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Young adults increasingly bear the brunt of inflation

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  • Young adults increasingly bear the brunt of inflation

    Young adults increasingly bear the brunt of inflation

    Rising prices and lower wages constrain twentysomethings.

    By Harriet Johnson Brackey
    Business Writer
    Posted October 16 2005

    When her landlord announced that the rent would be going up by 14 percent, Anessa Gross, 23, figured the only way she could afford a decent apartment would be to split costs with roommates. So she's giving up her one-bedroom place and looking for something bigger.

    "You can't get a one-bedroom apartment in a decent neighborhood for under $1,000," she said.

    Gross already works two jobs, one as an intern at a credit counseling firm and another doing data entry. "With rent being the way it is and salaries the way they are, you can't save for the future," she said.

    Twentysomethings like Gross are sounding the alarm about the rising cost of living, or inflation, that is hitting the younger generation especially hard. Expenses that are significant to young people, such as rent and student loan payments, are climbing sharply. Meanwhile, their pay for entry-level jobs isn't keeping pace.

    "They are trying to start their lives at a time when really some of the basic things -- education, housing, transportation, health care -- are going up at a very high rate," said economist John Schmitt at the Center for Economic and Policy Research in Washington, D.C. "Young people are bearing the brunt of a lot of the economic upheaval right now."

    Inflation is an increase in the price of a broad array of goods and services. In the past, older people bore the brunt of high inflation. In 1980, when inflation was running at an annual rate of 13.5 percent, senior citizens saw the buying power of their pension dollars fall sharply.

    Today, inflation is just starting to heat up; the current 4.7 percent annual rate is a big jump over rates as low as 1.6 percent in the past five years. But this time around, it's the twenty-something crowd that's complaining.

    Elena Getzler, 22, of Jupiter, who works full time in insurance sales and goes to college, had to move back in with her parents when her rent jumped from $750 to $1,000. This boomerang trend of grown children returning home is huge. An estimated 750,000 young adults nationwide move back in with their parents every year.

    Some young people are examining every detail of their daily lives, looking for ways to save money. Julia Rosado, 22, of Margate, is studying psychology at Florida International University and working part time for a homeowners' association. She now takes the bus to school twice a week, rather than drive her car, because of the price of gas. The bus takes twice as long.

    When Rosado and friends go out, they stretch their dollars. They try to get into clubs early and avoid cover charges or go where drinks are free and share the driving. "I used to get my hair done more often and my nails done, but I've had to cut that down," she said.

    Those small cuts add up for the nation's economy, when you consider there are 45 million people ages 18 through 29. This group makes up 16 percent of the nation's population. The younger crowd is almost as numerous as senior citizens, even though their voice isn't heard as often in debate over public issues.

    Economically, the 18-to-29 crowd controls trillions in purchasing power. "It is estimated that 20- [to] 21-year-olds alone spend over $60 billion each year," said David Morrison, president of Twentysomething Inc., a Philadelphia market research firm that studies this group for such major companies as Kraft and Toyota.

    Yet the economy doesn't treat them very well.

    "When I talk about the young adult market, entry-level workers, by definition, are the last to feel the benefits of a good economy and the first to feel the effects of a bad one," Morrison said.

    Economists concur and point their fingers squarely at wages. Jobs today are plentiful, especially in Florida, a leader in the nation in job growth.

    But pay for lower-wage jobs isn't rising at the same rate as inflation.

    "The key issue is we've had a return to stagnating wages on the part of people who are entering the labor force," Schmitt, the economist, said. "If you've already got a job, you possibly can negotiate a better wage with your employer. You're a little more insulated from market forces" than today's recent graduates.

    Wages are a two-sided problem for this group. Typically, young people have lower wages than older people. And at the bottom end of the income scale, wages have been flat and even falling behind inflation.

    "Folks at the top of the income scale definitely notice when they're paying $3.50 a gallon for gasoline. But for them, that doesn't necessarily mean they are going to have to cut back elsewhere," said Jared Bernstein, director of the Living Standards program at the Economic Policy Institute in Washington, D.C. "Younger families have lower incomes."

    Buying power is actually going down, especially for those on the lower rungs of the work force.

    For blue-collar and nonmanagement jobs, the bottom 80 percent of workers, average weekly earnings after the effect of inflation fell 2.7 percent during the year ended in September.

    Going forward, Mercer Human Resources Consulting recently forecast that U.S. workers will see salary increases next year of 3.6 percent. But if inflation stays at its current rate, it'll be more than the pay raise and workers will be worse off in 2006.

    Then there's the way certain costs cut into young people's budgets.

    First, look at the budget for a young person. It's stretched to the limit and beyond. Households headed by someone under the age of 25 spend, on average, $1,916 more than their annual income of $20,680. That's from the Bureau of Labor Statistics survey of consumer expenditures, which was last published for 2003.

    Their income is very low. By comparison, the average income for all households of any age is two and a half times greater than what the under-25 households take in. And the average household has a budget that works. After expenses, the bureau says, the average household has $10,311 left over.

    Now, consider what rent would mean to the family budget for those two groups. If the average household paid $1,000 a month rent, it would eat up 24 percent of annual income. But to the younger household, the same rent would devour 58 percent of annual income. And rents are starting to increase in South Florida.

    Then there's debt. With the cost of a four-year education at a public college now more than 59 percent higher than in 1990, today's average graduating senior is $17,600 in debt from student loans, said the Center for Economic Policy Research. The interest cost on those loans is rising, too.

    Young people certainly don't have much room in their budgets for such shocks as a health crisis. Yet many entry-level jobs don't include health insurance benefits.

    The latest blow, to young people and to everyone, comes from suddenly higher gas prices. Rosado, the FIU student, says the cost of filling the tank of her 1999 Mazda Protégé has doubled in the past few months, to $30.

    Bernstein points out that retired workers have a few protections against sharply rising costs that younger people don't.

    "A retiree isn't in the job market, so he doesn't have the same transportation costs. That's where much of the inflation is," Bernstein said.

    Another is the cushion that so many retirees have because they own their homes. Homeowners can always borrow against their equity or sell their homes and move to a less expensive house to cope with rising costs.

    If you don't already own a home and your wages aren't good or rising, about all you can do in South Florida's real estate market is watch the action.

    "Can you imagine a young person coming into the housing market now, especially someone who is not college-educated?" Bernstein asked.

    Even those who have earned their degrees can't imagine becoming homeowners in the current economic environment.

    Gross, who last weekend was looking at more affordable apartments with her potential roommate, just isn't considering that.

    "My savings account is almost nonexistent," she said. "Buying a house or buying a condo is nearly impossible. I can't afford the down payment, and I wouldn't be able to meet any mortgage payment, either."

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