If you are a parent of a young person entering college or otherwise starting out in the world, it is important to understand that the economic landscape is different than it was 20 years ago. In particular, you need to understand that the trite maxims and fortune cookie aphorisms that propelled you into adulthood may not be helpful to your kids.
In fact, relying on bumper sticker advice such as, “Do it yourself, kid!” or “You gotta be a self-made man, like me!” can have a harmful impact upon the economic well-being of your kids. Further, the possible negative consequences of presuming things are now like they were in your day may last, well, until they’re your age. Or longer.
Our predatory commercial economy has become increasingly sophisticated since you were dropped off in a wood-paneled station wagon. Major financial institutions have coalesced into comprehensive, global megaliths that exert enormous political influence upon our political system. The technologies utilized by the commercial lending, medical, marketing, and every other industry has penetrated every aspect of our lives.
In short, kids today are emerging into an alien landscape that you may feel you understand but of which they will bear the larger burdens.
This Article aims to describe a few of the economic or debt-related aspects of this alien landscape. That is, it aims to bullet out some of the things you should know before you hand your 18-year-old a bindle with an apple and a sandwich in it and kick them out of your door.
The U.S. Has Become a Kleptocracy
Okay, so you may not agree with this panicked heading, but it is a fact that the banking industry has essentially made the US Congress its errand boy.
But what is a “kleptocracy”?
A “kleptocracy” is a form of government which is designed to funnel money from the citizenry to the oligarchy running it. It has famously been aimed at Russia, in which a handful of oil tycoons and other wealthy businessmen (often former KGB operatives) friendly with Vladimir Putin, essentially run the country to the complete detriment of everyday, working Russians.
Flowing out of the New Deal, the post-World War II GI Bill benefits, the Labor Movement, the Civil Rights Movement, Dodd-Frank, and other 20th Century workplace and financial industry reforms, one could hardly have used this term in relation to the United States.
Things have changed.
Senators and Congressional Representatives practically fall over themselves to hire former lobbyists as aides and staffers. Former lobbyists for Credit Suisse, Bank of America, the Business Roundtable, Goldman Sachs, and others have all ended up working from within the halls of Congress to erode efforts at financial industry and lending regulation.
Very successfully. The now-collapsed Silicon Valley Bank lobbied Congress for years to avoid deregulation in order that it be allowed to engage in unorthodox practices which ultimately led to its own demise. The USA Today article to which the prior link directs describes the underlying legal framework beneath Silicon Bank’s practices as a “… loophole-ridden federal [that] facilitates a revolving door between Congress and the lobbying industry.”
The NACBA Bankruptcy Reform Act is another example of the successful efforts of financial industry lobbying upon Congress. More on this below.
What is the point of mentioning this here?
It is to paint a background picture of a radically altered legal landscape that does not resemble the one in which you grew up yourself, parent. It is for the purpose driving home the fact that just working hard at a steady job is no match for the complexity and sophistication of the lobbyist-Congress machine.
Between the erosion of the labor unions, the erosion in workers’ rights, benefits, pay, the rising cost of living, the legal allowance of late fees, overdraft fees, unlimited interest rates, and more, our governmental system is increasingly purposed simply to lift money out of your wallet into the coffers of the banking industry.
Turns out, there’s a word for that. It beings with a “K.”
Pat, fortune-cookie aphorisms dating back to the 1920s delivered to an 18-year-old off to college for the first time will not prepare your young one, or you, for the financial challenges that they are about to face.
College Costs and Student Loan Predatory Lending
College costs have increased 180% since 1980 according to Forbes. This is due to a combination, Forbes says, of the increased cost of the support services provided by colleges, changes in local and state funding, and services costs increases in the overall economy.
On a more local level (and a more personal level), this author paid $32.50 per credit hour at Michigan State University in the early 1980s. Currently, MSU charges more than $500 per credit hour. That amounts to a 1505.38% increases!
This is a surface-level explanation. Beyond these “rising costs” excuses, a major underlying issue is the corrupting relationship between universities, their financial aid departments, and the deregulated proliferation of predatory student loan lending.
That is, there has developed a symbiosis between these parties. The government deregulates (at the behest of lobbyists) the student loan lending industry. It removes student loans from among those debts dischargeable in bankruptcy (in the 2005 BAPCPA Bankruptcy Code Reform Act). Student loan lenders shovel money at students for not only college but trade school, unaccredited certification programs, and anything else that can loosely be classified as “education.”
Colleges, meanwhile, increase all costs, raise the salaries of administrators, pay football coaches exorbitant salaries, reduce the salaries of actual professors to near or beneath minimum wage, and hand incoming, wide-eyed freshman financial aid “package” agreements in 3-point font that very carefully avoid mentioning that students are receiving non-dischargeable loans and not “financial aid” at all.
This is overstating things a bit. But only a bit. Costs of university-level education have, yes, skyrocketed. And so has the indebtedness of graduating students.
Pull yourself up by your bootstraps? Hard to do when Navient owns your boots.
Housing and Rental Costs
The median rental cost of an unfurnished apartment rose from $308 to $1,800 (nationally) from 1980 to 2021.
Meanwhile, the median cost for a home in the U.S. is now $199,200. In 1940, it was $2,938.00. 1940 is a distant start-point, it’s true, but, in 1980, that median number was $47,200. In 2000, it was $119,600.
This drastic escalation in the cost of merely sheltering oneself likewise erodes any logical foundation for the Grand American “DIY” Tradition.
The average price of a new car is now $25,449. How much was that house back in 1980 again?
In 1990, at least, the average price of a car was $15,473. That’s a $10,000 average price increase. So buy a used car, you say?
Used car prices jumped 88% during the COVID-19 pandemic. They’ve settled somewhat, but they’re no walk in the park, either.
You already know about gas prices, food price increases, and all of the other increases in basic expenses that have peppered the headlines over the past few years. Combine those with the need to get from place to place just for a temp job or to earn peanuts as an adjunct college professor, and the result is a very rough road ahead for young people today.
What Older Parents Need to Know About Debt: The Bottom Line
Does all of this mean that your kids have to live with you forever? Or that you can’t encourage them to get off of the couch, put down the Nintendo, and get a darn job?
We won’t go that far, but the underlying point of this Article is to zero in on the challenges facing young people. Pushing them out of the door into alleged self-reliance because you did it on your own in, say, 1976, will only increase the odds that they will need the advice of a Michigan bankruptcy attorney sooner and not later.
Low wages, unsteady employment prospects, higher education purposed to turn graduates into indentured servants, and a government increasingly over-interested in ensuring that the financial industry makes the rules we all have to live by means that struggling young adults will take on—debt.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has assisted thousands of Metro Detroit Chapter 7 and Chapter 13 bankruptcy clients for over 30 years.
If you or your young adult is struggling with student loan, credit card, or any other form of debt, contact us now to schedule your free initial consultation.