Americans In Debt: A Story Millennials Must Rewrite

You do not need to look far to learn that most Americans are in debt. You probably don’t have to look much farther than your own list of bills.

The big debt products that contribute to this reality? Mortgages on homes, loans on vehicles, student loans to get a higher education, and credit card debt used to purchase the stuff of life. Well over half of Americans carry credit card balances. Nearly one in five carry student loan balances. Then there are personal loans, unpaid medical bills, and other loan products like home equity loans and home equity lines of credit to name a few more.

Debt in the American lifecourse

Why are so many young Americans in debt? The usual story.

I too have lived this reality, though a rather benign (and lucky) version of it compared to what many others live. This is a very typical story: you sign some papers to go to college, you graduate with tens of thousands of dollars of money owed to someone who wrote up those papers. Wha?

Hopefully you got a nice job, albeit with an entry level salary. Now that you have a real grown up paycheck you can finally buy a decent car. You buy something nice because you want it to last and you’re finally done with school- go you! The dealership gives you 5-year financing and you’re set to go.

You get married and buy a house to live in as you begin your new careers and adult life. The bank was nice enough to tell you exactly what you “could afford” and gave you some papers to hand to the realtor so they knew exactly what price range to show you (i.e. the max amount which is exactly not what you should spend!).

Next, perhaps some babies come along and you’re figuring out how to cover childcare with that entry level salary just starting to creep up, along with your school loans (and your spouse’s), that car payment (maybe two), and the new mortgage. Ugh.

Usual scenario mindset: You accept that you’re broke and that’s just the way it is when you’re young.

Wait, what just happened?

Congratulations- you’re off and rolling into American adulting! Education, job, car, home, kids. So how many years of financial obligations is that anyway?

Student loans are typically paid over 10 years, so those are in your life until your early 30s or older if you did additional higher ed.

The car loan is only 5 years, but cars are a wear-out item that don’t retain value well. And when kids enter the equation… well, pressure can mount to get something with multiple rows of seats and sliding doors. And likely within 10 years, you will need something to replace that old car anyway, if you aren’t tempted sooner.

That mortgage is slated to pay off when you’re in your 50s if you bought in your 20s. They let you buy with a teeny bit down because you were a first-time home buyer- yay perks! But if you’re like most, you’ll move to another city or bigger house and start over with a new, conventional 30 year home loan, stretching that housing commitment right up to your typical retirement age (mid-60s). And you’ll bring barely any equity from that first purchase thanks to the low down payment and 30-year financing structure.

So, in total in this first few years of typical American adult life, you hold financial commitments to basically decades of bills when you’re barely out of the grown-up gate. No wonder people don’t retire until 65.

The normal story is of Americans in debt through their best, most productive decades of life.

Not to be a downer, but we also must mention that when you’re starting out in this scenario, you likely also have no savings to deal with emergencies, to say nothing of special experiences. Any savings you scraped up likely went to the car and house down payment goals anyway! But with the school loans and car payment, there’s not a lot of room to squeeze extra savings out. And that’s where the medical and credit card debt start adding salt to the wounds of many families’ financial life.

It seriously gives me anxiety just writing all this. Not because there’s something inherently wrong with utilizing financing to grow your life (there’s a place for strategic debt on occasion).

But it’s just so much, and so many years of debt, and before any of us have even experienced much life or accumulated any cushion of assets. Yet it is entirely NORMAL.

There’s got to be a better way… imagine.

Imagine starting your adult life at $0… instead of -$50,000. No student loan debt. You did two years of a local college, then transferred to the bigger name university to finish your degree when you knew your goals better, had saved more money working between you and perhaps your parents, and had the general credits finished much more affordably. Logical choice for any young adult, since it saved a ton in tuition and housing costs those first two years. It also ensured you were spending your tuition money wisely in those last two years leading to the degree you truly wanted. Or perhaps you chose the school offering the best scholarship package, or served in the military, or any number of life choices to prevent excessive student loan debt.

Of course, you’re probably still starting with no money otherwise, but at least you’re not starting out behind. You rent a little apartment, much less than you “can afford” with your new job (you read a lot about tiny living and minimalism to get yourself excited and creative about living with less space and stuff- jump in with both feet!).

During this time, you save the largest amount of your income humanly possible because in this perfect scenario you have the foresight of your 40 year old self who will thank you profusely later.

New scenario mindset: You know that living on less and prioritizing saving early is just the way it is when you’re young. (Does this seem different than the conclusion about young money in the first scenario?)

You chose your apartment in a way that you could walk, bike, bus, or metro to work at least for awhile (if not work from home). Or if a car was necessary, you bought a Honda Civic off Craigslist for $5,000 as soon as you had enough saved up. You know you need to care more about your emergency savings and planning ahead than your wheels at this stage. But you know it will pay off later. You keep the Civic fine tuned so it can run for another decade.

You get married, and you take an awesome honeymoon for $3-4K out of that savings account you carefully manage. Maybe you have to wait a year for that much to come out of your savings since you’re keeping your minimum emergency fund protected. But still, awesome vacation to celebrate your nuptials!

You welcome a baby home to your tiny apartment. You get reeeally creative with space and remind yourself much of the world lives with much less. But you can afford some super cool flexible furniture and nice noise cancelling headphones, which are still a lot more affordable than doing the house thing wrong.

You’re eyeing houses. Your appetite for real estate is smaller than your peers because you’ve learned how to live in 900 square feet. You also enjoy spending a fraction of the time cleaning that they do (surprise treat!).

You know that you want to be mortgage free before that baby hits college age. To do this, you’re calculating based on 15-year loan costs, so you know what monthly payment to expect. (Alternatively, you might invest the difference in cost between the 15-year and 30-year monthly payment as a savvy growth tactic when home loans are at rock bottom interest rates.) And you’ve established what’s needed for your 20% down payment as part of your saving plan. You’ve also factored in building a larger emergency fund since you won’t have a landlord covering repairs and maintenance anymore. Go you!

You work, your spouse works, you save, you invest in quality childcare (a much better investment than a car, by the way). You use and pay back your emergency fund as life rolls on.

You enjoy some great nights out, a couple sweet vacations with the little one, whatever those top priority things are. You bank your extra biweekly paychecks, your tax refund, and any other windfalls that come your way. You enjoy specific, intentional splurges in life those first few years, but you focus on growing wealth before you grow debt. You have a savings account and you use it in a way to build towards multiple goals at once. Some sooner, some later.

Your second baby is on the way and you have met your savings goal for your house down payment. Also, after these few years you’re both starting to see little bumps in your salary which, with your usual savings rate to this point, will help in paying for childcare for two, a short-term cost.

You now have your 15 year mortgage (perhaps even for a duplex, the other half of which you rent out to help cover the mortgage). You still have no car loan, no student loans, no credit card debt. And you’re paying (a lot) for childcare that you feel awesome about, knowing it’s temporary and is an investment in your earning potential and the little ones’ futures.

You can already see that when that season passes, you will have a boatload of uncommitted cash to invest, grow, and fund the future. You will have choices.

You can ensure your own children do not start their lives with an unnecessary burden of debt, if you choose, by saving for their education, house fund, whatever fits with your values and plans.

You can change careers. You can partially retire- or fully retire- early. You can build the life you are meant to live with money as your tool, not your enemy.

Flexibility. Freedom. Fun with the family. Fuel for your life vision. That nicer car you didn’t buy 5 years ago, now without even needing a loan. And you’re still in your early to mid-30s.

Doesn’t this second version sound a whole lot better??

The anecdote to more Americans in debt

Shifting our culture around what it looks like to be a young adult will fundamentally change the story of Americans in debt. What needs to happen to get there? What does the current generation of young Millennial parents and upcoming Gen Z young adults need to do to to change the course? We must do the hard work of getting out of all the debt and shifting our vision to saving, investing, and teaching our kids a different way.

1. Gain financial literacy. Learn about investing. Visit my Resources page to see my favorite books, other blogs and podcasts to start now! No one else is looking out for your money- it’s your responsibility.
2. Strategize, track & plan your finances. Budget using a method that fits you. Try my “burn rate” budget for a category-free, flexible approach.
3. Plan your future spending before you’re there to end unintentional lifestyle inflation.
4. Master your savings account to cover three things: emergency fund, irregular expenses, and dreams.
5. Become wary of marketing (unitaskers, space wasters, designer labels, shiny cars, and more!), get in control of your spending and stuff addiction, and stop keeping up with the Jones.’ (Read: The Jones’ are probably up to their eyeballs in debt!)
6. Master delayed gratification. Keep your highest values at the top of the priority list, the rest can wait. Not necessarily forever, but it can wait.
7. Strongly consider some kind of investment for each of your children: a mutual fund, index fund, bonds, real estate, 529 (education plan), etc. Imagine the power of 20 years compounding growth, even with tiny monthly contributions. As they grow, children can take over the contributions and learn a key financial lesson before they ever leave your nest… and they’ll start adult life with their own security net.
8. Never give up. No matter the situation, we can always take steps to do better. Stay flexible, keep going.

Ultimately, too many of us are living on the edge. And too many of us are living to work, instead of working to live. Someone now needs to do the hard work to shift the culture. And that’s us, fellow 80’s and 90’s babes! Are you in?