
In my shorthand, the article says: Cash is freedom, Stocks always go up. Indulge now.
Here's what the mean parent says:
Ignoring real estate appreciation, tax advantages of mortgage interest and using HELOC to end all other debts is foolish. People live on the profit of loaning you money.
At its base level, life is hard. College is to give you a marketable tool set, not "find yourself." Nobody hires anyone with a degree in basket weaving despite how fulfilling it might feel when your 20 years old.
Coffee houses are fun. They also generate about 60-70 Billion in annual US revenue (Globally about 300 Billion). We have become a world of self indulgence. Don't be like them, make your own cup of coffee.
Sorry, not sorry.
Why didn't the author use the example of elaborate or destination weddings? The spending of $75,000 or $100,000, (or much more) on elaborate weddings is so ridiculously wasteful that my head spins. Travel to Cabo for a wedding on the beach? You're out of your mind, unless you are in the top 5% of earners. My wedding in 1990 was a catered reception in an inexpensive Knights of Columbus hall. We had 150 or so friends and relatives, splurging on a live band - 5 pieces, with torch singer no less, a photographer, and a 10 day honeymoon, and it was far les costly in today's dollars than the 2 hour cocktail "hour" with 25 appetizers, a potato bar, martini bar, sushi bar, and enough food to feed the town for a day, then a sit down meal following, drone photography, etc. And a bachelor party in a far off city (Vegas or Nashville) that costs thousands for the attendants! This is the worst trend of stupid spending I have ever seen, for families that then claim they can't afford a house. And I'm still married to that wife after 36 years. It was a great investment for her father - he paid for the wedding, and I took care of her daughter for 26 years and counting!
With you there! We spent our savings on the down payment for a house and didn’t have a wedding.
Father in law and I offered my daughter and her husband either a fancy wedding or a down payment on a house. They chose the downpayment, selling it 12 years later at twice the price they paid for it. Then they took one hell of a honeymoon, moved and bought a bigger house.
Aunt Jill! On the FP!
Mostly correct, but wrong about housing. Especially if you want to start a family. If you want to remain a loafing cosmopolitan do-nothing, then by all means, rent and travel. For the rest of us that live on planet earth, buy a house.
Several things:
1. Don't pick poster children from NYC. If they want to live better they need to move.
2. A BA in liberal arts is worth about as much as a high school diploma. Get that graduate degree.
3. If you buy a house you have an asset in 30 years. If you rent, you landlord will own more houses in 30 years and you won't.
This guy wants to keep you poor.
The big differences between my parents' generation and this one is that:
1) In my parents' generation, people got married in early 20s. Now it's mid 30s. Not enough time to get into the middle class by combining incomes the way my parents did.
2) Having to go to college and get loaded with student debt to earn the same money, inflation-adjusted, people earned out of high school with no debt in my parents' day.
3) My parents had jobs for life if they wanted them. Now the average jobs lasts 3.5 years before a layoff. Every layoff eats 3.5 years worth of savings from work, so you are people supposed to get ahead?
Also, my advice has been one house, one spouse and compound interest.
The latter is the key.
If you begin saving in your thirties you have squandered 10 years of compound interest and will have only half of what you would have had at age 60 if you had begun investing at age 20.
An couple things that doom them that my parents didn't have to worry about are:
1) A load of student debt where by compound interest works in reverse.
2) A tendency toward divorce, such that a couple is debilitating each other with attorney fees, forced sales of assets, and maintaining two households, not to mention the stress.
People in the current generations are prone to blaming Boomers for their sub-optimal decisions.
I'm in the middle generation between my parents and my kids, so I can see the transition between what was and what is.
Money spent on mortgage interest, property tax, insurance and maintenance is money you will never see again - as an argument against owning a home! You will be paying for all of that in your rent while your landlord benefits from building equity in the property. After thirty years of paying rent, what do you have? Nothing except for that continuing obligation.
And some of that can be written off as deductions on your income tax. But not rent.
I am so tired of listening to whiney young people complaining that they can't afford the lifestyle it took their parents 30 years to achieve. And complaining about how hard things are today for them. My wife and I bought our house in 1983 with an interest rate of 11.9 % in a lousy high-inflation economy before Reagan's tax cuts kicked in. Our housing costs were almost 50% of our take-home pay. After 2 re-financings, 3 kids, career advancement for me (my wife raised our kids) no lattes and few vacations, we were in pretty good shape after 20 years, and really good shape now. btw, all of our kids now in their early 30's were able to buy homes. No fancy schools. One in the military. Work, save, invest, live within your means, sacrifice a bit when you are starting out. Quit complaining. Nothing is unique about the times you live in.
I agree. Yes, every era and situation has its positives and negatives but I highly doubt any of these nihilistic young adults would actually go back in time (if they did, they wouldn't stay long) and give up all the conveniences and daily luxuries they have become accustomed to. If all you look for is the negative you will surely find it in abundance. Complaining and whining has become a competitive sport and it benefits no one. Even if you win, you lose. No one ever improved their situation by ruminating about how miserable they are.
Agree with you here! My partner and I own our home that is worth double what we paid for. We scrimped and saved. we never go on vacations. I don’t know my colleagues in nonprofit work can afford European vacations and international travels every season!!!
One house, one spouse, and compound interest.
They should literally put that on billboards.
Thank you. You make several of the points I was attempting write, only you did it much better than I.