Millennials, debt and the economy

Millennials, or individuals age 18 to 34, are about one-third of the U.S. labor force. They became the biggest share of it during the first quarter, reaching 53.5 million workers to surpass the 52.7 million of Generation X, according to a Pew Research Center analysis of U.S. Census Bureau statistics.

The analysis defined Generation X to include individuals ages 35 to 50.

Talent attraction and retention is Indiana’s most critical economic development issue. Northeast Indiana Regional Partnership considers it central to a Vision 2020 goal of increasing northeast Indiana’s population and economy. Millennials comprise the target demographic for this mission.

Slow start

The national economy has not provided a good environment for millennials to get an independent foothold in life. It has been in recession or recovery for close to eight years.

This, along with improved energy efficiency, has contributed to a slowdown in load growth for American Electric Power, according to Chad Burnett, its director of economic forecasting. AEP is the parent company of Indiana Michigan Power, which supplies power to the Fort Wayne area.

Instead of finding a “big job” after college, many millennials took jobs they were overqualified for or sought additional education, all the while tackling student debt, he said.

“A lot of people went back and lived with mom and dad,” he said.

Since the year the recession started in 2007, the share of millennials living with their parents grew from 28 to 31 percent last year, an Economic Advisers study shows. The same report said outstanding student loan debt exceeded $1 trillion during the second quarter of 2014, making it the second biggest category of household debt. The average debt per borrower grew to $30,000 in 2012 from $24,000 in 2004.

First-time home buyer data is not available for the Fort Wayne area from the Upstate Alliance of Realtors, but first-time buyers dropped a percentage point from a year ago this July to make up 28 percent of the nationwide market this July, said Adam DeSanctis, a National Association of Realtors spokesman.

Unemployment and debt

The unemployment rate for millennials reached a recent peak just above 13 percent in 2010 and came down to 8.6 percent in September 2014, when the national rate was 5.9 percent, shows a Council of Economic Advisers study released October 2014.

Locally, the latest Census American Community Survey data for 2013 showed a 13 percent unemployment rate for individuals ages 20 to 24 in Fort Wayne, while the rate for everyone 16 and older was 8 percent, according to Valerie Richardson, a research associate at the Community Research Institute.

To help improve employment among millennials, Fifth Third Bank began offering 1,000 job search training scholarships this spring. Each scholarship was worth $1,000.

The bank said the “Brand of You” campaign addressed an important issue, because 56 percent of recent college graduates remained unemployed half a year after graduating, and half of recent graduates who were employed were working at jobs that do not require a college degree.

“A lot of experts across the world think student debt has the potential to be the next great financial crisis across the country,” said David Hosick, public relations manager for Fifth Third in Indianapolis. “If you get this millennial group employed in the areas they specialized in, they’re going to have higher paying jobs, add more growth to the economy and be able to pay off that student loan much quicker.”

As head of the Money Management International office in Fort Wayne, Joe Schenkel saw many northeast Indiana households seek credit counseling in an effort to cope with massive debt taken on while attending college.

Credit tightened following the Great Recession to the point that uncollectible consumer debt, including credit card debt, plunged but, simultaneously, student loan debt seemed to skyrocket, said Schenkel, who retired last December.

Many households MMI counseled owed more on student loans than credit cards and the organization had a program designed specifically to help them deal with the burden, he said.

“One of the things I always talked to folks about was if you’re spending money on college, make sure it leads to a career and not a hobby,” Schenkel said. “Keep it at a minimum; don’t incur that huge debt load if there isn’t a quick payback on the other end of it.”

Not as bad

But some economists say he public has an exaggerated view of the amount of debt with which a student leaves college.

Kurt Rankin, regional economist for PNC Financial Services, compares student debt with a loan on a new car. While auto loans must be paid over five years or seven at the most, student loans can be stretched out to 10 years, or even up to 20 years.

“Millennials will exit college with on average $27,000 debt as of this year,” he said. “That’s not that much.”

That amount of debt should not prevent them from getting a mortgage.

Dan Boylan, an instructor of personal finance at Ball State University, encourages students there to pursue their dream with their major but to also make sure they at least have a minor that can pay their bills once they graduate.

Most students come to college without any credit cards, then get one their freshman year, a second their sophomore year, a third their junior year and a fourth their senior year, he said. They tend to leave college with average credit card debt of about $5,000.

The credit card debt is not as high as student loan debt, he said, but it is important to address as soon as students leave and get a job because it carries a much higher interest rate.

No matter what the debt, they are better off finishing school.

“When they leave the school they don’t have the degree, they don’t have the ability to generate the income as well, and then they have even more of a monthly payment,” he said.

Students who do not finish college typically leave with more debt, about $45,000 on average, he said.