Why Being Crushed by Debt and Daycare Bills Is the Most Millennial-Parent Problem Ever
There’s one shared experience this generation of parents that’s not easy to make light of in a meme. And that’s the the financial load many of us carry.
There are moments of parenthood where it feels like we’re going alone, and then others that make us feel united — collectively groaning at the same struggles and cheering the same milestones. Social media makes those universal parenting experiences only more obvious, with these shared in-the-trenches moments — like our mutual disdain for snaps on baby clothes or shared struggles with “threenagers” — immortalized and amplified in meme form.
But there’s another shared experience among this generation of parents that’s less easy to laugh off or make light of in a meme. And that’s the the financial load many millennial parents carry. Millennial parents are simultaneously facing higher childcare expenses than previous generations as well as substantial student debt loads.
A generation of cash-strapped parents
A recent report from Child Care Aware of America found that millennials in every state cannot afford childcare. Millennials pay anywhere from 18% to 42% of their annual income for center-based infant care, which is well above the 7% recommended by the Department of Health and Human Services.
The report highlights the fact that at the same time millennials are facing sky-high childcare payments, they’re staring down other financial challenges as well. “I think this generation is hit harder,” says Dionne Dobbins, Ph.D, senior director of research at Child Care Aware of America. “Childcare has been expensive for many years, but this generation has also had stagnant income growth.”
As a result, many millennials carry debt. Forty-one percent have a car loan. More than half carry credit card debt, and 25% of millennials have taken out loans for medical debt. And then there’s student loan debt, which has more than doubled over the past decade to close to $1.5 trillion.
“Millennials are facing much worse student debt than prior generations,” says Doug Webber, Ph.D., Director of Graduate Studies in Temple University’s Department of Economics & Institute for Labor Economics and Co-Editor at the Economics of Education Review. “It’s more expensive to go to school now, especially at state schools because state government funding is at lower levels than prior generations.”
The average student loan balance for millennials in 2017 was more than twice the average loan balance for Generation X members in 2004, according to a report from the Federal Reserve Board. The Federal Reserve Board attributes the increased number of borrowers to a perfect storm of the rising cost of higher education, an increase in college enrollment due to the Great recession, and the limited ability for parents to contribute. As a result, borrowers ages 25 to 34 — an age range that captures most, but not all millennials — carry $497.6 billion in outstanding student loan debt, which is about $33,000 of debt per borrower.
It’s worth noting that parents who are still in school may especially feel the crunch of the cost of their education and childcare expenses without adequate support. “A recent Government Accountability Office report found a quarter of all college students are parents right now. That’s a huge number, and I don’t think we’re doing enough as a higher ed community to support students who are parents,” Webber says.
The potential impact
The consequences of such a financially-strained generation of parents could be far-reaching. Already, research shows that millennials delay major life events, like home ownership, and U.S. birth rates recently reached a 32-year low, as millennials are having fewer children than their parents. There are likely a number of reasons for this baby bust, but among them, studies have shown economic uncertainty and debt factor into the decision to have children or to put off building or expanding their families — potentially until it’s too late.
Worse, the high price of college paired with parents’ inability to save for their children’s education may compound the situation for future generations. “Even if we’re able to get education costs under control, people will be less likely to save for their kids’ educations while they pay [their] own debt and that will absolutely have a ripple effect,” Webber says.
There’s a potential impact on happiness, too. Being saddled with debt could cause people to choose occupations that are higher paying, but aren’t as satisfying, Webber points out. “There’s work that shows that people with greater debt are choosing less public-service-focused occupations that deliver greater social benefits and are instead going into fields with more financial benefits,” Webber says.
Kids and families aren’t the only ones who may suffer from unaffordable childcare. “It’s not just affecting parents and providers, it’s affecting all of us. It can lead to losses in revenue, loss in the tax base. It has a real ripple effect,” Dobbins says. “If we don’t have quality affordable childcare, we know there’s an impact on businesses. Businesses need qualified workers who feel comfortable sending kids to safe, affordable, accessible childcare.”
Is there a path to relief?
Political candidates have taken notice of both issues, with many incorporating childcare and student debt into their platforms. Nearly all of the 2020 democratic presidential candidates have affordable childcare in their platform, with several supporting universal childcare or preschool.
Likewise, on the debt front, the candidates have made college affordability and student loan refinancing a central part of their higher-education platforms.
Even though change may hinge on the outcome of the 2020 presidential election, Webber notes that he’s not sure he sees large-scale debt-forgiveness happening — and even if it does, millennials may be too late to reap the benefits.
“There’s a decent chance we’ll see things improve for future generations. There’s a recognition of the issue now and a policy push to try to address costs now, which may help future generations, but not millennials now,” he says. Millennials are going to have to kind of grind it out.”
Take matters into your own hands
Because policy changes may be too far on the horizon to offer parents relief in the near future, our best bet may be in how we handle our finances on a personal level.
There may be resources in your community, such as scholarships or financial assistance, to help make childcare more affordable. Child Care Aware provides a list of resources to help parents find and afford childcare. They also have an advocacy arm called Child Care Works, if you’re interested in taking action to improve the quality and affordability of childcare.
When it comes to your student loans, or other debt, you are at the mercy of your own pocketbook — to an extent. But you can be savvier about the way you approach your payments.
The first step begins with your loans and being intentional with your plan to pay them off. “One of the biggest mistakes I see people make is just going with the flow because they’re so overwhelmed with the process and the situation,” says Bola Sokunbi, certified financial education instructor and founder and CEO of Clever Girl Finance.
You can find out how much you owe in federal loans at studentloans.gov and take a look at your private loans by taking a look at a copy of your credit report, says Melisa Boutin, certified financial education instructor and money coach. Instead of just making the payments you’ve always made, create a strategy For one, make sure that any overpayments are going to the principle, rather than the interest. This will whittle away your total faster.
Another option: consider consolidating or refinancing your loans. “If you have student loans with expensive interest rates, refinancing those private student loans through options like LendKey and CommonBond, may help free up money to cover child expenses,” Boutin says.
Parents who are in debt may struggle with how to prioritize paying for their own education and saving for their child’s education. “The most practical way is to pay off your debt first, but there’s an emotional aspect,” Sokunbi acknowledges. “We’re human. We want to put our children in the best position possible.”
If you feel strongly about feeding your kid’s college fund, it’s okay — just make sure those payments are proportionally smaller than what you’re contributing to your student loans. For example, Sokunbi suggests a 70/30 split where 30% of any extra cash goes to your child’s account while 70% goes toward loans.
“If your goal is to save, start with a $25 monthly payment. This way you set the intention that you want to save, but at the same time, you’re able to focus on your payoff plan for student loans and prioritize saving for retirement,” Boutin says.
Where your child will have the option to apply for scholarships, loans, and tuition assistance to pay for college, you won’t have the same resources available for retirement. Over time as you get more flexibility, you can increase the amount of money you put into savings.
“The priority should be yourself and your overall financial wellbeing as a parent,” Boutin says. By prioritizing your financial foundation, you make sure you can pay for the essentials — like childcare — in the short term, and then you can focus on saving in the long-run.
