Home ownership rates among young adults are the lowest they’ve been in 30 years. The auto sector is also feeling a burn; between 2007 and 2011, the number of cars purchased by young adults dropped 30%.
Money’s got a lot to do with both of those trends – but not in the way you’re probably thinking. On that note, let’s get into the first reason young adults aren’t buying cars and houses.
It’s A Dumb Financial Decision
Let’s talk about homes first.
The average young adult, although not particularly rich, can actually afford to buy a home. They’re just not interested. Why? Because young adults are much more financially savvy than their parents, that’s why.
Here are 3 characteristics of a bad investment, according to hedge fund manager James Alutcher:
- It makes up the bulk of your net worth.
- You need to take on massive debt to purchase it.
- It takes forever for you to liquidate it.
A house ticks off every single one of those boxes. It’s a terrible investment. By James’ calculations, over the lifespan of a $500,000 house, the homeowner would spend upwards of $1,000,000 on buying the home, maintaining it, paying taxes, insuring it…
Get the picture?
Young adults – who, remember, are generally very financially savvy – know they’d be much better off renting and letting their saved cash earn money instead of shelling it over to the bank as a down payment.
Cars, of course, are even worse than houses.
One minute after buying a $30,000 vehicle, it will have already depriciated by $2,559.00. Need I say more? I think young adults are onto something with this whole Uber trend.
Onto the next point…
Young Adults Have Different Values
Rates at which young adults travel have been skyrocketing. As far as satisfaction goes, this is the right thing to do. Research has consistently shown that those who spend money on experiences, like travel, wind up much happier and more content than those who buy material items.
Even young adults who do buy material items are leaning towards technology, which can keep them connected with friends and family and create financial/work opportunities a car could only dream of. Again, there’s an example of different values.
The third reason?
Young Adults Live In An Entirely Different World
Today, the average young adult expects to spend less than 3 years with any one company. Baby boomers, on the other hand, have typically spent their entire careers with one company.
This really isn’t possible in 2016.
Contract and temporary work is on the rise. A young adult with a job close to their home today could wind up having to drive across town to a completely different job next week. They could wind up not working for a month, which could jeopardize their car payments.
That’s why renting a home and buying a $45 bus pass is such a hot idea. It grants young adults the chance to pack up and move without having to wait for their house to sell. If they like where they live, no biggie. They can just take an alternate, longer route on the subway for the same cost of a monthly pass.