Market Overview

Boomerang Generation: Between Freedom and Fetters

The Christian Science Monitor's Husna Haq had an interesting article Thursday on how three in 10 young adults are moving back home to live with parents in the midst of a struggling economy and a dire job market. From the article: "Unable to find well-paying work in a weak economy, escalating numbers of young adults -- as many as 3 in 10 -- are returning home to the family nest, resulting in the highest share of young adults living in multigenerational households since the 1950s, according to a Pew Research Center report released Thursday."

According to the Pew's senior researcher Kim Parker, "The rise in the boomerang phenomenon illustrates the effect the recession and the weak economy are having on young adults." Parker: "Young adults were hit particularly hard in the job market and are having to delay reaching some basic financial milestones of adulthood because of this." According to Haq, "In 1980, some 11 percent of young adults lived in multigenerational households." Comparatively, "[t]oday, some 29 percent of 25- to 34-year-olds either never moved out of their parents' home or say they returned home in recent years because of the economy." Further, "Among 18- to 24-year-olds, that figure is even higher -- 53 percent of young adults in that age group live at home."

Per Haq's discussion, "[s]urprisingly, most 'boomerang kids' don't mind living with mom and dad... Of those living at home, some 78 percent say they're upbeat about their living arrangements, according to the Pew study." Parker said that these trends suggest that "family is once again becoming an important social safety net." In other words, "it seems like family has to step in and fill a void" in light of a weak economy, demographic changes, and fears of poverty.

That being the case, contemporary trends also portend the "prolonging [of] adolescence and [the] shifting [of] adulthood" to later in life. Thus, "as many as 3 in 10 young adults postponed marriage, starting a family, or both, due to the economy." Even so, per Parker's study, "in spite of the trials and tribulations [the boomerang] generation is facing, they are extremely optimistic about the future." Parker: "One reason young adults who are living with their parents may be relatively upbeat about their situation is that this has become such a widespread phenomenon."

Interestingly, Haq concluded the discussion on an ominous note. According to Barbara Ray, coauthor of "Not Quite Adults: Why 20-Somethings Are Choosing a Slower Path to Adulthood and Why It's Good For Everyone", "If the 'launch' feels blocked for too long, will this generation's optimism curdle into bitterness and skepticism? Will a ding to their wages at an important juncture haunt them for years? Will a generation that has been told they can be and do anything -- without many challenges as of yet -- be resilient enough to withstand this setback? Only time will tell.”

With respect to the boomerang generation, one cannot help but ponder questions regarding higher education and student loans. It would appear that excessive student loan debt is beginning to become an elephant in the room with respect to the US economy. Haq's article briefly touched upon the issue of student loan debt, but Parker's analysis did not appear to go into depth on the issue of student loans. Rather, Parker wrote in terms of our contemporary "economic conditions", "tough economic times", and "economic upheaval". Though "economic conditions" are playing into socio-economic trends with respect to multigenerational living arrangements, the higher education bubble makes up a major part of the problem.

US News & World Report had an interesting article in August 2011 discussing how the American Bar Association plans on addressing "debt woes" for law graduates. According to the ABA Young Lawyers Division, "it is alarming that educational debt, which is incurred almost exclusively by a young student population, now exceeds credit card debt in the United States." Further, "Over the past 30 years, the cost of college has increased almost twice as quickly as inflation and the cost of a legal education has gone up at between double and triple the general rate of inflation." With this in mind, the dire labor market and tough economic times are tied to socio-cultural norms with respect to education and job training.

Aside from the student loan bubble, another piece of the puzzle goes back to soaring food and energy costs facing the US consumer. Bloomberg's Alex Kowalski reported Friday that "the cost of living in the US rose in February by the most in 10 months, reflecting a jump in gasoline that failed to spread to other goods and services." Bloomberg: "The biggest jump in gasoline in more than a year accounted for about 80 percent of the increase in prices last month, leaving households with less money to spend on other goods and services." That being the case, per Bloomberg, Federal Reserve policy makers believe that "the advance in fuel costs will be temporary". Further, "the Fed...said it anticipates that the pressure on consumer prices from energy will wane later in the year." Nonetheless, "paychecks are failing to keep up with even limited inflation"; hourly earnings adjusted for prices have fallen 1.1 percent over the past 12 months.

Going back to Ray's aforementioned commentary, if the boomerang generation experiences a failure to launch owing to tough economic times, will optimism turn into cynicism, bitterness, and skepticism? Could our current economic climate portend generational resentment? What could that generational resentment evolve into on a societal level? I have previously explored these issues and more. Akin to Parker's research on the boomerang generation, one has to wonder how multigenerational living arrangements will play into young adults' retirement plans.

The fact that family-based living arrangements in the US are becoming more widespread should come as no surprise. I have previously suggested that communes and co-ops may spring up owing to rising food and fuel costs. In some ways, a group of families living on one parcel of farmland would be realization of this sort of phenomenon. Such living arrangements in terms of communal finance may raise questions regarding the viability of the American dollar and issues related to consumer debt.

For instance, let's take a hypothetical example of John and Jane Doe, who are both in their 50s. John works as an accountant and Jane is a homemaker and has worked part-time since John and Jane's children Jason and Jill have moved out. Jason and Jill are in their mid to late 20s, have graduated from college with excessive debt, and cannot find meaningful subsisting full-time work. Jason and Jill love their parents, but are not pleased with this situation as they naturally (1) are preparing for marriage to their respective mates (Mary and Martin, also buried in student loan debt while trying to survive in wage slavery), (2) want children, and (3) would like a bit more independence. One day John decides to purchase a parcel of 10 acres to use as farmland by which Jason and Jill can establish themselves. The family pools funds by which John and Jane can set up affordable, economic, efficient housing for Jason and Jill in which they can get married and live on this parcel of land.

Jason marries Mary and Jill marries Martin and they live on this parcel of relatively open land purchased by John. They are able to farm the land, raise children, and in the meantime, look for meaningful income. In effect, this setup is communalistic. Of course, such circumstances are theoretical and perhaps far from mainstream aspirations, but such scenarios could become widespread in the near future.

In terms of economic commerce related to the issue of student loans, taxes, retirement, and other various financial issues, such communal setups raise questions regarding commercial transactions. For example, let's say that John's familial commune often trades and does business with another nearby commune that is operated by a group of twenty-something unemployed college graduates. John's commune grows tomatoes and asparagus and barters with the twenty-somethings' commune for chicken and venison. This could theoretically lead to a situation where a network of familial communes or co-ops could use local and/or alternative currencies for the sake of commerce and exchange.

Going along with our hypothetical scenario, Eric, who is a member of the twenty-somethings' commune, owes $30,000 in unsecured student loans. Eric has two college degrees in English and history and is unemployed; in the meantime, to subsist, he has been working on a commune. The commune itself is able to subsist on some commercial trade, but grows much of its own food. Though Eric is able to live relatively comfortably with various luxuries such as the Internet, an mp3 player, and video games, he has not made a dime in taxable income in two years. In our hypothetical example, Eric has not even seen a paper dollar in a month. Though Eric has a dormant bank account with $100 in it, Eric and his girlfriend have little need to leave the commune at all. For the sake of our hypothetical, Eric personally spends little on gasoline.

Obviously, the example regarding Eric's situation is hypothetical and theoretical, but it illustrates issues related to the viability of student loans and the implications of the evolution of a weak labor market. Of course, in the above example with Jason and Jill, there would be considerable obstacles with respect to marriage and childrearing in such a lifestyle, e.g., you can't grow diapers on farmland. Even in the context of the familial communalistic lifestyle, let us say that Eric has student loan debt in the amount of $30,000, and let us say he is enrolled in an income-based repayment plan (IBR) with a hypothetical annual gross income of only $5,000 (from occasional part-time work) owing to the fact that Eric is able to subsist comfortably in a communal environment. According to an IBR chart from Federal Student Aid, Eric's IBR monthly payment amount would be $0. You can't get blood from a stone.

With this in mind, if we take into account the situation of the boomerang generation in conjunction with rising food and energy costs, it makes sense that families are moving toward multigenerational living arrangements. In light of the future bursting of the student loan bubble, corporations like the Washington Post Company (NYSE: WPO), DeVry Inc. (NYSE: DV), and Apollo Group Inc. (NASDAQ: APOL) may suffer as higher education becomes unfeasible, impractical, and expensive given the job market and economic conditions. Whereas multigenerational living arrangement trends may portend doom for corporations like Sears (NASDAQ: SHLD), Kohl's (NYSE: KSS), and Macy's (NYSE: M), in the event that more families begin to pool resources, there may be viable hope for corporations like The Home Depot, Inc. (NYSE: HD), Lowe's Companies (NYSE: LOW), and the Tractor Supply Company (NASDAQ: TSCO) going forward as American families react to changing economic times. Rather than spending funds on a new shirt or a new pair of shoes, consumers may choose to invest in more efficient gardening equipment and materials in order to save money on groceries. Rather than investing in real property for the sake of returns, consumers may choose to invest in real property for the sake of their children; rather than renting out real property to strangers, (grand)parents could rent out real property to (grand)children.

Economist Karl Marx once wrote that "at a certain stage of their development, the material productive forces of society come in conflict with the existing relations of production, or ... with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters." Regarding the tendency of the rate of profit to fall, Marx also wrote that in the development of capitalism, "capital, i.e. wage labour, enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter."

With this in mind, it is ironic to think of debilitating economic conditions and the student loan bubble with excessive debt as fettering young adults to the parental nest -- when in order to deal with such fetters, young adults may be left to move back home and seek alternative employment via farming, entrepreneurship, or communal investment. Whereas young adults may appear to be "fettered" in this sense in having to move back home with their parent(s), young adults may very well find a sense of "freedom" in having a social safety net against poverty and also insurance against having to work mindless full-time minimum wage jobs for the rest of their lives.

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