NEW YORK (MainStreet) — If Parade Magazine fell out of your Sunday paper—you know Parade, that 16-page shell-of-its-former-glory that makes grocery store circulars look like War and Peace—you would have seen “Millennials vs. Boomers,” a cover story featuring actress Abby Elliott and her father, the actor and comedian Chris “Woogie” Elliott.
You would have read about all the quirky things that make old people charming (they pine for the days when there were only three channels on TV) and the things that make Millennials endearing (they call rosé “French Gatorade”). There’s Chris holding a hardbound world history book standing next to Abby, who holds a MacBook Pro. There’s also the inevitable paragraph about social media. Can you guess what’s not mentioned? How the student debt crisis is a plague on retirement for both Millennials and Boomers. They have more in common than they think, it turns out.
Recent graduates aren’t the only ones who hold student debt. Their parents, who kindly took out loans on their child’s behalf or children’s behalf, are repaying them, too—and a lot closer to their target retirement age than their offspring. There’s a number that’s been floating around for a couple of years, reported by a number of outlets: $8,000—the average education loan debt held by pre-retirees (i.e. parents), up from $600 two decades ago.
That pales in comparison to the $28,400 in student loan debt the average recent graduate holds, right? As numbers go, yes. But, relatively speaking, no.
You have to see that $8,000 in the context of the mortgage (or second mortgage) pre-retirees hold, maybe a new roof or a new furnace for the house, maybe one or two car loans, maybe some health related expenses, probably a significant amount of credit card debt, and—sorry to say—a much more vexing job outlook than their children. In other words, that $8,000 may as well be $28,400 (or more) in the relative burden it represents.
On the other hand, pre-retirees are buoyed by current investments and a track record of investing—through a 401(k) or otherwise—that represents a kind of silver lining, even in spite of the recession’s deleterious effects. They have more faith in investing than their offspring, again, even in spite of the recession.
“The recession was transformative, and I see a dividing line between people who came of age before and after that period," says David Weliver, an observer of trends for young investors who launched moneyunder30.com in 2006 after graduating from Bates College in 2003 with $80,000 in student loan debt. "It affects everything—personal values, attitudes towards work, decline in credit card use among Millennials.”
“The less good thing that came out of it is that Millennials are averse to investing," Weliver added. "They are more cautious than other generations, because they saw how the market affected their parents and grandparents.”
A UBS Investor Watch report from 2014 on the so-called “next-gen” even went so far as to say that Millennials “have similar conservative risk tolerance tendencies as [the] WWII generation.”
That doesn’t exactly point to a brave new world of gung-ho pro-marketeerism, does it?
So, how can Millennials begin investing to offset their student debt? The immediate answer is: not easily. It’s hard to justify buying stocks or taking full advantage of employer-matches when you’re paying $300 or $600 a month on the vig and principal of a bunch of consolidated loans.
But, if you’re a little frugal and smart about dialing back your lifestyle—leaving a little extra scratch in your pocket each month—investing is still a decent long-term strategy.
“It’s all about austerity in spending, because it’s more difficult to change your earnings than to change your spending,” says Patrick O’Shaughnessy, author of Millennial Money (St. Martin's Press, 2014). “I recommend people pay down outstanding debt on a normal schedule and at the same time carve out a percentage to make steady investments in the global stock market.”
Even in a down market, says O’Shaughnessy, investing is still a commitment worth keeping.
“The market will constantly give us reasons to deviate from a long-term strategy—and to do stupid things—but if you commit to a percentage and look at the long term, you’ll be in good shape,” he says.
Austerity is a bleak term, for sure, but Weliver notes that it’s something to take in stride along with the Millennial hankering for singular experiences and quality of life today (rather than post-retirement).
“Listen, get the good beer if you go out—don’t get the bad beer,” he says. “Frugality is one path forward, but don’t forget to enjoy yourself, because quality of life is just as important as achieving an aggressive financial goal.”
Another thing recent graduates can do is take advantage of what’s popularly known as the Obama Student Loan Forgiveness program, part of the Healthcare and Education Reconciliation Act of 2010. At the very least—for qualifying individuals—their horizon for repayment may be a little more palatable, their repayment schedule may be more manageable, and their public service record may offset a huge portion of the loan burden.
And, if you’re a Boomer pre-retiree? How can you couch that average $8,000 in education loans in light of your other financial obligations? O’Shaughnessy says it’s about time horizons—and if you know retirement is just around the corner, being assertive about loan repayment in that period of time is preferable.
“If I was a Boomer close to retirement and I know I’ll need capital in five years, money that is being put to work is best served reducing debts because of what we know of variability of the stock market in the shorter term,” he says. “Reducing your debts as aggressively as you can is the best thing you can do.”