146th Edition
Unaffordability
Let’s start with higher education. It sure isn’t what it used to be. What was once an aspiration of most high school students is now being questioned and debated on multiple levels. Does it make economic sense? Is it the right path for high school graduates?
A few unsettling trends…. According to an article in the Wall Street Journal, “The New College Unemployment Line,” A recent NBC News poll found that only one-third of Americans believe a four-year college degree is worth the money. That isn’t surprising given the exorbitant cost of college today. In one generation, tuition has skyrocketed. For example, in 1977, my freshman year at Wake Forest cost around $4,000. Today one year at Wake is about $80,000. Similar trends are evident at many notable universities. Is today’s college education that much more valuable than it was a generation ago? Perhaps it would be if the income college graduates earned reflected a similar increase, but that isn’t the case. An NBC poll states that 63% of Americans believe college isn’t worth the cost. Meanwhile the unemployment gap between college grads and high school grads continues to narrow. If paying for a college degree doesn’t give you a leg up finding a job, why pay today’s outrageous price for it?
My first full-time job after business school, paid a salary of $20,000. Some of my more talented and experienced fellow graduates earned starting salaries of $40,000 – $50,000. Are graduates today earning 20x that amount in their first position after graduation? No, they are not. Not even close. An average increase of 2X would be generous.
Meanwhile the cost of living has risen dramatically. For example, an average “starter home” that cost around $100,000, give or take, back in the mid 1980s, now costs $500,000 or more.
The average price of a new automobile has increased 33% since 2020, according to a recent article in the Wall Street Journal. Based on Kelly Blue Book, the average new car costs more than $50,000. There are actually one-hundred-year car loans. I’m not really sure how to process that. Does it mean you buy a new car, and your great-grandchildren pay for it? Makes perfect sense to me…
And what do we do about taxes? Here are a few interesting statistics based on IRS statistics and the non-partisan Tax Foundation for 2022:
As a share of adjusted gross income, the top 1% earned 22.4%, and paid 40.4% of total income taxes. The top 10% earned 49.4% of total AGI and paid 72% of total income taxes. At the other end, the bottom 50% earned 11.5% of AGI, and paid 3% of total income taxes. I remain an advocate for lower taxes and less government spending, but we are unlikely to experience either any time soon.
So, in a nutshell, incomes have grown 2X, housing prices have increased 5X, and college has grown 20X. No wonder so many young people have lost faith in the American dream, institutions and traditions, and worst of all, many now believe socialism might be the answer. Over the next decade or so, fewer high school graduates are going to attend traditional four-year private universities. Some will attend community colleges or trade schools. Others may follow an entrepreneurial path and start their own business. More worrisome are those that are trying to gain fame and fortune through gambling or other speculative, high-risk investments. A recent article in the Wall Street Journal, “Why My Generation Is Turning to ‘Financial Nihilism’ explains this disconcerting trend.
Perhaps these are the latest signs of an inevitable long-term economic and wealth-creating decline in the U.S. It seems crystal clear that future generations, at least for a while, will not reach the same economic status or level of wealth reached by their parents or grandparents.
As the author of this disturbing article on financial nihilism states, Millennials and Gen Zers have lost faith in traditional, long-term investing as a viable strategy toward financial independence. One important question at the root of this trend wasn’t discussed in the article. First of all, there is no way to be sure that traditional long-term investing is no longer a viable strategy going forward. It has worked relatively well for every generation since the end of the Great Depression. Why would it not work in the future?
What may have changed, and I suspect it has, is these younger generations don’t have the patience to invest over the long term. These kids were given trophies for showing up, got equal playing time regardless of ability, effort, or attendance, and spent too much of their childhood in over-structured and over-supervised activities. In a nutshell they feel entitled to whatever it is they don’t yet have, so gambling seems logical to them. So does the idiotic proposal to forgive over $1 Trillion in student loan debt.
Worse, an entitled person doesn’t learn the inherent risk/reward tradeoffs in all investments. Who or what will these kids turn to when they lose their savings on risky investments and gambling? Most likely they will turn to whomever promises to give them what they want. Progressive politicians will take advantage of this by offering government solutions to the myriad of financial woes, creating more dependency, inefficiency, corruption, and government debt. It should come as no surprise that the number of public companies in the U.S. has fallen by 50% over the past thirty years. Staying off the over-regulated government radar screen seems to be a motivating factor driving this trend. Overall, it’s not a pretty picture, is it?
Thankfully, there are a few encouraging signs as well. There are some young people who have chosen to reject the false gods of affluence, wealth, and insatiable materialism. They will build their lives and careers, living below their means, avoiding excessive debt and the allure of instant gratification. Faith in the one true God will serve as their foundation post. I hope our country’s future leadership will include people committed to these core values. It might not be an easy life to live, nor one that produces fame or fortune, but it is likely to be a joyful, meaningful life.
Each generation has opportunities not available to previous generations. And each generation is also faced with challenges caused by the mistakes of previous generations. Perhaps young and old can help each other solve the mess that threatens our collective future. A mess, that if we remain polarized, could very easily get much worse.
Please help me grow my readership by forwarding this to a friend(s). In the meantime, stay tuned for my next newsletter. Thanks!
Michael Kayes
*These views are my personal opinions and are not the viewpoints of any company or organization.