She's 20-something, making $57,000 a year in Southern California, and can't afford to rent an apartment on her own, let alone buy a house. It's part of a phenomenon called The Great Delay.
Editor’s note: This is part of a series by Bob Sullivan called The Restless Project.
“What is making me ‘restless’ is that I ‘should’ be able to live on my own. I hate the idea of the very real possibility that I may be 30 and still living with a roommate because I cannot afford to rent by myself.”
In The Restless Project, I am examining the surprising reasons that many Americans feel stuck, even though they seem to be doing all right. Household budgeting is one main factor. The reasons are simple: Wages are stagnant, but costs have risen, particularly housing and education costs. Outstanding student loans, now more than $1 trillion, have tripled in a decade, for example.
In other words, many people feel like they are earning plenty but still have no money left to plan for the future.
In the coming weeks, I’ll be sharing individual American budgets that represent typical experiences. Today we start with a millennial who has no idea when she’ll be able to live on her own.
The Pew Research Center says more than one-third of Americans aged 18 to 31 lives with parents or guardians. More than 21 million “have not left the nest,” a number that’s risen sharply since the Great Recession.
Shannon Higgins, 27, is not one of them. Instead, she is caught in the middle. Higgins lives in Pomona, Calif., on the eastern edge of Los Angeles County. She has a good job where she earns $57,000 annually. She has a master’s degree. She pays her bills on time, exercises fiscal discipline, and has real dreams and plans for the future. But she still lives like a college student with a roommate, and she has no idea when that will end.
Critics like to blame young people for taking advantage of their parents, having unrealistic professional aspirations, being unwilling to wait their turn — you know the common refrains. Like every generalization, it’s bound to fail. Plenty of young adults work their behinds off, save responsibly, and are awaiting their turn at the American Dream of a white picket fence and a comfortable place to start a family. But many are putting off household formation, marriage and children because those things seem entirely unrealistic in the economy they’ve been handed.
The New Republic recently dubbed this phenomenon “The Great Delay,” and it hurts everyone. The number of young first-time homebuyers is at historic lows, which is blunting the housing market recovery. Fewer household formations means fewer trips to Target and Ikea for starter lamps, couches and rugs. Not surprisingly, the $1 trillion in outstanding student debt, which impacts 1 in 5 households now, is a leading cause for The Great Delay.
But not for Higgins. She managed to get through school without student debt, giving her a great head start. Still, she feels stuck and can’t see any simple route into the future.
“Houses or condos within reasonable driving distance from my work start at about $300,000. I will need a significant down payment — which is why ‘savings’ is built into my budget — in order to be able to afford a monthly mortgage/homeowners insurance/HOA fees,” says Higgins, who works at a nonprofit university. She was born and raised in Southern California and loves it, but she’s not sure she’ll be able to stay.
“I’ve mentioned to my friends on several occasions that I worry about being ‘forced’ out of California because I’m not sure I’ll be able to afford [it],” she said.
Her monthly budget:
Rent — $775 (my portion of a two-bedroom, one-bath apartment that I share with one roommate — total is $1,204 a month).
Health care — $200.
Cellphone — $40 (MetroPCS).
Electricity –$80 to $100 (which I split down the middle with my roommate).
Cable — $107 (again, we split but we also have the least expensive package).
Water — $40 (split between both of us).
School tuition/supplies — $250.
Child care — no kids, but I have a puppy for which I budget $125 a month.
Food — $300 (groceries and takeout).
Car loans — paid off (and running well), thank God.
Student loans — none, thank God.
Clothes — no budget; only buy new clothes when I have a little ‘extra’ available.
Gasoline — $100 a month.
Car insurance — $85 (on a plan with my mother to get a cheaper rate).
Gym membership — $30.
Savings — $225 (so I can stop renting eventually).
Total — about $2,253 a month, leaving about $807 a month for incidentals (dry cleaning, co-pays, gifts, clothes, car wash, hair cut (which I haven’t had in several months because it runs me about $100), credit card payments, etc.)
Note: While saving $225 per month, it would take Higgins 22 years to build up the $60,000 she’d need for a traditional 20 percent down payment on a $300,000 house. She’d have a roughly $1,500 monthly mortgage/tax payment to contend with, double the rent she pays. She would have other options that might shrink the required down payment to as little as 5 percent, or $15,000, but it will still take five years to raise that amount. And her monthly payment would rise to nearly $2,000.
More from Bob Sullivan:
- The Restless Project: This Is Why You Can’t Sleep at Night
- Do You Feel Stuck? New Book Offers 8 Ways to Break Free
- Why the Home Depot Hack Might Empty Your Checking Account