The Economics of Millennials living with their parents

Staying in the Basement

Staying in the Basement: The Spending & Borrowing of the Millennials and the Slight Edge

For a parent, the only thing worse than a grown child leaving home is a grown child not leaving home. It’s natural that children, once matured, leave the nest to build nests of their own. Today’s economic conditions, however, have kept many young adults living at home well into their twenties. This, in turn, has left both the economy and parents everywhere depressed. We spent this week’s show discussing this phenomenon, its causes, and its effects.

In 2012, according to Pew Research, 36% of Millennials were living with their parents (aged 18-31 ). This is up 4% from 2007. Of these Millennials living at home, 61% had either some college or a bachelor’s degree, and a full 50% were not in the labor force. The dismal job market, particularly for young adults, drives both these numbers. Few can find a satisfying job, and those who can’t stop searching. They either remain out of the labor force or go to college in hopes of bettering their prospects.

Unfortunately, the return on investment for college degrees has been diminishing for years. The disparity in earnings between those with and without college degrees has started to close, and the bulk of the difference can be attributed to differences in temperament rather than in the benefits of a degree; that is, an individual who would pursue a degree is one who is naturally driven, disciplined, and hard-working. They would likely make better money than their undisciplined counterparts even without a college degree.

These facts have not discouraged individuals from pursuing degrees, however. Nor has it stemmed the tide of individuals going severely into debt to pay for them. Student loan debt has increased 300% in the last 10 years. It is now worth $1 trillion and continues to grow exponentially. Student loans are the fastest-growing sector of debt in the country, and tuition has increased along with it. We are now in an inflationary spiral in which tuition increases to lower demand while student loans increase to increase supply.

Once students attain a degree and enter the workforce—or not—they are burdened with massive debt. Many cannot afford rent, let alone a mortgage, because of high debt servicing payments. And unlike other forms of debt, the US government has ensured that student loans cannot be discharged in bankruptcy. Students are committed to decades of payments.

At Garvens Mortgage Group, we see instances of this every week. Individuals either looking to buy their first home or refinance one they’ve had for years find themselves unable to qualify because of their student loans. Loan servicing can easily consume 10-15% of their gross income. Homes, cars, clothes, virtually all consumables are unattainable because of the cost of these loans. Resources are being diverted from the productive economy to colleges and loan servicers—which, increasingly, means the federal government. The quality of economic growth provided by colleges and the federal government for the broader economy is not high.

After school, with so few job prospects, Millennials increasingly take advantage of the free or low rent offered by their parents to pay down their student loans, often with wages far below what’s needed to successfully support themselves and their loans. The mythology surrounding college degrees convinced them that any degree—from political science to mime studies—will provide lucrative job opportunities after graduation, when this truly is not the case. They not only have high debt and a worthless degree, but they have forfeited 4 to 6 years that could have been spent gaining desirable skills.

Granted, many of those Millennials living at home do so not out of desperation but to build a strong financial foundation for their future. Many are paying cash for college, working part- or even fill-time, and saving money so that when they do leave home they are in stronger financial positions than most of their counterparts. This approach brought us into the second hour of the show, which discussed ‘the slight edge,’ or those with financial or personality characteristics that give them a slight edge over others in their personal and professional lives.

Undoubtedly those without student loans have a significant edge over those who do. Student loan debt will be the financial story of the next decade, and will play a prominent role in determining the successes and failures of an entire generation.

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Demographics: A Look Back in Time and Supply and Demand Periods

This was an exciting week for the show, as it was our first show in the new 11:00 AM to 1:00 PM timeslot. It’s a blessing to not only spend an extra hour with my listeners but also reach an entirely new audience in this timeslot. It’s also providing practice in hosting a longer-format show, which will be invaluable when the show moves to a live call-in format in May, which is something I and my production staff are incredibly excited about.

So although we’re looking forward, and I was tempted to just hit the ground running by picking up this week where the 8:00 AM show left off last week, I figured our new listeners would benefit if I instead spent this show trying to condense the threads and themes of all past shows into one comprehensive narrative. This week’s show, then, is essentially The Jay Garvens Show’s manifesto. It blends twenty years of studying mortgages, real estate, economics, and demographics into one worldview. Ideally, what you learn in this week’s show—even if you’re a brand new listener—will inform anything you might hear on future shows.

The keystone of my economic worldview—the sole factor on which all other factors rest—is demographics, which are the observable, quantifiable data of populations. And within the field of demography, this show is concerned principally with age, with generations. Although there are about eight to nine generations in existence in America, I focus mostly on just three: the Baby Boomers, born between 1942-1960 and numbering roughly 60 million; Generation X, born between 1961-1980 and numbering about 40 million; and the Millennials, born between 1980-2000 and numbering around 80 million.

The Boomers and Generation X have determined where we are as a country today, and Generation X and the Millennials will decide where we go in the short- to mid-term future. Each generation is defined not only by its years but also its size, values, culture, etc. Each generation is unique, and all generations coexist in ever-changing combinations of maturity. Our economic prosperity, in fact, is tied to the dominant generation’s maturity.

Going back to Economics 101, the most basic model of an economy is based on supply and demand. Supply and demand are determined by the producers and consumers available within that economy. This means not only the numbers of producers and consumers but also the quality. Quality, for our purposes, mostly means the age composition of the producers and consumers. You see, within a worker’s lifetime, he will go through stages. He will gain education and experience throughout his twenties; he will settle into a career, begin specializing in his field, and start a family throughout his thirties; and he will be at his most productive throughout his forties and fifties up through retirement in his mid-sixties.

The productive capacity of an economy is determined mostly by the number of people in that 40s through 60s demographic. This explains the massive economic expansion of the 1980s through 2000s, during which the first boomers reached their 40s and, by the end, the last boomers reached retirement. The economic downturn since 2006 is the result of there being far too few members of Generation X to replace the productive and consuming capacities of the Boomers. Everything from homes and durable goods to clothes and appliances are seeing depressed demand since there simply are not enough consumers in the relevant categories to promote growth.

This is why I believe our economy won’t pick up until 2020, when the first Millennials reach career maturity. And not only will the economy pick up, it will positively flourish. The Millennials are nearly twice the size of Generation X and will both produce and consume at and above levels unseen since the Boomers reached maturity. This will have profound consequences for all sectors of the economy, from automotive to real estate to health care.

This, in essence, is how I believe economies function. Demographics determine supply and demand which determine the health of the economy. And, ultimately, the true health of an economy is reflected in the real estate and mortgage markets. Ignoring the noise from so much market data hitting us all the time, the housing market reflects the true nature of the economy. If employment is truly up; if wages are truly rising; if savings are truly accruing; and if people truly feel secure in their financial fortunes, they will start families, buy homes, and furnish them with things.

I’m Coming Home

This week’s show is meant to complement last week’s, so if you missed it I recommend checking it out in the archives. Briefly, last week’s show explored the behavioral patterns of three demographic and temperamental dichotomies prevalent in today’s culture: the young vs. the old; the rich vs. the poor; the timid vs. the bold. We saw how the old, the rich, and the bold make certain lifestyle choices that readily lead toward more successful, productive lives. This week, we’re exploring what this means in practice.

The title of this week’s show, “Coming Home,” refers to the notion of leaving the financial and behavioral wilderness. It means the end of whimsical, poorly considered spending habits. Essentially, it means settling down to a life of discipline and well-defined personal and household goals.

As long-time listeners know, I’m convinced that the surest way of ‘coming home’ is to do so literally: By buying a home! Homeownership is easily the best financial decision a person can make. A home is an asset. But if you’re renting, you’re investing in an asset that benefits your landlord—not you and not your family. Owning your home means your monthly housing expense is going toward paying principal and building equity With today’s rental market at historic highs, owning is only marginally more expensive than renting upfront, and the equity you build ensures you’ll have a valuable asset when the mortgage is paid off.

Now, is homeownership for everyone? No! Specifically, it is not for people still wandering the financial wilderness. It is not for those who can’t commit to a marginally—or, sometimes, significantly—higher housing expense versus renting because they would rather spend that extra money on frivolous things today instead of investing in their home. I would even argue it’s not for those who would settle for a 30-year mortgage, whereby the borrower wastes hundreds of thousands of dollars on extra interest to avoid slightly higher monthly payments, versus a 15- or 10-year mortgage.

The decision to sacrifice now for better future returns is, as I explained last week, what separates the rich from the poor—and, increasingly, the old from the young. Different generations espouse different values, and the values of thrift, prudence, and investing are largely the values of older generations. The Baby Boomers especially cast thrift to the wind; and if it weren’t for the equity they built up in their homes, most of them would be flat broke as they make their ways to retirement. And the Gen Xers and Millennials aren’t even buying houses; they’re opting to rent in very large numbers.

While cultural influences are the primary drivers that determine how members of a generation make certain decisions, we should never think that we’re pre-determined to live a certain lifestyle because of our age or generation. Of all the behavioral traits separating the rich from the poor, the one with the largest disparity is in how the two groups view luck in determining success; the rich are far more likely to believe luck plays little to no role in determining success. Similarly, no individual should think their generation determines their personal success. Success is a product of the decisions you make and the behaviors you adopt on a personal level.

When mentoring people on adopting successful habits, I recommend making small changes first to see how these can make a big difference. I’ll usually recommend adopting a strict household budget, paying for everything only in cash, and reserving debit or credit card purchases for the holidays. The most destructive practice to a household budget is casually swiping plastic to make purchases.

From here I’ll recommend larger changes, and the single-biggest change a person can make is to simply start reading. Voraciously. Among the rich and the poor, 63% of wealthy parents make their kids read at least two non-fiction books a year, versus just 3% for the poor.  As any teacher will tell you, “leaders are readers.” Books are an invaluable resource for acquiring information and knowledge that is not otherwise readily available to an individual. And similar to owning versus renting or saving versus spending, reading versus watching television is a sacrifice that has far larger returns than its more-exciting alternatives.

If you can discipline yourself to sit and read and commit to dozens of hours to reading one book, you’ll find it easier to commit to a budget and resist impulse buys. If you can discipline yourself to owning your home, spending more now on the mortgage and less on new televisions or cell phones, you’ll be rewarded down the road with a valuable asset and more available wealth. And you’ll still have a home.

Rich & Poor, Young & Old, Timid & Bold

If I were to take a random sample of individuals, then ask them three questions entirely unrelated to finances—for example, how much TV they watch, how early they start their day, and how often they exercise—I could arrange them by income with near-perfect certainty. This is because one’s relative wealth, whether relatively rich or relatively poor, is largely the product of lifestyle choices, which in turn are largely the product of learned cultural values and personal temperament.

Differences in lifestyle choices between the wealthy and the poor are sources of endless fascination for sociologists. By studying disparities in behavior and values between different income brackets, we see that the single biggest factor in determining financial success is the choices an individual makes. Choices. Not luck. Not institutional bias. Not social prejudice.

A recent article I read explored the disparities between the rich and poor by assessing each group’s behavior preferences in categories entirely unrelated to income and finances. Some examples:

  • 70% of wealthy people consume less than 300 calories of junk food per day; 95% of poor people consume more than 300 calories of junk food per day
  • Just 20% of wealthy people gamble, while 50% of poor people do
  • 80% of wealthy people self-reported as regularly focusing on accomplishing a single goal; just 12% of poor people do the same
  • 76% of wealthy people exercise 4 days a week or more, compared to just 23% of poor people
  • 63% of wealthy people listen to audio books, while only 5% of poor people do
  • 88% of wealthy people read 30 minutes a day or more for educational or career reasons, compared to just 2% of poor people
  • 81% of wealthy people maintain to-do lists; just 19% of poor people do
  • 6% of wealthy people regularly watch TV, while 78% of poor people regularly watch
  • 44% of wealthy people wake up at least 3 hours before their business day starts compared to only 3% of poor people who do the same
  • And one of the most interesting tidbits: 74% of wealthy people teach their kids daily success habits, compared to just 1% of poor people


The most significant items on this list are those related to reading and teaching children success habits. Books and parental guidance are the two primary sources of learning for children. If a household doesn’t place a premium on reading, its children’s exposure to ideas is limited to the parents’ established practices. And if parents won’t teach their children habits for success, the children have virtually no other source from which to learn.

Probably one of the hardest things to change is a culture. Unquestionably American society is self-dividing into two cultures: a rich culture and a poor culture. And unlike many commentators on the subject, I don’t think wealth determines culture; I think culture determines wealth. And there are many ethnic groups in America whose cultures mirror either the rich culture or poor culture. (I just can’t say which ethnic groups belong to which culture because I don’t want to spend an entire week dealing with irate callers who disagree.)

But based on my experiences in the mortgage industry, I have a good idea of who belongs where. I have dealt with cultural groups that seem determined to sabotage their loan process for no apparent reason, like when a husband sabotaged his loan because the whole idea for the loan was the wife’s idea first. That seemed to bother him. I have also dealt with groups that trust mortgage professionals—sometimes rightly and sometimes wrongly—entirely because of that professional’s appearance. They assume anyone with a suit and business card must be trustworthy.

A client’s behavior is a good indicator of their personal financial success. Every decision they make reflects their personal values and preferences and determines whether they are and will continue to be rich or poor.

I focused this week on the divide between rich and poor. Next week in part two, and over the coming months, we’ll explore the divide between the young and old, and timid and bold.

The Generational Parade: The Greatest Generation to the Millennials


♫ Doo doo-doo doo doo ♫


That’s, of course, the sound a parade makes, and this week we spent time discussing the Generational Parade. If you’re not familiar with the Generational Parade, you should be: It not only affects every aspect of your life, but you’re marching in it right now. We all are. Normally, I march somewhere near the middle, but today I’ve got my tasseled hat and marching baton, and I’m leading this parade. That’s me: Grand Marshal Garvens. There is a lot to cover, so sit back, settle in, and enjoy the procession.

At the head of the parade marches the Greatest Generation—those born between 1901 and 1924. They were raised during the Great Depression and went on to fight in World War II. Today there are only between 5-8 million members of this generation left, and we lose about 8,000 of them each day.

Immediately behind the Greatest Generation is a smaller generation: the Silent Generation. The uncertainty and insecurity resulting from World War I and the Great Depression caused families to have fewer children. Their impact and influence of America’s culture and economy is minor. They are, seemingly, mere placeholders for the most important generation of the modern world: the Baby Boomers.

The Boomers were, until the Millennials, the largest generation this country had seen. The vast numbers of their parents, the Greatest Generation, and the sense of security brought by the conclusion of World War II, propelled this generation’s numbers up to 76 million. Their entry into the workforce in the mid-1980s, and their subsequent exit beginning in 2006, is the macro-economic reason for the Reagan and Clinton booms and today’s general economic lethargy.

Have you noticed a pattern? Generations alternate between large and small. Once a section of the Generational Parade gets going, its numbers cannot change, and the entire parade cannot stop. The factors shaping today’s economy were, in fact, set in motion decades ago. Today’s economy—its labor force, its supply, its demand—is shaped by the needs, wants, and purchasing power of its population, and its population is composed simply of its generations in aggregate.

The largest generation active in today’s economy, the Baby Boomers, have reached the peak of their earning and productive power and are starting to diminish. Those succeeding the Baby Boomers, Generation X, do not have the numbers necessary to replace the Boomers. This is why we are, at present, in economic purgatory. Wages are stagnant, economic growth is anemic, and the housing market is taking years to recover. There simply are not enough workers and consumers to replace those who are exiting the labor force and reigning in their spending habits as they prepare for retirement.

Following the pattern of the last century, we can expect a marked economic recovery sometime around 2020. This is when members of the Millennial Generation will begin entering their most productive years (ages 40 through 60). Their vast numbers—over 80 million!—will not only sufficiently replace Generation X, but will exceed even the Boomers. This will spark the economic recovery that has remained elusive since 2008.

But 2020 is a long way off. When you’re watching a parade pass by, waiting for a particular section to reach you, it seems to just crawl. Although I anticipate an economic recovery in 2020, I urge everyone to get their financial houses in order now. This includes:


  • Eliminating your debt
  • Hoarding your cash:
  • Living with less
  • Working harder now


Over the coming months, I’ll be talking more about prudent financial planning. It will make a good antidote to the coming holiday season spending splurge and subsequent New Year’s hangover.

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