Top Five Disruptive Cultural and Financial Shifts: A Closer Look
Education: Embracing Alternatives and Lower Costs
The landscape of education is undergoing a radical transformation. The traditional four-year bachelor’s degree and graduate-level programs, though providing a broader education, come with hefty price tags. The average annual cost of a four-year degree in the United States hovers around $30,031, including tuition, fees, room, and board. This burden is further compounded by the fact that recent college graduates often carry nearly $30,000 in student loan debt.
However, there are alternative options available. Community colleges offer affordable two-year degree programs and professional certificates that focus on practical, hands-on education. These institutions can prepare individuals for specific career paths such as public service, plumbing, electrician work, architecture, or software development. With the average annual tuition at a two-year school in the United States around $2,500, community colleges provide a viable and cost-effective alternative.
Moreover, there are emerging players in the education space that offer skills-based and lower-cost alternatives. Skillsoft, a global leader in corporate digital learning, not only focuses on workforce development but also offers entry-level positions and apprenticeships for recent high school graduates. InStride collaborates with academic institutions to provide career-aligned, debt-free education opportunities through its platform. Edmentum, an education technology company, offers remote education jobs and specializes in online learning platforms and curriculum development.
Finance and Investing: Navigating the Complexities
Finance and investing can be overwhelming and confusing, especially for young people who are just starting their financial journeys. Retirement planning, in particular, presents challenges as it often feels distant and abstract. Many young individuals struggle to put away money for retirement due to limited discretionary cash flow. As a result, they miss out on the advantages of compound interest and time.
While traditional wisdom suggests that owning a home is a good investment, high prices and mortgage rates are making it increasingly difficult for young people to enter the housing market. This has led to a growing proportion of young individuals being forced to rent instead. To mitigate risks, young investors are advised to consider safer options such as certificates of deposit (CDs), high-yield savings accounts, and money market funds. Additionally, taking advantage of employer matching contributions in 401(k) plans can provide a valuable boost to retirement savings.
Furthermore, many young individuals lack a solid understanding of risk, which can lead to poor investment decisions. The recent surge in risk assets, fueled by the flood of liquidity during the pandemic, has inflated investments. However, these investments are likely to deflate as debt needs to be serviced and reduced. It is crucial for young investors to develop a comprehensive understanding of risk and consider diversifying their investment portfolios.
The Importance of Saving: A Challenging Reality
Saving money has become increasingly difficult for young people. According to the Survey of Consumer Finances, nearly half of American households had no savings in retirement accounts in 2022. Financial planners recommend setting aside at least 10 percent of income for retirement, but workers under the age of 34 are only saving an average of 5.5 percent. Shockingly, about 66 percent of people between the ages of 21 and 32 have nothing saved for retirement.
Employers have shifted away from defined benefit plans, such as pensions, leaving workers with greater responsibility for retirement planning. In 1989, half of working households ages 50 to 60 had a defined benefit plan, but by 2022, only one-quarter did. Starting early and consistently contributing to retirement accounts can make a significant difference over time, thanks to the power of compound interest. Even small contributions can add up and lead to substantial savings.
Assets Out of Reach: Rising Costs and Unaffordability
Both new and used car prices have soared to record highs during the pandemic. Supply chain disruptions and chip shortages have contributed to a 30 percent increase in new car prices and a 38 percent jump in used car prices since 2020. In 2023, new car prices reached an average of $50,364. According to Market Watch, Americans now need an annual income of at least $100,000 to afford a car, adhering to standard budgeting advice of not spending more than 10 percent of monthly income on car-related expenses.
The housing market presents another challenge for young people. Mortgage rates have surged in recent years, making it even more difficult for young individuals to afford homeownership. It takes the typical homebuyer nine years to save for the median down payment on a home with the median value in the United States. These conditions have made housing woefully unaffordable for many young people, raising concerns about long-term trends and the potential exclusion of younger generations from asset ownership.
Debt: A Growing Burden
Debt has become a significant problem for young adults in the United States. Nearly one in five adults aged 18 to 24 currently have debt in collections. Limited financial resources, lower wages, and shorter credit histories make young adults particularly vulnerable to high-interest debt. Credit card balances have surged by 15 percent in the most recent quarter, with average interest rates exceeding 22 percent and still rising.
Even college students are not immune to the allure of debt. Unsolicited preapproved credit card offers target this demographic, leading many to turn to “buy now, pay later” options. While these alternatives may seem attractive at first glance, they can still pose financial risks. Young adults must exercise caution and carefully consider the implications of taking on debt, especially when alternatives like responsible budgeting and saving exist.
In Conclusion
The cultural and financial shifts happening in America today are reshaping the lives of young people. Rising education costs, confusing financial landscapes, challenges in saving, unaffordable assets, and mounting debt all pose significant obstacles for the younger generation. If a recession were to strike, these obstacles would become even more pronounced.
However, amidst the challenges lie opportunities. Community colleges and alternative education providers offer more affordable paths to career success. Developing a comprehensive understanding of finance and investing can empower young individuals to make informed decisions. Saving early and consistently can lay the foundation for a secure financial future. Exploring alternative transportation options and reevaluating housing aspirations may help mitigate the effects of rising costs. By navigating these disruptive shifts strategically, young people can overcome the hurdles and build a brighter future.
