At 24, Cimone Casson had only one roadblock standing in the way of her dream to be a wealthy entrepreneur in the glamor industry: $8,000 in student loans.
“When I moved to Chicago I told my family I was going to be the black Erica Kane,” said Casson, who grew up in Michigan.
But she picked up the soap opera character’s shopping habits before the glamor career even started, ignoring the loans as she put most of her cash from nightclub jobs toward stocking her closet with furs, nearly 100 pairs of shoes and matching handbags.
The lifestyle caught up with her two years ago when she applied to an Evanston beauty school and was turned away because of the defaulted debts.
Born into a lifestyle of conspicuous consumption and weaned on easy credit, today’s twentysomethings face a sobering wake-up call as they graduate to an uncertain job market, rising interest rates and tougher new bankruptcy laws.
This financial reality can hit even harder for young women. With young women now making up a majority of college students, many graduate facing a sizable student loan burden. The average undergraduate student loan debt is more than $18,900, according to student lender Nellie Mae’s 2003 survey. And starting out their adult lives with more debt puts a squeeze on their ability to save for retirement or something more immediate like a house.
Young spenders–male and female alike–aren’t getting it yet, say experts who deal with people in debt.
“They’re unrealistic” as a group about the real cost of living and potential salaries, said Catherine Williams, a veteran Chicago 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,” said John Ninfo, a New York 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 their adult lives is hard to ignore.
For a while it looked as though Generation Y, loosely defined by demographers as those born between 1978 and 1995 would have it all. Highly educated, technology savvy and discerning about the types of jobs they preferred, the oldest in the generation were graduating with high expectations for salaries and achievement.
And why not? A booming economy and perhaps 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 last fall by Harris Interactive showed. Per capita, they spent $13,000 a year, the study found.
But their debt is burgeoning, too.
Debt amounts soar
Average credit card debt among 18- to 24-year-olds was $2,985 in a Federal Reserve consumer finances survey based on 2001 data. That’s more than double the figure for that age group in 1992.
The average household in that age group, among those with some credit card debt, spends 30 percent of income on credit payments. That is double the percentage from 1992, according to an October 2004 report called “Generation Broke: The Growth of Debt Among Young Americans” by advocacy group Demos in New York.
“We’re nearing an epidemic in terms of the financial stability of the country,” warns Darrell Luzzo, who runs education programs for Junior Achievement Worldwide, which the 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 said. As they become teenagers and then adults, the debt squeeze is destined to make an already paltry national savings rate far worse, he said.
Internet a factor
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–or for many other product categories–you’re probably missing an important market growth opportunity,” 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.
“Young women feel in charge of what they buy and when they buy it, 24/7,” and they gravitate to luxury goods, said a magazine publisher who was quoted in a marketing report on young people by Filene Research Institute in Madison, Wis.
As she counsels young women on the financial aspects of starting businesses, Kelly Mizeur almost invariably ends up giving them lessons on personal debt management as they try to repair the problems that resulted in a denial of a business loan.
Mizeur is financial director for the Women’s Business Development Center in Chicago, a 19-year-old 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,” said Mizeur, a 32-year-old former commercial banker who has Gen Y siblings and friends. “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. 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 won’t do it if it means giving up the trappings of comfort, she said.
“If it means no more Coach bags, sometimes they’re not interested,” she said. “I’m always telling clients that their personal credit scores are their own responsibility and they matter in your career.”
Now 26, Casson learned that lesson the hard way.
The bills from her associate’s degree in fashion merchandising from Western Michigan University and further studies at a Chicago design school were easy to forget for a single woman interested in high fashion exploring the city for the first time. She said the bills piled up at her mother’s home in Michigan and she didn’t think about them affecting her life in any way.
Out of sight …
“I just blocked them out of my mind,” she said. “I was living for that day, not the future and I didn’t have creditors pounding at my door.”
When her admission to the Chicago cosmetology school was denied because of the defaulted student loan debt, she finally hit bottom, she said.
“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 said. “It’s a terrible feeling to go through and you vow never to go back there. I prayed a lot and had to separate from friends who shopped like me.”
In January 2004, she was allowed into the beauty school, which she completed in nine months. By the beginning of this year, she had her state license and a business plan for Sleek Hues, a mobile full-service beauty business offering hairstyling, massage, makeup and other services to bridal parties, advertising photo shoot crews, fashion show coordinators and others.
“I still need to look my best for work, but now when I find a $120 Anne Klein blouse for $40, that’s the best feeling.”
Casson has her student debt down to about $3,000 today and has no new credit card debt from the business, using money she has made from various part-time work to fund her life and her fledgling company.
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Numbers are disturbing
The math doesn’t add up.
America’s youngest adults are joining the work force at salaries their parents never dreamed of, but their obligations are even bigger, several research efforts suggest.
In a briefing paper titled “Generation Broke: The Growth of Debt Among Young Americans,” New York policy group Demos said adults younger than 25 who have debt spend 30 percent of their income making the payments, double the percentage for this age group in 1992.
In a sample budget for a recent college graduate earning a $36,000 starting salary, the group found average basic expenses for loan debt, taxes, rent, food and transportation eats up all but $34 a month. That has to cover child care, entertainment, clothing, furniture, Internet access and other items, the group said.
Perhaps not surprisingly, among young adult households earning less than $50,000 a year, nearly 1 in 7 with credit card debt are in debt hardship, which means they are spending more than 40 percent of income on debt, according to the group.
The report also found:
Nearly 3 in 4 adults younger than 25 carry balances on their credit cards.
Nearly 1 in 5 households headed by people this age reported being late or missing debt payments in the last year, a 27 percent jump from 1992.
Harvard University law professor Elizabeth Warren, an author and one of the nation’s leading bankruptcy experts, projects that about 111,000 adults 25 and younger will file personal bankruptcy this year.
–Janet Kidd Stewart
A change in game plan can beat lingering debt
If you’re just starting out and are already in a financial hole, how can you start digging out?
Begin with an attitude adjustment, said John Ninfo, federal bankruptcy judge for the Western District of New York and founder of a program that brings court officials into schools to teach young adults about the credit system.
“Credit cards are not new money, more money or free money. You should think of them just as a more convenient way to spend the money you already have,” Ninfo wrote in a February article for the Web site www.youngmoney.com.
Many young adults put spending on an automatic pilot to keep up with friends or to maintain the lifestyle they had while living with their parents, Ninfo said. Setting up a more realistic budget will help you say no to purchases that are no longer realistic, he said.
Ninfo’s program, modeled after drug outreach programs in schools, is available in about two dozen states, including Illinois. For information on local programs, visit www.careprogram.us.
If you’re already in substantial debt, start considering big-ticket cutbacks in your spending, suggests Catherine Williams, a vice president for Money Management International, a consumer debt counseling service.
“You need to look at your housing situation because this is often one of biggest expenses in a budget,” she said. “You may have to move home [with parents]. I know that’s hard because we encourage independence.”
But if you do move home, have a plan to make payments on your debt and be able to show Mom and Dad you’re working on it, Williams said.
As you work your way out of the debt, don’t ignore savings, she said. Start building a small nest egg even if it means smaller debt payments. You need to have an emergency fund so you don’t fall into trouble again, she said.
Finally, even if you already know about credit scores, it pays to stay educated about financial management basics. Check out www.youngmoney.com for tips on managing debt, improving your credit score and navigating the financial aid system.
–Janet Kidd Stewart
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ctc-woman@tribune.com
