FML: Why millennials are facing the scariest financial future of any generation since the Great Depression.
Becoming poor is not an event. It is a process.
Like a plane crash, poverty is rarely caused by one thing going wrong. Usually, it is a series of misfortunes—a job loss, then a car accident, then an eviction—that interact and compound.
I heard the most acute description of how this happens from Anirudh Krishna, a Duke University professor who has, over the last 15 years, interviewed more than 1,000 people who fell into poverty and escaped it. He started in India and Kenya, but eventually, his grad students talked him into doing the same thing in North Carolina. The mechanism, he discovered, was the same.
We often think of poverty in America as a pool, a fixed portion of the population that remains destitute for years. In fact, Krishna says, poverty is more like a lake, with streams flowing steadily in and out all the time. “The number of people in danger of becoming poor is far larger than the number of people who are actually poor,” he says.
We’re all living in a state of permanent volatility. Between 1970 and 2002, the probability that a working-age American would unexpectedly lose at least half her family income more than doubled. And the danger is particularly severe for young people. In the 1970s, when the boomers were our age, young workers had a 24 percent chance of falling below the poverty line. By the 1990s, that had risen to 37 percent. And the numbers only seem to be getting worse. From 1979 to 2014, the poverty rate among young workers with only a high school diploma more than tripled, to 22 percent. “Millennials feel like they can lose everything at any time,” Hacker says. “And, increasingly, they can.”
Here’s what that downward slide looks like. Gabriel is 19 years old and lives in a small town in Oregon. He plays the piano and, until recently, was saving up to study music at an arts college. Last summer he was working at a health supplement company. It wasn’t the most glamorous job, lugging boxes and blending ingredients, but he made $12.50 an hour and he hoped he could step up to a better position if he proved himself.
Then his sister got into a car accident, T-boned turning into their driveway. “She couldn’t walk; she couldn’t think,” Gabriel says. His mom wasn’t able to take a day off without risking losing her job, so Gabriel called his boss and left a message saying he had to miss work for a day to get his sister home from the hospital.
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The next day, his temp agency called: He was fired. Though Gabriel says no one had told him, the company had a three-strikes policy for unplanned absences. He had already missed one day for a cold and another for a staph infection, so this was it. A former colleague told him that his absences meant he was unlikely to get a job there again.
So now Gabriel works at Taco Time and lives in a trailer with his mom and his sisters. Most of his paycheck goes to gas and groceries because his mom’s income is disappearing into the family’s medical bills. He still wants to go to college. But since he can barely keep his head above water, he’s set his sights on an electrician’s apprenticeship program offered by a local nonprofit. “I don’t understand why it’s so hard to do something with your life,” he tells me.
The answer is brutally simple. In an economy where wages are precarious and the safety net has been hacked into ribbons, one piece of bad luck can easily become a years-long struggle to get back to normal.
Over the last four decades, there has been a profound shift in the relationship between the government and its citizens. In The Age of Responsibility, Yascha Mounk, a political theorist, writes that before the 1980s, the idea of “responsibility” was understood as something each American owed to the people around them, a national project to keep the most vulnerable from falling below basic subsistence. Even Richard Nixon, not exactly known for lifting up the downtrodden, proposed a national welfare benefit and a version of a guaranteed income. But under Ronald Reagan and then Bill Clinton, the meaning of “responsibility” changed. It became individualized, a duty to earn the benefits your country offered you.
Since 1996, the percentage of poor families receiving cash assistance from the government has fallen from 68 percent to 23 percent. No state provides cash benefits that add up to the poverty line. Eligibility criteria have been surgically tightened, often with requirements that are counterproductive to actually escaping poverty. Take Temporary Assistance for Needy Families, which ostensibly supports poor families with children. Its predecessor (with a different acronym) had the goal of helping parents of kids under 7, usually through simple cash payments. These days, those benefits are explicitly geared toward getting mothers away from their children and into the workforce as soon as possible. A few states require women to enroll in training or start applying for jobs the day after they give birth.
The list goes on. Housing assistance, for many people the difference between losing a job and losing everything, has been slashed into oblivion. (To pick just one example, in 2014 Baltimore had 75,000 applicants for 1,500 rental vouchers.) Food stamps, the closest thing to universal benefits we have left, provide, on average, $1.40 per meal.
In what seems like some kind of perverse joke, nearly every form of welfare now available to young people is attached to traditional employment. Unemployment benefits and workers’ compensation are limited to employees. The only major expansions of welfare since 1980 have been to the Earned Income Tax Credit and the Child Tax Credit, both of which pay wages back to workers who have already collected them.
Back when we had decent jobs and strong unions, it (kind of) made sense to provide things like health care and retirement savings through employer benefits. But now, for freelancers and temps and short-term contractors—i.e., us—those benefits might as well be Monopoly money. Forty-one percent of working millennials aren’t even eligible for retirement plans through their companies.
And then there’s health care.
In 1980, 4 out of 5 employees got health insurance through their jobs. Now, just over half of them do. Millennials can stay on our parents’ plans until we turn 26. But the cohort right afterward, 26- to 34-year-olds, has the highest uninsured rate in the country and millennials—alarmingly—have more collective medical debt than the boomers. Even Obamacare, one of the few expansions of the safety net since man walked on the moon, still leaves us out in the open. Millennials who can afford to buy plans on the exchanges face premiums (next year mine will be $388 a month), deductibles ($850) and out-of-pocket limits ($5,000) that, for many young people, are too high to absorb without help. And of the events that precipitate the spiral into poverty, according to Krishna, an injury or illness is the most common trigger.
“All of us are one life event away from losing everything,” says Ashley Lauber, a bankruptcy lawyer in Seattle and an Old Millennial like me. For most of her clients under 35, she says, the slide toward bankruptcy starts with a car accident or a medical bill. “You can’t afford your deductible, so you go to Moneytree and take out a loan for a few hundred bucks. Then you miss your payments and the collectors start calling you at work, telling your boss you can’t pay. Then he gets sick of it and he fires you and it all gets worse.” For a lot of her millennial clients, Lauber says, the difference between escaping debt and going bankrupt comes down to the only safety net they have—their parents.
But this fail-safe, like all the others, isn’t equally available to everyone. The wealth gap between white and non-white families is massive. Since basically forever, almost every avenue of wealth creation—higher education, homeownership, access to credit—has been denied to minorities through discrimination both obvious and invisible. And the disparity has only grown wider since the recession. From 2007 to 2010, black families’ retirement accounts shrank by 35 percent, whereas white families, who are more likely to have other sources of money, saw their accounts grow by 9 percent.
The result is that millennials of color are even more exposed to disaster than their peers. Many white millennials have an iceberg of accumulated wealth from their parents and grandparents that they can draw on for help with tuition, rent or a place to stay during an unpaid internship. According to the Institute on Assets and Social Policy, white Americans are five times more likely to receive an inheritance than black Americans—which can be enough to make a down payment on a house or pay off student loans. By contrast, 67 percent of black families and 71 percent of Latino families don’t have enough money saved to cover three months of living expenses.
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