Young adults face future of self-reliance

For workers younger than 40, the recession helped drive home a sobering lesson: You are on your own.

When their middle-class parents and grandparents were the same age, they could count on long careers with the same employer, regular pay raises, pensions and generous medical benefits.

This younger, "do it yourself" middle class must shoulder the responsibility of crucial aspects of their financial and work lives - saving for their twilight years, tackling soaring health-care costs and carefully managing their careers - with little help from an employer and dwindling help from Uncle Sam.


Debt also is a recurring theme for younger workers, in part because housing and credit-card debt are stacked on top of enormous school loans that, in many cases, are much larger than what their parents tackled.

Emily Duda, 28, and her husband, Bryan, 24, are working to whittle down nearly $60,000 in student loans, plus other debts. Duda, who has a master's degree in divinity, was laid off from her job at a Tempe church in 2010 and spent nearly two months out of work. She now is employed as a security guard.

"We were hoping to start a family when I turn 30," said Duda, adding that they may delay that if they haven't paid off their debts. She thinks it may take at least three years.

"I don't want to bring a kid into a household with debt," she said. "I want to bring them into a world with solid principles."

Life lessons

A generation ago, a student could go to a local state university, work part time during the school year and full time in the summer and graduate with little or no school debt, said Lauren Asher, president of the Institute for College Access and Success. That's not possible now.

"The cost of education has outpaced family income and grant income," Asher said.

Young, do-it-yourself workers must manage their middle-class expectations, said Kimberly Bridges, manager of financial planning at Scottsdale-based Stoker Ostler Wealth Advisors, an affiliate of Harris Private Bank. Focusing their careers, living within their means, paying down debt and saving for retirement are essential, she said.

Managing expectations

Media images of excess and easy credit inflated consumers' expectations of what middle-class life should be like. Sprawling suburban homes and high-tech toys were viewed as entitlements during boom times, but historically, middle-class life was more modest. In the early post-World War II era, families had one car and homes were about 950 square feet, Bridges said.

Most workers under 40 will have time to adjust to the reversal of fortunes, Bridges said.

"We had a great wake-up call, and I think for that age group, it has come in time for them," she said.

The biggest asset that young workers have is their human capital, she said. Usually workers under 40 have not hit their highest-earning years. So if they manage their careers carefully, they have time to repair financial wounds from the recession.

Career management has been an expensive lesson for Duda.

She racked up nearly $60,000 in debt working her way toward a master's degree in divinity, with hopes of teaching theology one day. After she earned her master's, she ultimately took a job at a Tempe church for $25,000 annually. She loved working in the church, but, in hindsight, she said, she should have considered the ability to pay off the loans when she contemplated a career. Now, as a security guard, she makes slightly more than what she did at the church. She and her husband are devoted coupon clippers and try to stick to a budget.

Looking back, she said, "I love my degree and I love the education that I got, but they aren't the most practical degrees."

Health-care burden

Health-care costs are a growing burden on all workers, including the youngest members of the workforce.

The number of employers that provide health insurance for workers is shrinking. The jobs that do offer coverage require workers pick up a bigger share of the tab. Workers pay larger co-pays for office visits, and they must kick in - often hundreds or thousands of dollars - for surgeries and medical tests.

For young workers who are struggling with school debt, a shaky job or housing debt, a small medical emergency can cause a financial crisis.

Some punch a clock at jobs that don't provide health insurance and keep their fingers crossed that they stay healthy. Other financially strained workers can't forgo health coverage.

When Laura Limon's husband lost his job in 2009 with the financial arm of Chrysler in Chicago, they paid $400 a month so their family of three could continue to get health benefits - and that included the 65 percent temporary discount that was part of federal stimulus funds. Without it, it would have cost $1,000, said Limon, 32.

COBRA, or the Consolidated Omnibus Budget Reconciliation Act, allows laid-off workers to pay out of pocket to continue health insurance with their employer.

Limon's husband now works in the Valley at PayPal, where health insurance is an employee benefit.

"We are definitely having to manage expenses," said Limon, a stay-at-home mom with a part-time home-based business, who has a 3-year-old daughter.

Her family is still paying off debts accumulated during her husband's layoff, she said.

Saving for retirement

Once personal debt is repaid, saving for the future takes on growing importance, because the national burden of Social Security and Medicare is only expected to grow.

Young adults have become more pessimistic about their long-term financial situation.

When surveyed in 2007 by the Employee Benefit Research Institute, only 8 percent of people in the 25-34 age group said they weren't at all confident about having enough money to live comfortably throughout retirement.

Since then, the percentage of adults ages 25-34 expressing a lack of retirement confidence has steadily increased, reaching 27 percent this year.

One bit of good news is that young adults are participating in 401(k)-style retirement plans and Individual Retirement Accounts at younger ages than prior generations did, said Dallas Salisbury, president of the EBRI.

"The other (part) of the picture is that they are likely to have less help from employers or the government when they do retire," Salisbury said.

MORE ON THIS TOPIC
5 tips for better money management

Young adults face daunting financial challenges but do have time and other advantages on their side. Here are five tips for adopting sound money-management practices:

Learn more.

With the Internet a click away, educate yourself on credit cards, homeownership, investing and other financial matters.

Start saving.

Despite the many demands on your money to meet near-term expenses, make saving a priority. Strive to put away enough cash to meet at least three months of living expenses but, preferably, six to 12 months.

Take advantage of company benefits.

Fewer young people will enjoy pension coverage, and you might not receive full Social Security benefits, either. So it's important to use benefits that are available. If offered a 401(k)-style plan at work, contribute as much of your own funds as needed to qualify for employer matching funds. Learn to save by having money taken automatically from each paycheck.

Avoid dumb moves.

Like everyone, you run the risk of getting scammed or making bad investments. If you spend a lot of time on the Internet and in social-media circles, beware of identity-theft risks and other tricks. Guard personal information and monitor online accounts. Check credit history by obtaining free reports at annualcreditreport.com.

Don't fear risk - within limits.

You probably should hold the bulk of your long-term investments in stocks, stock funds and other assets likely to appreciate over time. These will gyrate over short periods but tend to track the economy's expansion over time. Learn about your investments: Use common sense to avoid losing money in scams and speculations.

- Russ Wiles


by Jahna Berry The Arizona Republic Apr. 24, 2011 12:00 AM




Young adults face future of self-reliance