College debt may overwhelm 20-somethings

In TV commentator Jean Chatzky's latest book on personal finance, "Money Rules," she has some advice for a generation of young adults already carrying record levels of college debt: Don't borrow more for college than you expect to earn your first year out of school.

"A lot of kids in their 20s now are in trouble because they didn't adhere to that advice," said Chatzky, financial editor for NBC's "Today" show and host of "Cash Call with Jean Chatzky" on RLTV.

"Money Rules: the Simple Path to Lifelong Security" is a collection of 94 suggestions for solving the financial problems facing people of all ages, including the group of Americans some would argue was hit hardest by the Great Recession -- those in their 20s.

U.S. student loan debt recently topped $1 trillion and an estimated 24 percent of 20-somethings have had to move back in with parents at least once, according to a recent Pew Research Center survey. Meanwhile, the Labor Department reports only 49 percent of Americans ages 16 to 24 are employed, a number that has been steadily falling since the 1990s.

"The thing making life more difficult for this generation of 20-somethings than prior generations is student debt and unemployment," Chatzky said. "The job market has gotten better but it's not good enough, and under-earning for these college grads is as much a problem as unemployment."

PNC Financial Services Group recently conducted its first survey on the financial mind-set of 20-somethings, who make up nearly a third of the U.S. population and represent one of the largest generations in history.

The study compares responses among Generation Y, the unofficial label for this age group, and reveals that their debt increases with age while the portion of income they are able to save actually decreases by the time they hit the late 20s. Their average debt is $45,000, ranging from $12,000 for ages 20-21 to $78,000 for 28- and 29-year-olds.

More than half of the 20-somethings surveyed by PNC hold education debt. Education loans are the most frequently reported type of debt, followed by credit card, car loans and mortgages.

Chatzky and other financial consultants say Generation Y members need to do their homework to understand the new reality, particularly the risks to their finances that include longer life expectancy, inflation and health care costs in retirement.

"You really can't write a prescription that fits everybody," said Katie Libbe, vice president of consumer insights at Allianz Life, an insurance company in Golden Valley, Minn. "But it would help if they could try to live at home for two or three years after getting that first job.

"That's the opposite of what a young person wants to do. They want to get away from parents. But they need to think about the big picture and get a head start on saving. Also, continue to pay down existing debt and try to avoid new debt, mainly credit card debt."

In light of the widespread lack of financial literacy among young people, several companies and nonprofit organizations have begun programs to teach basic money management to children long before they reach college.

DoughMain.com, for one, was founded to augment the financial education that should be taking place. The free website brings together real world applications for tracking chores, allowance, spending and savings.

"We like to think of ourselves as a Swiss Army knife for today's family," said Ken Damato, president and CEO. "This generation is being touted as one that will not live as well as their parents, and the American dream is all about the next generation doing better than the last."

Tim Grant can be reached at tgrant@post-gazette.com. For more stories visit scrippsnews.com

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