Generation IOU

Young adults are spending themselves broke

At 24, Cimone Casson had only one roadblock standing in the way of her dream of being a wealthy entrepreneur in the glamour industry: $8,000 in student loans.

“When I left home for college, I told my family I was going to be like Erica Kane,” says Casson.

But, she picked up the soap opera character’s shopping habits before her career even started, ignoring the loans as she put most of her cash from nightclub jobs toward stocking her closet with clothes, shoes and matching handbags.

Her lifestyle caught up with her two years ago when she applied to
beauty school and was turned down because of defaulted debts.

Born into a lifestyle of conspicuous consumption on MTV and weaned on easy credit, today’s 20-somethings face a sobering wake-up call as they graduate this month from Triangle colleges into an uncertain job market, rising interest rates and tougher bankruptcy laws.

This financial reality can hit even harder for young women, who now make up a majority of college students, with many graduating to face sizable student-loan burdens.

The average undergrad loan debt is more than $18,900, according to a survey by student lender Nellie Mae.

And, starting out their adult lives with more debt puts a squeeze on their ability to save for homes or even retirement.

Young spenders (male and female alike) just don’t get it, say debt experts.

“They’re unrealistic about the real cost of living and potential salaries,” says Catherine Williams, a debt counselor and vice president of financial literacy for Money Management International, a credit counseling service.

“They want today what their parents saved 25 years for,” notes John Ninfo, a bankruptcy court judge. If Generation X got tagged as the slackers, Generation Y is quickly becoming the clueless debtors.

There are exceptions, to be sure, but a disturbingly high debt load among people just starting out is hard to ignore.

For a while it looked as though Gen Y, loosely defined by demographers as those born between 1978 and 1995, would have it all.

Highly educated, tech savvy and discerning about the types of jobs they preferred, the oldest in the generation were graduating with great expectations for salaries and achievement.

And why not? A booming economy and the chance to emulate the successes of overnight dot-com millionaires awaited them.

As college students, they boasted $122 billion in spending power, a study by Harris Interactive showed. Per capita, they spent $13,000 a year, the study found.
But their debt is burgeoning, too.

Average credit-card debt among 18-to-24-year-olds was $2,985, showed a Federal Reserve consumer finances survey based on 2001 data. That’s more than double the figure for the same age group in 1992.

The average household in that age group, among those with some credit-card debt, spends 30 percent of income on payments. That’s double the percentage from 1992, according to “Generation Broke: The Growth of Debt Among Young Americans” by advocacy group Demos.

“We’re nearing an epidemic in terms of financial stability of the country,” warns Darrell Luzzo, who runs education programs for Junior Achievement Worldwide, an organization that teaches business and economics to youth.

Despite the efforts of JA and myriad other education programs, schoolchildren have an appalling lack of understanding and discipline about personal finance, he says.

As they become teenagers and then adults, the debt squeeze is destined to make an already paltry national savings rate far worse, he says.

As the shoppers in most families, young women are carrying on the tradition on the Internet.

“If you’re not targeting Gen X/Y women online for your financial/ insurance products, you’re probably missing an important market,” notes a report by the Dieringer Research Group.

In a 2003 survey of 18-to-29-year-olds, the group found women more likely than men to research and be influenced by Internet advertising for credit cards and other financial products.

As she counsels young women on the financial aspects of starting businesses, Kelly Mizeur almost invariably ends up giving lessons on personal-debt management as her pupils try to repair the problems that resulted in a denial of a business loan.
Mizuer is financial director for the Women’s Business Development center, an organization that teaches business skills and makes loans to female entrepreneurs.

“The credit-card companies have tables at every college orientation; they show up at every tailgate party,” says Mizeur.

Having debt problems is even more difficult for young people because they haven’t built up assets to counteract the debt.

“They haven’t used the debt to build anything of value,” says Mizuer. “I’ve had to ask a lot of clients with good business ideas if they would be able to change their lifestyle and live on $14,000 a year while the idea takes off.”

A lot of them tell her they won’t do it if it means giving up the trappings
of comfort, she says.

“If it means no more Coach bags, sometimes they’re not interested,” she says. “I’m always telling clients that their personal credit scores are their own responsibility and they matter in your career.”

Now almost 30, Casson learned that lesson the hard way.

The bills from her associate’s degree in fashion merchandising were easy to forget for a single woman interested in high fashion.

She said the bills piled up at her mother’s home and she didn’t think about them affecting her life in any way.

“I just blocked them out of my mind,” she remembers. “I was living for that day, not the future, and I didn’t have creditors pounding at my door.”

When her admission to cosmetology school was denied because of the defaulted student loan, she finally hit bottom, she says.

“I realized then that I had messed up my buying power. I started making double payments on the loans and working extra hours so I could prove I was serious about starting over,” she says.

“It’s a terrible feeling, and you vow never to go back. I had to separate from friends who shopped like me.”

Eventually, Casson was allowed into the beauty school, graduated and is
planning to establish a mobile beauty business offering hairstyling, massage, makeup and other services for bridal parties, advertising photo shoots and fashion-show coordinators.

Casson says her student debt is down to about $3,000 today. She has no new credit-card debt from the business, using the money she has made from various part-time jobs to fund her life and her fledgling company.

“I still have to look good for work, but now when I find a $120 Anne Klein blouse, I wait until it gets marked down to $40.”