Since When Is Gen Y the ‘New Poverty Class?’

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2 Job HuntersDoes America have a new poverty class that leans closer to Charles Dickens than it does to Charles Darwin?

OK, maybe “survival of the fittest” doesn’t have much to do with it, or at least it isn’t the most compelling reason that younger Americans have fallen into the poverty class. After all, the “bad luck” generation hit their early 20’s in the teeth of an economic gale, which for them, hasn’t really abated.

But the data doesn’t lie, and it does support the notion that younger U.S. adults are sinking into poverty.

Right now, the U.S. unemployment rate for the age 20-24 demographic stands at 13.5%, according to the U.S. Bureau of Labor Statistics, compared to 8.1% for the general population.

Besides the larger realization among millennials–and many economists–that between automation and outsourcing, good job opportunities are scarce, younger adults are moving back into their parent’s house because they’re broke.  According to the U.S. Census Bureau, 5.9 million young adults between the ages of 25 and 34 lived with their parents by 2011, up from 4.7 million in 2008. The agency also says that 45% of those “double-uppers” generate incomes that are below the poverty lines.

But the capper on the jug could be a new report from Fort Worth, Texas-based Think Finance, an online financial products provider.  The survey of 640 U.S. millennials reveals that more of them are using purportedly downscale financial products like pre-paid credit cards and payday loans–and are actually ‘satisfied” with the experience.

What’s particularly newsworthy is that the younger set may be establishing new norms for future generations of U.S. financial consumers. Think Finance says millennials across most income spectrums have turned to what the firm calls “alternative financial services,” and that they use “emergency forms of cash” and consider those alternatives “an important financial tool.”

OK, does that mean that formerly frowned-upon financial products like payday loans and pawn shops have risen in stature, or does it mean that millennials are faring so poorly these days that they have to take a path their parents never took–and do so out of financial necessity?

Think Finance says that such products are a sign of the times, and offer young consumers good value and service.

“Stereotypes that paint users of alternative financial products as poor and uninformed are simply not accurate,” says Ken Rees, CEO of Think Finance. “This study confirms that young people across the spectrum have a need for the convenience, utility and flexibility that alternative financial services provide.”

The survey seems to confirm that sentiment. Sixty-two percent of respondents say emergency cash services are “important”. And 83% said they actually had a decent experience using things like prepaid cards and check-cashing services. Here are some other takeaways from the study:

  • Prepaid debit cards: 51% of those making less than $25,000 in annual income reported using prepaid debit cards within the last year. The percentage was the same for those who earned $50,000-74,999.
  • Check cashing services: 34% of respondents who earn less than $25,000 reported using check cashing services, while almost as many in the $50,000-74,999 range (29%) turned to check cashers.
  • Rent-to-own stores: 15% of respondents making less than $25,000 and 17% of those who earn $50,000-74,999 reported using rent-to-own stores.
  • Pawn shops: 29% of respondents who earn less than $25,000 reported using pawn shops compared to 21% of respondents making $50,000-74,999.

Perhaps emergency cash products are a sign of the new normal, and that millennials at all income levels are simply making the best of a bad situation and availing themselves of financial services products that previous generations might have sneered at.

But with record high student loan debt, and $16.5 trillion in debt laid on their doorstep, courtesy of Uncle Sam and tens of millions of entitlement-utilizing older Americans, the financial future for millennials isn’t any brighter.

Increasingly, a cash-starved 20-something has got to do what a cash-starved 20-something has got to do. If that means using pre-paid cards and pawn shops, then welcome to the “new normal” for one of the unluckiest generations in American history.

  • Rockstar_chick87

    It doesn’t help that certain people (women, people of retirment age, etc.) who would not have worked some decades ago, now have to. So someone is going to lose out on employment, there isn’t jobs for everybody. So of course it will be the young folk like me because we lack experience and education. The new age of becoming an adult might have to rise from 18 to 25 or something… If parents want their adult kids to move out of the house, maybe one of the parents should give up their job and give it to their kid. I seriously don’t know of any family where both parents don’t work D:

  • Lil

    There is a reason older generations have sneered at these forms of fast cash.  They are temporary quick fixes that ultimately undermine your wealth by costing you in service charges and interest.  People in poverty have compounded their problems by getting into bad habits and using these kind of services.  

    This does not bode well for my generation if people are starting to see these as acceptable financial options.  I believe we got where we are by having far too high of a standard of living in the U.S. and seeking the most expedient means to achieve that standard.  Including bad loans.

    Uncle Sam did not cause the student loan debt.  Students taking loans to bankroll private educations they could not afford is what caused the student loan debt.  That and boomer parents buying McMansions and Escalades rather than saving for their children’s college educations. 

    I am 28.  I am planning to finance my future the only way possible.  Fortunately, I have a job.  I live on less money than I make by cutting out a lot of material “must haves” like a car, cable, and a smart phone.  I have never had any credit card debt b/c my parents taught me never to charge anything I did not already have the money for. 

    I save like a manic and hope that maybe, one day, I will own a house.  When I do I will put down at least 20% because I learned from the mistakes of the generation before me. 

    I am also already saving for my kids college even though I don’t have any yet.  When I do, they will have to choose to go to a state school, which is most likely all I will be able to afford, because I do not want them drowning in debt in their 20s like my generational peers.

    I fully recognize that I will never live at as high a standard of living as my parents.  And that is ok.    

    • maracujation

      I truly admire you and hopefully I can say the similar words in a few years or even the next one :)  I am 27, and fortunately I have a job as well.  I feel I am good at separating “wants” from “needs” and I didn’t not give in to the pressure of buying a nice car because I got a nice job..I went with a used 2001 that I could pay cash for (that took a while to save).  I don’t have cable because I can’t justify the expense every month and I don’t pay a gym membership either because I do my own workouts for free at home being creative with my equipment :)  
      However, I am falling behind in the savings part…probably because I have been paying some debt aggressively because I can’t wait to be debt free by this summer.  After that’s done I hope to continue to put the money I put into my debt into a savings account…I am use to not have it anyway.  I also fail in helping others a bit too much and the one thing I find the hardest is the constant pressure to have a higher standard of living.  So far I have been able to not let it affect my decisions but since it is coming mostly from my parents and I search their approval it gets me down once in a while.  Do you ever experience something similar? how do you deal with it and not let it bring you down? How do you push yourself to be  a big saver?