According to the Federal Reserve’s Survey of Consumer Finances (SCF), the average value of real (inflation-adjusted) family income before taxes for young adults (< 35 years old) declined 12% (from $54,200 to $47,700) between 2007 and 2010 (see below graph). Per this same Fed study, one-half of all young adults had family income before taxes of $35,100 or less in 2010.
Net Worth Challenges
The Fed’s SCF reports that average real family net worth for young adults declined 41% (from $111,100 to $65,300) between 2007 and 2010. This was the largest proportional drop of any age group reported by the Fed.
More striking than these declines are the large numbers of young adults with very low net worth. One-half of all young adults old have a net worth of $9,300 or less, according to the Fed. Pew Research reports that over one-third (37%) of households headed by someone under 35 years old had no or negative net worth in 2009.
Experian reports that Generation Y, defined as all 19 to 29 year olds, carries an average debt of $34,765. While this amount is about one-half the national average of $78,030, a much smaller portion of 19-29 year olds have a mortgage than 30+ year olds. The Experian report does state that student loans, auto loans and bankcard debt comprise a larger share of the 19-29 year olds’ total debt compared to the national average (see below graph).
As we noted in our post “Proposed Legislation May Impact Student Loan Risk”, overall student loan debt outstanding is growing rapidly. At the individual level, the average student loan debt outstanding amounted to $25,250 for 2010 graduates carrying this type of debt, according to The Project on Student Loan Debt. This amount represents an increase of 5% over 2009 and is consistent with increases “over the past few years”.
Implications for Young Adults
These financial headwinds have had a dramatic impact on young adults’ everyday lives. According the Census Bureau, over one out of three (37%) of 18-29 year olds live with their parents. Pew Research reports that 24% of 18-34 year olds have moved back in with their parents as a result of economic conditions. Per this same report, 20% of 18-34 year olds have postponed getting married and slightly more (22%) have postponed having a baby.
Despite these headwinds, most young adults (18-34 year olds) remain optimistic about the future, according to Pew Research. Over one-half (57%) say they do not have enough money now, but expect to have enough in the future to lead the kind of life they want. Almost one-third (31%) say they do earn or have enough money now.
This may not be a simple case of youthful optimism. Young adults are set to inherit a significant amount of wealth from their parents’ generation. Estimates for the size of this future inheritance vary widely due to different assumptions regarding taxes, interest rates, etc. Nonetheless, those young adults that will eventually inherit wealth will need advice and guidance on how best to manage these assets.
Implications for Credit Unions
Credit unions can play a significant role in helping young adults meet their goals. Credit unions already offer many of the financial products young adults need: Mortgages, auto loans, debit/credit cards, loan consolidations, bill-pay etc. By following the cooperative principle of providing member education and training, credit unions can make a real impact on young adults’ well-being. Credit unions that provide today’s young adults with advice on managing debt and building savings are building a foundation of customer loyalty that may help them become their financial advisor once they inherit their parents’ wealth and/or build their own net worth.