Is renting a better option for building a good credit score?

[Astronuc]

The Great Recession and aftermath have apparently changed perceptions regarding home ownerhip and financial security.

The New American Dream: It's Not What You Think
http://finance.yahoo.com/news/american-dream-not-think-173054394.html

. . . nearly one in four people between the ages of 18 and 24 defined the American Dream as being debt-free. Shockingly, that’s more than those who dream of owning a home.

Usually owning a home means going into debt, i.e., paying a mortgage, for some time, unless one has substantial assets.

Do folks see owning a home or living debt-free as eventualities? Is retirement at 65 to 70 feasible?

 

[lisab]

The idea of owning a home appeals to me because I want to solve my own problems. Leaky faucet? Weeds in the yard? I don't want to have to ask someone to fix these things - I want to do it.

And if I want to plant a garden, or build a fence, or install an irrigation system, or get a dog, I don't want to have to ask if I can. That would make me feel like a kid asking my parent for something.

These kinds of things are a bigger deal to me than having a mortgage.

And I think the younger generation will eventually want to be their own bosses, too. Certainly, the recession has made an enormous impression on young people, but eventually they will "heal". They will eventually want to own their own homes, I think.

 

[Zarqon]

I found it a bit surprising that more cared about retiring at 65 than they did about saving for sending a kid to collage (only 8 % ). Maybe it could be explained by the fact that the poll was aimed at young people, and they haven't thought of kids yet.

One positive thing though, I think it's in general good that the young people are becoming more aware of debt problems, because this means that they are going to be more reasonable when it comes to fixing also the US national debt. Lowering the US debts will likely involve normally unpopular things like tax increases, and it will probably be a lot easier to take the necessary decisions here if the people are understanding of the issues.

 

[ModusPwnd]

Is retirement at 65 to 70 feasible?

Only for the richest members of society, but it has always been that way hasn't it?

I'm older than the survey respondents, in my early 30s. The dream of owning a home is certainly gone for me, they are still too expensive and they tie you down to the mercy of the local economy and taxes.

 

[Office_Shredder]

Only for the richest members of society, but it has always been that way hasn't it?

Retiring by 65 is only available to the richest members of society? No, that's not correct

http://www.cnbc.com/id/100744474

The average retirement age has recently risen to 61. In the 90s everyone was retiring in their 50s.

 

[Astronuc]

I was looking at my social security statement recently, and it mentions the change in the law regarding SS benefits. For those born in 1980 and later, retirement age was increased to 67 and they are encouraging people to defer SS benefits until 70 or as late as possible. This would presuppose that one has alternative means, e.g., pension, savings, 401K. And if one has children, then likely one wants to leave an inheritance of some kind.

Over the past 3 decades, I have seen pensions shrink, or disappear, and many companies. I've seen middle-aged professionals basically dumped because they are considered too expensive to support. I now see people who should be retired competing for low paying jobs that would normally be taken by high school or college students, or those with a high school degree.

Of course, I've know folks who 'retired' then continued to work into their 80s.

At the same time, the article has mentioned burgeoning consumer (credit card) and student loan debt. That is very worrisome considering the precarious state of the economy.

 

[mheslep]

The yahoo article is irksome in that it paints the current economic problems as part of some inevitable changes to American economics like they were the movements of a continental plate, which avoids messy finger pointing at policy choices of the current political leadership. Change is inevitable, but I say this particular set of circumstances are not.

 

[Locrian]

Another article that may be relevant to the discussion:

Mind the (Expectations) Gap

We explore the role of demography—one of the three Ds of the 3-D hurricane of debt, deficits, and demographics—on economic growth in this issue of Fundamentals.2 The following synopsis of our forthcoming paper on the topic (Arnott and Chaves, 2013) demonstrates that favorable trends in the size and composition of populations have helped to fuel the rapid economic growth experienced in the developed world over the past 60 years, and their reversal plays a crucial part in the current rapid deceleration in developed world growth.

 

[Ryan_m_b]

In many European countries life-time renting is the norm, it's not the end of the world not to buy a house.

 

[johnqwertyful]

Yahoo news is terrible. Worse than Fox, I take nothing they say seriously.

Most of what they write is entirely irrelevant and/or sensationalistic.

This article is no exception.

 

[johnqwertyful]

Also "Great Recession", hardly. Unemployment spiked, but it's not as bad as it was in the 80s (and certainly less than the 30s), and it's coming down. Median income hasn't really changed, although it did dip a (tiny) bit recently.

There was a recession, but it's nowhere near the same league as the Depression of the 20s/30s.

 

[BobG]

I found it a bit surprising that more cared about retiring at 65 than they did about saving for sending a kid to collage (only 8 % ). Maybe it could be explained by the fact that the poll was aimed at young people, and they haven't thought of kids yet.

The survey cut across age lines and priorities were different for different age groups (debt and financial surveys were important among all age groups, even if not the top priority within each age group, hence the high ranking).

I don't see anything unhealthy in a person considering saving for their own retirement to be at least as high a priority as paying for their kids college education. A person does what they can for their kids, but tilting so far that the parent is living in poverty so the kids can live in luxury is going to a bit of an extreme.

Preparing for your kids future should be like when the oxygen masks drop down from the roof of the plane. Put the mask over your own face first, then over the face of whichever of your kids seems to hold the most promise for the future.

 

[BobG]

Actually, the American Dream for young people could be something completely different than for the baby boomers. Average is Over

"It will be a very strange world, I think. We will be returning to historical levels of inequality. We'll view post-war America as a kind of strange interlude not to be repeated. It won't be the dreams that we all had that virtually all incomes go up in lockstep at three percent a year. It hurts to give that up. It will mean some very real increases in economic fragility for a lot of people."

It's a radical change from the America of 40 or 50 years ago. Cowen believes the wealthy will become more numerous, and even more powerful. The elderly will hold on to their benefits ... the young, not so much. Millions of people who might have expected a middle class existence may have to aspire to something else.

"Imagine a very large bohemian class of the sort that say, lives in parts of Brooklyn," Cowen explains. "... It will be culturally upper or upper-middle class, but there will be the income of lower-middle class. They may have lives that are quite happy and rewarding, but they may not have a lot of savings. There will be a certain fragility to this existence."

 

[russ_watters]

Though he doesn't say it explicitly, he vaguely alludes to the false (but popular!) idea that increasing inequality means increasing poverty.

 

[Pythagorean]

I found it a bit surprising that more cared about retiring at 65 than they did about saving for sending a kid to collage (only 8 % ). Maybe it could be explained by the fact that the poll was aimed at young people, and they haven't thought of kids yet.

One positive thing though, I think it's in general good that the young people are becoming more aware of debt problems, because this means that they are going to be more reasonable when it comes to fixing also the US national debt. Lowering the US debts will likely involve normally unpopular things like tax increases, and it will probably be a lot easier to take the necessary decisions here if the people are understanding of the issues.

I'm not paying for my kid's college (I have two). My parents didn't pay for mine (but they helped). I did loans for undergrad and am teaching/research for grad. It's the only way to go imo. Kids I knew that had college paid for where not quite as serious in my limited sample space.

 

[Pythagorean]

I was just thinking about what retirement meant for me and owning a home and doing a lot of camping and sailing in the summers was it.

 

[AlephZero]

How much of this "new dream" is just reverting to the mean, after the 2 or 3 decades of distortion from the credit bubble?

Clearly it's not a perfect repetition, since for young people the principle of student loans to fund mass higher education is a new twist. But as Mark Twain said, "history doesn't repeat itself, but it does rhyme".

 

[Vanadium 50]

3 decades of credit bubble? In 1984 the prime rate was 12 or 13%!

What I don't get is the language used - like debt is something that just happens to people. "I was walking down the street, minding my own business, not bothering anyone, and suddenly I was $50,000 in debt!"

 

[SteamKing]

Happens more often than you think.

Pay for a year of college (or collage for the less fortunate) at a good school, $50,000 if you don't shop wisely.

Need a new car (average price now approx. $30,000, and about to get much more expensive when the average fuel economy rules say cars must get 50 mpg or whatever fantasy number the politicians pull out of their ...)

Want to put a down payment on a home, but dang, you happen to live on the Left or Right Coast.

But before you get your new salt box, you want to get married, but your intended is a Bridezilla.

...

 

[Vanadium 50]

And are people required, to pick on your second example, to buy a new car? Does someone hold a gun to their head?

I've gone into debt for all of those things you mention, except for the Bridezilla. In all cases it was because I made a decision to do so, not because debt somehow befell me through no action of my own.

 

[epenguin]

In many European countries life-time renting is the norm, it's not the end of the world not to buy a house.

In the UK house prices are, and have been for decades, a national obssession, house prices, house improvement, and house prices. It is subject of frequent and regular TV programmes and a standing joke tagline. It's weird (though I could explain it) - a fall in house prices is presented as a national tragedy, and an increase welcomed as economic good news. Though it's not considered good when the price of gas or water etc. increase like most things are doing, and no one complains about the price of phones or computers falling.

In other European countries as far as I know there is not this hysterical obssession - though quietly many of them have become like the UK majority home owning and the prices robustly increasing, but not so out of line with reality as in the UK

 

[BobG]

How much of this "new dream" is just reverting to the mean, after the 2 or 3 decades of distortion from the credit bubble?

Clearly it's not a perfect repetition, since for young people the principle of student loans to fund mass higher education is a new twist. But as Mark Twain said, "history doesn't repeat itself, but it does rhyme".

I don't think the current model is just because of a credit bubble. There have been real technology and productivity advances that created the current conditions. But portions of how we do things could be just a temporary diversion.

Before the 1920's, people were pretty much on their own to save for their retirement, if they so chose and had the capability. And the first retirement "plans" were mainly tax breaks (or at least deferred taxes) for those well off enough to save for their own retirement.

http://www.ebri.org/publications/facts/index.cfm?fa=0398afact (pensions) were the first retirement plans geared towards the average worker. In 1940, those covered 15% of workers; in 1950 - 25%; in 1960 - 41%; in 1970 - 45%; in 1980 - 46%. That was the peak. By 1990, defined benefit plans covered 43%; and fell to 18% by 2011.

Of course, part of that trend is that employee contribution plans have been replacing defined benefit plans. In other words, it's easier for the average worker to plan for their own retirement, just as the higher paid workers have.

But, there is a definite trend towards the average person assuming more responsibility for their own future.

That's also somewhat present by employees funding more of their own health care, perhaps countered by Obamacare being the start of a trend for government to fund more of people's health care? I think the health care part is kind of uncertain, but a return towards the days when people had to find a way to fund their own health care (or at least more of it) is certainly possible.

I think security is something a person is going to have to achieve. It's not something that will happen just because you worked at the same place for 30 or 40 years.

And I think that could be hard for those who, for one reason or another, really won't be in a position to reap the benefits of improvement in the overall economy.

 

[mheslep]

Though he doesn't say it explicitly, he vaguely alludes to the false (but popular!) idea that increasing inequality means increasing poverty.

Apropos: "The Weak Recovery Explains Rising Inequality, Not Vice Versa", John Taylor, professor of economics at Standord.

 

[edward]

Getting back to the OP:

A great number of Americans are redefining the American Dream. That was the takeaway from a recent Credit.com poll, which showed that nearly one in four people between the ages of 18 and 24 defined the American Dream as being debt-free. Shockingly, that’s more than those who dream of owning a home.

bold mine

I question the wisdom of choosing that age group. How many people in that age group have even given thought to buying a home?

Home ownership as the American dream goes well back in history. Until 1850 only Landowners could vote. Seeing homeownership as a status symbol stayed with us ever since then.



Before the financial crisis there were a lot of entities pushing people towards home ownership.

For instance: When my son bought his home it was with a subprime mortgage because he made no down payment. He could easily have afforded a down payment, but the real estate agent urged him to save his money to buy furniture.

In my opinion as far as the American dream goes it collapsed under the weight of greed.

BTW the same investment entities involved in the mortgage crisis are now buying up foreclosures.

BIG INVESTORS RUMMAGE FOR PROFITS

http://online.wsj.com/article/SB10000872396390443696604577644700448760254.html

 

[Astronuc]

Study: 15 percent of US youth out of school, work
Study: Nearly 6M youth out of school or work, likely locked into limited prospects as adults
http://news.yahoo.com/study-15-percent-us-youth-040402321.html

. . . .
The coalition also finds that 49 states have seen an increase in the number of families living in poverty and 45 states have seen household median incomes fall in the last year. The dour report underscores the challenges young adults face now and foretell challenges they are likely to face as they get older.

A young person's community is often closely tied to his or her success. The Opportunity Nation report tracked 16 factors — Internet access, college graduation rates, income inequality and public safety among them — and identified states that were doing well for its young people.
. . . .
Chicago, Houston, Dallas, Miami, Philadelphia, New York, Los Angeles, Atlanta and Riverside, Calif., all have more than 100,000 idle youth, the Opportunity Nation report found.
. . . .

 

[edward]

Study: 15 percent of US youth out of school, work
Study: Nearly 6M youth out of school or work, likely locked into limited prospects as adults
http://news.yahoo.com/study-15-percent-us-youth-040402321.html

They will definitely be locked into limited prospects that end up costing the government more and more.

Researchers say roughly 2.3 million non-managerial employees at the 10 largest fast-food companies in the United States cost taxpayers an estimated $3.8 billion per year in safety-net benefits. When you add in the families of these workers — 68% of workers are the primary wage earners in their family — the numbers balloon to almost nearly $7 billion per year. Reliance on public assistance is “the rule rather than the exception for fast-food jobs,” says University of California Berkeley’s Center for Labor Research and Education chair Ken Jacobs, even for those who work 40 hours or more a week.

Bold mine

http://business.time.com/2013/10/15...7-billion-a-year-in-public-aid/#ixzz2iPYUVmdt

The American dream was lost when factory jobs were outsourced to China and replaced with fast food and call centers.

 

[lisab]

The American dream was lost when factory jobs were outsourced to China and replaced with fast food and call centers.

This.

There have always been vast numbers of Americans who can not, or do not, attend college. We used to have a place for them, and it wasn't unusual for them to end up solidly in the middle class.

What are their prospects now?

And the ones who don't finish high school...

 

[Vanadium 50]

As usual, it's more complicated than that. In 1961 (the peak of manufacturing) the average factory worker made about $35,000 a year in today's dollars. Today it's closer to $45,000. So what's happened is not so much manufacturing contracting as the very bottom end of manufacturing completely disappearing. You no longer find lozenge wrappers.

Manufacturing has moved from a relatively unskilled field to one that is specialized and requires these specialized skills.

You see very similar trends in agriculture.

 

[russ_watters]

And the ones who don't finish high school...

Given that high school education is free, I have very little sympathy for the vast majority of people who fail to finish, who do so by choice. That has nothing to do with the American Dream, which as generally formulated starts "If you work hard...".

I'd also like to keep an eye on the facts here because the tone of your post implies that the prospects for a certain standard of living are worse than they were decades ago. The reality is that that isn't true: current cycle notwithstanding, incomes at all levels have been increasing over the decades. In other words, the loss of manufacturing jobs has not resulted in higher unemployment or lower wages. "What are their prospects now?" About the same as they were for their parents in the same situation.

And to me, preferential thoughts toward an unskilled assembly-line and ditchdigger workforce are just misplaced nostalgia. That economy was not better than what we have now. Those jobs were not better than what we have now. Digging ditches by hand sucks and if a person can do it 20x faster today with a backhoe and a little bit of skill in commanding it, that should not be looked down upon, it should be celebrated.

 

[Borek]

Digging ditches by hand sucks

Hm

 

[Astronuc]

Dispelling the Myths about U.S. Factory Workers (2004)
http://news.thomasnet.com/IMT/2004/01/20/dispelling_the/

But in 2013 - Average Factory Worker salaries for job postings nationwide are 35% lower than average salaries for all job postings nationwide. (subject to verification)
http://www.indeed.com/salary/Factory-Worker.html
http://www.payscale.com/research/US/Job=Assembly_Line_Worker,_Factory/Hourly_Rate

From the BLS - http://www.bls.gov/iag/tgs/iag31-33.htm#earnings

 

[Vanadium 50]

Your third link contradicts the other ones. (It also suggests a 32% drop in salaries in a single month (the last), a rate which I find difficult to believe)

The rest supports the thesis that manufacturing is becoming more skilled and better compensated in the past - the jobs at the low end have all but disappeared.

 

[Pythagorean]

There are still low-skill agriculture jobs available for CSA based farms. You often get room and board but low pay and are stuck on the farm a lot (since you're likely from out of town and without car). You also need to figure out work for the winter.

 

[russ_watters]

Your third link contradicts the other ones. (It also suggests a 32% drop in salaries in a single month (the last), a rate which I find difficult to believe)

Second link?

It does seem anomalous.

 

[edward]

As usual, it's more complicated than that. In 1961 (the peak of manufacturing) the average factory worker made about $35,000 a year in today's dollars. Today it's closer to $45,000. So what's happened is not so much manufacturing contracting as the very bottom end of manufacturing completely disappearing. You no longer find lozenge wrappers.

Manufacturing has moved from a relatively unskilled field to one that is specialized and requires these specialized skills.

You see very similar trends in agriculture.

There are definitely jobs for those with specialized skills, but they are far fewer in number than general manufacturing formerly employed.

A lot of workers also started out as semi-skilled workers and ended up as skilled craftsmen. The products they produced are no long produced In this country. Delphi (AC Delco) production being totally moved to China is a good example.