Stop Giving Your Kids Pocket Money to Spend
The youth unemployment crisis is in desperate need of a solution.
It was the summer of 2008, and all eyes were glued to the opening ceremony in Beijing as Li Ning stepped up to the stage, torch in hand, ready to ignite the Olympic cauldron. The Games were now officially underway.
But it just so happened that another flame was about to grab the world’s attention.
A mere few months earlier, at the start of the summer, hundreds of thousands of college students around the world were anxiously waiting to hurl their graduation caps high into the sky. For many, this would be their final farewell to the education system as they were ready to enter the workforce for the very first time.
Now in normal circumstances, such an occasion would have marked the start of a new chapter for these young graduates.
But what the class of 2008 didn’t realise was that the GFC was about to hit the world economy like a deer in the headlights.
And their lives would never be the same again.
(By the way, GFC stands for “Great Financial Crisis” in case you didn’t receive your latest copy of ‘Acronyms for Finance Nerds.’)
Fast-forward to just over a decade, and it feels like we are in the middle of a déjà vu moment.
Yet again, hundreds of thousands around the world are expecting to graduate into a job market that at one point, looked quite healthy. And yet again, their bubbles are being burst.
This time, by the GHC (“Great Health Crisis”… I’ll let you off on this one).
And so within the space of just over a decade, an entire generation of young millennials (which I’m defining as those born between 1990–2000) have been left stranded by two of the worst crises that the world has seen in years.
And as a writer who fits into this definition of “young millennial”, albeit perhaps one of the lucky ones who was able to graduate just a few years after the GFC, but well before the GHC, I can tell you that the shockwaves are being felt right across our generation.
Brace Yourself for a 1930s-Style Depression Unemployment Rate
In the first week of May 2020, the US Bureau of Labour Statistics reported a jump in the rate of unemployment to 14.7% for the month of April , having been a mere 3.6% at the start of the year.
To provide some context, that is significantly higher than the 10% recorded during the GFC peak in October 2009. And some commentators are suggesting we might have further pain to endure.
Economists at the Fed are even projecting that unemployment will rise to 32%, which is notably higher than the peak of the 1930s Great Depression.
But let’s hone in on April’s numbers for a second. Breaking this down by age group, the generation that is being worst affected right now is 16 to 19-year-olds, with near 32% of them being marked as unemployed in April.
Take a moment to read that number again. That’s one-third of every young worker sitting on the sidelines.
And the second worst-affected group? Those aged 20 to 24 years old, over 25% of whom are reporting unemployment.
Unfortunately, the data is no better across the pond in Europe, a region that has seen its fair share of troubles over the years in dealing with youth joblessness, particularly in the southern hemisphere. In March 2020, over 15% of Europeans aged under-25 filed for unemployment.
Now I can’t imagine what future months have in store for Europe, but if history is as good an indicator as any, then there is a chance that the youth unemployment rate could return to levels above 24%, as once seen during 2012/13 following the Eurozone sovereign debt crisis.
The Implications Are Huge for Younger People
Now don’t get me wrong. Being laid off is a horrible situation to be in for any person, regardless of their age bracket. But there are 3 reasons why I stress on the impact this can have on the livelihood of younger adults.
#1 A Younger Workforce Has Little Bargaining Power on Wages
Firstly, let me put my economist hat on. Supply & demand 101 tells us that an abundance of labour (caused by an external shock) will create downward pressure on wages (all else equal).
So imagine a dialogue between a 21-year-old looking to catch their first break in life and an employer that has seen their fair share of ups and downs. Well, who do you think is likely to come out on top in these wage negotiations?
That’s simply the way the job market works. When times are tough, you take the salary you are given, especially if you haven’t got a track record to showcase your potential. Beggars can’t be choosers.
But suppose a similar situation arose where a 45-year old is negotiating their wage with a prospective employer. It’s a completely different conversation. Their resume is longer, more polished. They have more to offer and a greater runway to negotiate from.
In this case, I’m not sure who comes out on top. Probably still the employer, but you’d expect the 45-year old to put up a good fight.
In short, we are faced with a generation of 20-something year-olds who might be forced to accept lower salaries, if they are lucky enough to be offered a job that is. Not ideal to say the least.
#2 Expect Graduates to Be Unemployed for Longer as the Dominos Start to Fall
Secondly, when times are tough, firms have the leeway to hire individuals for roles that they would perhaps be over-qualified for, in normal circumstances that is. You can’t blame a company for trying to get a good bang for their buck.
What this means is that you could end up with a bunch of 30-year-olds competing for a job that could have been filled by a 25-year-old, and a 25-year-old competing for a job of a 21-year-old. I’m being overly-simplistic here (and wrongly assuming age = qualifications), but the point still stands.
When the economy is entering into free fall, job-hunters might have to take one step back to take two steps forward, even if they have to swallow their pride to do so.
And the result? Well, the picture starts to look pretty bleak for the younger workforce. Fewer jobs around, and less pay for those jobs that are still alive.
#3 Debt Levels Are Very High Amongst Younger Adults
To make matters worse, young adults are in the worst possible shape when it comes to their finances relative to their life cycle. They have practically zero financial capital to rely on, with most of their value attributable to their human capital i.e. their ability to accumulate wealth over the next 40–50 years.
It is estimated that those aged 18 to 24 years old rack up around $22,000 in personal debts (excluding mortgages), rising to $42,000 amongst those aged between 25 to 34 years old.
And those numbers aren’t going away any time soon.
Is There a Solution?
Sadly, there is very little that can be done about points 1 and 2. The labour market, in the absence of government intervention, will always squeeze out jobs that it doesn’t need until the dynamics start to look attractive again.
And overwhelmingly large debt levels will continue to be a concern as long as we want our kids to go to college. But there is something else that can be done on this last point, or at least be tested. There is a partial remedy that just might heal the wounds that our young adults face.
We need to find ways to make young adults more financially resilient. We need to ensure that future generations are taught how to save some money for a rainy day.
And as much as I want it to stop raining so that we can all start to spend again, the future has become definitively more uncertain. Which means that we need to ensure that the youth of tomorrow have the tools in their arsenal to better withstand their inherent vulnerability.
Here’s My Idea
For the lucky ones out there, your first form of “income” was most likely a bit of pocket money you received when you were a kid.
Life was pretty good back then. All you had to do was turn up every week, or every month (unlucky), open your hands, and BOOM, there it was.
A beautiful $5 bill waiting to be spent. If you got anything more than that, consider yourself privileged.
So here was our first opportunity in life to spend the money we’ve “earned.” And if you were as excited about the world as most kids generally are, you probably already knew what you would spend your money on the moment it fell into your hands.
Therein lies the problem.
If we are instilled with the idea of immediately spending what we are given when we are young, then it is difficult to break that habit when things start to become real.
And things are starting to become real.
Now I’m not saying that kids should be born with the financial acumen to save their money and not spend a dime. Or even be told they aren’t being given anything this month because it is being safely locked away in a savings account. That would deprivation, and also a bit mean.
I’m only suggesting that this might be an opportune time to instil the idea of saving for a rainy day.
So rather than give $5 to your kids, maybe suggest that they can only get $2.50 in spending money this week. The remaining $2.50 is still theirs, but they just can’t spend it right away.
Or if that is too painful to watch, tell them you will now give them $10 each week (woohoo, pay rise!), but they can only spend $5.
Hopefully, that doesn’t cause too much drama at home (fingers crossed).
One way or another, we need to better prepare the youth of tomorrow for the financial risks that our world is facing.
Final Thoughts
I have no idea if my suggestion will work. I’m just thinking out loud here as a young millennial in the midst of observing the chaos around him. Maybe it will spark another idea that leads to something better. I certainly do hope so.
Oh, and I should have added that I don’t have kids. So yes, I’m not in a position to be able to tell you how to raise your own. Do as you please. But I am in a position to make you aware that something needs to happen to better protect the youth of the future.
I just hope it’s not too late.
