In Articles, Astute Observation

NBC’s Saturday Night Live has been around for over forty years. Sometimes the show is good and sometimes you can easily sleep through it. But every so often they do something that makes you really laugh and really think.

Last Saturday night was one of those times…

Using a familiar and slightly worn game show format SNL surfaced several ugly and interesting points about generational income inequality.

We all know about the huge income/wealth inequality gap that exists in the USA and around the world. We usually think about the inequality difference between the richest of the rich and people living well below the poverty line. But this SNL game show took shots at something we don’t hear about that often. Something potentially bigger. The inequality that exist between baby boomers and millennials. Most of the time within the same families.

Baby Boomers are defined as people born between 1946 to 1964, while millennials were born between 1981 and 1996. Boomers are now age 55 to 73 years old. Millennials are from 23 to 38 years old.

People in these two groups grew up in very different worlds. Unfortunately, their lives will be very different because of they were born and lived their lives in different decades.

The SNL game show is packed with these differences but it really comes down to one thing…

The cost of higher education.

A college education is the first big expense a young person will need to face. Boomers could actually work a summer job and earn enough for a while year’s college tuition. A friend of mine who was at a state university from 1974 to 1978 told me his entire four years of college cost around $5,000. Tuition at that same university now costs $13,664 per year ($26,520 for out of state students). That’s $54,656 for all four years assuming no tuition increases.

If you do the math on that it comes out to a 993% increase from 1978 to 2019.

Over that same time period (1978 to 2019) overall inflation was 285.33%. This means that University tuition inflation ran at almost 3.5 times the overall rate. This is huge and the reason why college graduates now carry a heavy debt load.

Boomers could easily work a three-month summer break and earn $1,250 for tuition. That comes out to about $2.40 an hour. For comparison that would be $5,000 annual salary. In 1978 the median annual household income in the USA was $15,060. The minimum wage in 1978 was $2.65 so this $2.40 an hour rate looks doable. And it was for most college students.

For millennials to work three months to pay a tuition of $13,664 they would need to earn $26,28 an hour. That’s equivalent to $54,656 a year annual salary. Today the average annual household income is around $62,175. The minimum wage today is $7.25 an hour. A student would need to earn almost four times the minimum wage to pay for their college tuition.

For one more comparison, at 993% inflation a gallon of milk would cost $16.98 today and you would pay $7.65 for a gallon of gas.

As usual, I apologize for all the statistics and math stuff. Email me or post a note below if you want to see my math or sources for the statistics.
These numbers tell a scary story and may explain one troubling component of income inequality…

The bottom line is that because college education costs have increased by 993% over the last forty years there is no way a student can earn enough to pay for their own education so they are forced to go into debt which represents a negative net worth.

What has increased is student access to huge loans. The number thrown around for average student debt is $37,172 but this is just the average. Many students, especially those with graduate degrees, are probably carrying debt as high as $200,000! This represents negative net worth.

So why is negative net worth a problem?

While some people caught at the bottom of the income ladder may live from paycheck-to-paycheck and have very little if any savings, these unlucky college graduates actually live paycheck-to-paycheck and could be hundreds of thousands of dollars in a deep debt hole.

A hole they may never dig out of…

As the SNL video shows it could be easy to blame boomers for this generational income inequality but on this one very influential element of college cost, I think the blame is elsewhere. I don’t think a college education is almost ten times better today compared to 1978. And if you look at general inflation as shown above the basic costs related to delivering a college education to students has not increased that much.

So, what happened?

The answer is pretty simple… With access to easy credit the amount of money available for student loans has skyrocketed. The supply of money to pay for a college education has exploded. It is simple economics that when the supply of money increases the costs will also increase.

So, who is really to blame for so much student loan debt?

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