Young dream-seekers strapped by debt

School loans, soaring house prices, low wages, and too-easy credit are keeping 20- and 30-somethings from making financial headway.

Tamara Draut and Stuart Fink didn't expect it to come to this. After eight years of marriage, the couple found themselves with less than a dollar and with three days until the next paycheck. Seated on the living room floor, they sorted through their compact discs, choosing ones to sell.

"We never imagined we'd be peddling our wares for food money at the age of 30," Ms. Draut says. A combination of graduate school tuition, meager salaries, unemployment, a career change, and the cost of setting up housekeeping had drained their modest resources.

Straitened circumstances are becoming more familiar to those in their 20s and 30s as they try to get a foothold on the American Dream. Student loans, depressed wages, rising healthcare costs, and soaring housing prices are creating new economic realities. Sixty percent of young adults between 18 and 34 are struggling for financial independence, says Draut, now the director of the economic opportunity program at Demos, a think tank in New York. She is also the author of a new book, "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."

"What made the transition to adulthood somewhat less bumpy 30 years ago was that we had an economy that lifted all boats," she says. "When productivity was increasing, so were wages. We don't have that today. Wages certainly aren't keeping up with the cost of things like healthcare and housing."

Then there is the high cost of college. A bachelor's degree has become the equivalent of a high school diploma - essential for basic status in the middle class.

Michelle Wingate, who is in her mid-20s, holds an entry-level position at a public relations firm in Raleigh, N.C. She is paying off student loans. "When you graduate from college, you think, 'This is great. I'm going to be able to pay off all my debts,' " she says. "That's just not the case. My salary looks good from afar, but once I get my money I'm sending it directly to the people I owe it to. That creates a whole other problem. When you owe money, you can't save it."

Ms. Wingate's goal this year is to pay off credit cards. "After that I can knock down a big chunk of my student loans. Maybe three years from now I'll try to purchase a house."

She wishes credit cards were not so easy to obtain. "When you don't have any food in the refrigerator and a pre-approved credit card is on the counter, it's easy to open that card and activate it," she says. Draut wants legislation to stop what she sees as the most egregious lending practices of the credit card companies.

Very often, social observers say, young adults living on the financial edge view their situation as simply their own fault.

"We're so individualistic," says Deborah Thorne, a sociologist at Ohio University in Athens, Ohio. "We see this as an individual problem, and then we look to the individual for the solution. The fact is, these are national problems, and they require a national solution. But this is just not on the radar of politicians. It's not an issue with which they concern themselves. But it's the issue the American family is concerned with."

Young people, Draut says, feel that many Americans are doing very well. "You see Hummers on the highway, McMansions being built. It's extremely frustrating and confusing for young adults who are living paycheck to paycheck and with five- figure student loan debts to see young families living in million-dollar houses."

Parents are also confused. "A lot of parents don't understand why their kids haven't accomplished the traditional markers of adulthood that they did - buying a home, starting a family, living without debt," Draut says. "I don't think there's an awareness of how much the economic context has changed."

Dayana Yochim, personal finance editor for The Motley Fool, an investor-education group, often hears from parents who want to know how they can teach their children about managing finances. "These parents are worried about their own retirement," she says. "Cutting the apron strings is a move parents have to make to provide for their own futures financially. But it's a hard thing to do when you feel that your children don't have the skills they need."

Compounding these generational challenges is what Ms. Yochim calls "incessant commercial wooing." On TV, she says, "it's all about luxury and excess and consumption," right down to the fancy lofts and apartments where sitcom characters live.

"That is not how people really live in New York City," she says. And with commercials filling 20 minutes of every televised hour, she adds, "No wonder we all suffer from 'the wants.' "

When real-life 20- and 30-somethings dream of home ownership, they can face daunting odds - and the temptation to overextend themselves.

"They're introduced to products that make for dangerous borrowing," Yochim says. These include interest-only loans and zero-percent-down mortgages. "The lending industry has said home ownership - the American Dream - is not out of your reach, and we can make it work. They do make it work - for them, for the bank."

As Draut looks at young people trying to build their lives, she sees a political system that has failed to address major changes, such as the increased need for a college education. "Instead of putting more resources into helping people pay and making sure they get through college, we've made it more difficult for students to finance education than 30 years ago," she says. She proposes shifting federal college aid away from loans to grants.

Another major issue involves the high cost of rearing children. Family experts say the United States is alone among developed countries in not providing either paid family leave for parents when they have a new child, or affordable child care.

Even an Ivy League education is no guarantee of instant financial stability. Jeffrey McDaniel graduated from Dartmouth and his wife, Meghan, from Smith. But in 2002, as they began paying her graduate school tuition and their wedding bills, they did considerable belt-tightening.

"We ate on $10 to $15 a week," says Mr. McDaniel, a fundraiser. They lived in a $590-a-month unair-conditioned apartment on a trolley line in West Philadelphia, battling roaches and mice. After Mrs. McDaniel earned her master's degree and began working full time, they moved to a better area and continued paying off debts.

On Dec. 30, their frugality paid off. "We hit a zero balance on every credit card," McDaniel says. "That was quite a celebration for my wife and me."

Draut and her husband no longer have to sell CDs to raise cash. But she says she is "still chipping away" at school debts.

For others in this generation, Yochim suggests finding ways to improve incomes. That might include taking a temporary second job, taking in a renter, keeping a car longer, or using public transportation.

She urges young adults to contribute to a 401(k) program, calling their nonparticipation "alarming." Noting that an employer's matching funds are free money, she adds, "Always take the freebies."

And check credit reports. "Your college grades might not follow you for life, but your credit report does," Yochim says. "Your youthful indiscretions are going to follow you around for seven years, or longer."

Draut chides her peers for their lack of interest in the news and their noninvolvement in politics. "They don't connect their personal financial problems to the larger issues in the economy and to the political system," she says. "It's time we change that."

She also challenges young people to start reading newspapers, either in print or online. "Politicians don't pay attention to them because they don't vote. Young people need to weigh in on issues being debated by elected officials. And vote. When it comes to this generation trying to exercise some political muscle, a 50 percent generational turnout isn't going to get the job done."