Are “Traditional” Life Investments Still Viable in 2017?
What does it mean to live a fulfilled life in 2017? You might expect that some people would tell you they aspire to have a family, own some property, have a long career, and make an impact on the world somehow. Doesn’t this sound like the American dream? Many of us got this impression from our parents or grandparents, but does it still mean the same thing in the 21st century? What investments actually make sense for career-focused millennials? Let’s take a look at several traditional investments and loans under a modern lens and help you decide if a standard course of money management is suited to your needs, or perhaps you prefer to pave your own financial path.
Owning a Car
Let’s start off with a conventional loan that most of us are quite familiar with. All of us need to get from “A” to “B”, but a growing portion of Americans do so without the use of a personal vehicle1. Since 2007, households have become less dependent on the use of a car. Walking, biking, and the use of public transport has begun to popularize itself in many dense cities. Not only that, but it’s starting to catch on around the rest of the country as well. As more alternatives to car ownership become popular, the interest in paying for a car is diminishing. Albeit small, about a 10 percent share (and growing) of people simply chose not to take out an auto loan.
So, preferences are changing, but what how much of the change is not a matter of taste? Is borrowing funds for a car purchase really an option for modern consumers? 90 percent of Americans own their personal car, which means most of those people chose to take out a loan — but what fueled their decision? Some of that 90 percent are likely truly dependent on a vehicle. It’s simply too far to travel to work, the grocery store, and everywhere else they need to get to. Others probably enjoy the convenience of a car and being able to get anywhere at a moment’s notice, so they decided that taking out a loan was worth it. This type of money management is a much more traditional approach that our parents and/or grandparents passed down to us. Aside from necessity, what is an actual sound financial reason to invest in a car?
Speaking strictly from a pragmatic point of view, an auto loan is a smart financial decision. As long as you are diligent about making your loan payments on time (and maybe even paying back extra when you can) your credit score will receive a significant increase by the end of your loan. However, if you get in over your head and can’t pay back the money on time, it will have the opposite effect, so you need to be sure you manage your finances well for the life of the loan.
In addition, you’ll be paying interest on your car for the entirety of your loan. Most of us don’t think about interest when borrowing money because it’s bundled with your monthly loan payment, but you’ll actually end up paying back hundreds (if not thousands) of dollars over the course of your loan just in interest. As such, if you’re planning on continuously borrowing money for a newer model vehicle every few years, it might be in your best interest, pun intended, to calculate how much money you’ll be spending in interest over your lifetime — and manage your finances accordingly.
Earning a Degree
The median annual salary of a high school graduate in 1965 was about $31,000 2. 50 years later, a high school diploma only earns you about $28,000 per year. If we take a look at college degrees we can see that 50 years ago a college grad was making about $38,000 per year. In 2017, a bachelor’s degree earner can expect to pull in around $45,000 annually. That seems like improvement doesn’t it? Yet, it is estimated that $45,000 a year in 1965 would be the equivalent of $350,000 today3. Salaries for college grads may have gone up $7,000 dollars annually in the last 50 years, but the price of just about everything else has gone up even more.
You’ve probably heard the phrase “your education is an investment,” which is true, but investing in college (and money management in general) isn’t quite the same as it was even 20 years ago. The average graduate can expect to borrow at least $30,000 in student loans. In 1980, the cost was about half that. So, if you’re asking yourself, “is the investment worth it?” the answer is pretty complicated.
In my opinion, millennials don’t have a choice whether or not to invest. $28,000 a year for a single person (or about $15 per hour) is barely a liveable wage and many Americans aren’t even earning that much. Trying to save for retirement, making other investments like buying a home, and having earnings left over for necessities is a stretch. Many of us will decide that the extra $17,000 in earnings that come with a degree are well worth the monthly payment of our student loans.
Climate change doesn’t seem like a tangible thing that we can just stop overnight, and it’s not. Of course if we could just flip a switch and stop the damage it’s causing (and the money it’s costing us) overnight, we would have done that already. However, it’s important to understand the personal impact that the environment is having on each and every individual on this planet. Those of us lucky enough to live in privileged societies should be aware that “budgeting for climate change” is a real thing. Each of us is having to (literally) pay for the neglect our environment is receiving.
If I told you that your parents and grandparents were paying taxes to stop climate change would you believe me? That’s because they weren’t — until now. A large portion of our taxes go to our cities and states in order to keep everything running as it should. Over the last eight years alone, taxpayers have spent about 10 billion dollars to remedy climate disruptions around the US. This includes damage done by natural disasters and city disintegration due to climate change. All in all, millennials are expected to pay 8.8 trillion dollars in damage costs due to climate change over our lifetime4. On an individual basis, the average college educated person can expect to invest about $126,000 into climate disruptions over their lifetime. Think of it like this, we’ve been forced into a loan and we have to figure out how to pay it back.
Now that we understand the effect that the environment is having on our wallets, what can we do about it? It’s simple: be aware of your carbon footprint and invest in products that help to combat climate change5. Many millennials are strict about their money management, and rightfully so. When you’re working on a small to medium salary, saving money is key. However, if we view climate change as the investment that it truly is, spending a little extra earnings on home energy efficiency modifications, an environmentally friendly vehicle or mode of transportation, and being choosy about how our consumable goods are produced makes all the difference to our overall investment return in the long run.
I assume that it’s now clear that the types of life investments our parents and grandparents made are not the same as the ones we have made or will make. Even if we choose to manage our money via the same investments, the price tag just isn’t remotely the same as what our older family members were faced with. This isn’t to say that previous generations weren’t faced with difficult situations and financial problems, but our earnings versus our desire to take out loans have simply changed over time. Before you dive into any investment, it is always wise to examine how a loan will affect your earnings right at this moment, but your credit and ability to invest down the line.
Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.
This post was updated May 25, 2017. It was originally published May 13, 2017.