By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The Millennial, Gen X, and Gen Z cohorts are facing a huge challenge, as it pertains to funding education, a home, and now a “retirement” account. They must make some very difficult decisions. First, do they go to college in order to potentially set themselves up with a good-paying job, but knowing that they will most likely incur significant debt in the process? A debt that most of my generation didn’t have to face – not even close. In fact, public college education today will cost you more than twice what it did during the ’70s. According to a GoBankingRates report, public education costs have rocketed from $39,780 to more than $91,000 in 2022.

The shift to the knowledge economy has simultaneously increased the necessity of a college degree while the rising costs of that degree have eroded the ROI. Classic “rock and a hard place”! Once they have that degree and hopefully find that decent-paying job they must decide if settling down is in the cards. Does settling down include buying a home? For most younger Americans, buying that first home is getting to be nearly impossible. According to a Bloomberg article, first-time homebuyers face the least affordable market on record (dating back to at least 1986). Yes, home price growth YoY has moderated, but it hasn’t fallen. Furthermore, US mortgage rates have skyrocketed. At present, a 30-year conventional mortgage will result in the buyer paying 7.16% up more than 300 basis points in the last 12 months – ouch!

Well, if you are fortunate to have a good job that affords you the opportunity to pay down your student loans and finance a huge mortgage (average home price according to the St. Louis Fed database was $535,800 as of 12/31/22), you are in rare company, as only 26% of home purchases in 2022 were by first-time homebuyers. But wait, now you have to figure out how to fund a retirement benefit because you most likely don’t work for a private sector organization that provides you with access to a defined benefit plan. That “retirement” benefit, in the form of a defined contribution (DC) offering, requires you to fund (at least 15% is necessary to do it right), manage, and then disburse the benefit hoping that what you set aside will cover your entire golden years.

Given the recent updates provided by both Fidelity and Vanguard, which I reported on earlier this week, it is safe to say that most Americans will NOT come close to enjoying a dignified retirement. They might NOT be able to live in their own home! They might NOT be able to afford college! How have we as a nation arrived at this point? What has changed so meaningfully from when I was starting off to what the next three cohorts are facing?

So, if you found yourself in this bind from the lack of affordability, what would you choose? Education, a home, and a dignified retirement shouldn’t be mutually exclusive. Yet, that is where we find ourselves today. Let’s stop blaming young people for perceived poor financial management! Most Boomers would also be getting married later and having fewer kids. This isn’t because they are irresponsible! We’ve created an environment that is crushing them! So sad!