'Generation Debt' is going deep into the red

Zoe Paul has made drastic changes to her former lifestyle. As a Web designer in San Francisco during the heady dot-com era, she started her mornings at Starbucks, bought her coworkers drinks during happy hour, and ate out nearly every night.

Now 30, Paul works without benefits for a small ad agency in the Bay Area and worries daily about being laid off. To help pay off $10,000 in credit card debt, she routinely empties coins into a jar by her bed. When furnishing her living room, a trip to a furniture store was not an option; instead, she bought a tweed sofa bed from a thrift shop for $67. She packs lunch every day. Cable is gone, so is Internet access.

The most painful trim: Abandoning her daily Starbucks run. “That’s a thing of the past. Now it’s a treat,” she said.

Serves her right, you think? Many twenty- and thirtysomethings raised on MTV and InStyle magazine have tried to mimic the glamorous lives of the rich and famous through the use of credit cards. But as the 21^st century has ushered in skyrocketing housing prices, stagnant income levels and five- or six-figure student loans to pay off — a seismic shift has occurred: A growing number of young adults are reassessing their lifestyles and mimicking the frugal habits of their Depression-era grandparents.

They clip coupons, organize grocery-shopping trips to Sam's Club instead of darting to Whole Foods and now consider a $4 cappuccino as an infrequent luxury.

“Life just seems more expensive these days,” said Paul. “When I was growing up, I didn't know a lot about handling money or being frugal. Now I'm learning.''

High housing costs
With the median home price rising by 26 percent in the past five years — while young adults' income has gone up less than 10 percent — people in their twenties are playing an endless game of catch-up. Buying a home isn't even in the cards since prices in many urban areas where young people go to start their careers have more than doubled.

“It used to be that spending more than 30 percent of your income on housing costs was a major cost burden, but many young people are spending 40, even 50 percent,” said Bruce Nissen, director of research at Florida International University's Center for Labor Research and Studies. “Housing price and rents both have tripled, way faster than income.”

A Boomer in his fifties, Nissen is relieved that he bought his South Florida home in 1999 and has since seen the value triple, but feels bad for his two sons, ages 25 and 27, who are priced out of the overheated market. “Some still believe the American dream is owning a home, and they’ll use all their savings on it. Then there are others who believe it’s forever out of reach and just giving up on it. That’s why you have 40 percent of young people moving back in with their parents after college.”

A college degree is mandatory for most entry-level professional jobs, but most of today’s job growth is in low-paying, low-skill industries like retail and food preparation.  That translates into a very bad time for twentysomethings to be entering the labor force, said Nissen.

“The job market is expanding but 80 percent of these new jobs don’t require a college degree. So your choices are working at either Burger King or Wal-Mart where, obviously, the pay is not good," Nissen said.

And with deep cuts to education and tax breaks aimed mainly older, wealthier Americans, government no longer has young adults’ back.  Many economic forecasters doubt that those under age 35 will be the first generation not to equal or surpass their parents’ standard of living.  That is a disturbing reality for a group that should be in its prime, looking toward marriage and their first home. Instead, they struggle to pay hefty student loans and credit card debt.

Eric Beeler knows this all too well. A 25-year-old office clerk for a local government agency in Sacramento, Beeler has $20,000 in student loans for a psychology degree he may never use. With an annual salary of roughly $27,000, he and his wife Kelly struggle each month to pay rent, car insurance, utilities, student loan and credit card fees. They have no savings and they just had a baby, which now increases their household spending even more.

''We use coupons, we defer payment on bills, but I'm grateful to have a job, because my benefits there helped pay for the maternity care,'' he said. “I’m also grateful for my son, but we’re definitely going to feel the pinch even more.”

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