This week, an American Express report confirmed what we've come to accept as a truism: That Gen-Y, or those born after 1983, have become increasingly comfortable with debt. And how did they measure it? They surmised that we're spending a ton—a ton—on luxury items such as fine dining, travel and, well, expensive denim. (Wasn't that the concept behind HBO's How to Make it in America?)
The AmEx report, as reported by the Toronto Star, peeks into the mind of the young "recessionista"—remember that term? Despite youth unemployment hovering around 7 per cent, writes journalist Ashante Infantry, Millenials have upped luxury fashion expenditures by 33 per cent. Travel spending has jumped by 15 per cent. Dining costs have leaped up by 31 per cent. And it's all happened since 2009, or the year after the financial downturn hit.
So, despite grim financial times, why are we spending so much? How did we develop a credit bubble? Is this, as I've speculated in the past, indie-rock band Beach House's fault?
Either way, this phenomenon is very, very real: We're now responsible for 43 per cent of luxury purchases, which was once a domain occupied by seniors on Gen-Xers (or, in other words, those with financial security). So, what's driving our credit bubble, and how can we properly maintain our ever-growing rich tastes? I'll let writer Ross Harrhy take over from here. -Mark Teo
For many of you, this is the beginning.
It’s where you want to start, it’s the big plan, it’s where you forked off down that road to the career that you think may sustain you for either the next ten years or perhaps the rest of your working life. You landed your first gig, you’re foot in the door, and it may be the first real full-time permanent position you’ve ever had. Before, you spent your hard-earned money on food, drink, and housing or transportation — suddenly you’re thrust into a world where the paycheques(though not necessarily huge) are bigger than anything you’ve ever cashed before… now what are you going to do with all that dough?
I’ve always been one for toys myself: stereo equipment, big TV, nice computer, nice clothes — I even had a motorbike at one point, but then again, I always worked so I could afford that stuff. I was young, and had no responsibilities and no long-term goals.
Now, a few years later, I’m thinking about marriage--which technically is starting a family, though yes kids may be in the not-to-near-future, but I’ve also got student loans I’m tired of paying, and I’m really, really tired of paying monthly rent to somebody else when it could be going right back to me via a mortgage. And so I had to rethink what I was doing with all that extra cash I was suddenly pulling in. Some say having more money means more freedom, but that freedom includes a responsibility to yourself to do constructive things with it. Peter Parker’s Uncle Ben was right when he told him, “With great power comes great responsibility.”So what are the responsible options?
Till debt do us…
To begin with, if you’re fresh out of school you most likely, though not always, have student debts to pay back. It was okay while you looked for that perfect job and worked at Starbucks to just pay the minimum monthly payments, but let’s face it, if you’re even lucky enough to be me, with a debt slightly lower than the Canadian average student debt, you’re still going to be paying that thing off for fifteen to twenty years!
Budget accordingly and talk to the people at your student loan office, where you can negotiate a comfortable minimum payment that will shave some serious years off your overall repayment timeline and also counteract a lot of the interest that you’d end up paying. I went one year where by paying the bare minimum I only paid the interest I was accruing rather than slicing off any of my actual debt. That hurts when you get that paper in the mail at tax time.
Next, if you ever want to get somewhere and hover out of the debt-pit; owning your own house, a nice, new car, or take a great vacation once in a while, you need to budget a monthly addition to your savings.
Be comfortable with the budget you build.
Let’s look at the current mortgage scenario in Canada: if you wanted to buy a house by acquiring a mortgage, under current federal mortgage rules you would need to put down at least 15 percent of the total purchase price of the home. All other lending and repayment rules aside, that means you would need at least $30K to even think about a $200k home, and if you’re like me and live in a major city like Toronto, the minimum price for a decent home (though that may depend on your idea of decent) is $500k, or a $75kdown payment. Yikes. Though I’m on my way it still may take a while.
Put down what you can comfortably fit into your budget, and consider that you may also need to dip into that money from time to time for any health or other emergencies, but hey, at least if you’re making the effort you’re on your way.
Of course, the more you put in the more you can make, but as with the previous suggestions, figure out what you’re willing to budget and get started; most investment agencies allow you to only add a minimum between $25-50 a month —that’s one dinner out a month, or two pitchers of beer that could potentially earn you hundreds to thousands. If you’re lucky, your new employer might also offer an RRSP incentive program that will match your contributions or give you a certain small percentage each payday. Look into what they offer because if you’re not taking part you are basically throwing away free money the company is willing to give you for being their bright, shiny, fresh new responsible face.