Anyone who reads the papers gets it: millennials are screwed. We’ll be the generation to bite down on the acidic onion that is the economy, left to deal with the mounting debt left by the wave of prosperity of the ‘50s through the ‘90s and early 2000s, an ageing population, two Global Financial Crises, various property and credit bubbles, and America’s subprime mortgage crisis. And through it all, we must find some way to bloody fix it.
There are promising shifts occurring in both in the local and global economy, but, according to Australian-born, British based economist, Professor Steve Keen, it’s the children of millennials who will benefit. The growing pains are not something that will cease during our lifetime.
“You can’t reflate a lead balloon,” said the Centre for Policy Development Fellow, who also heads the School of Economics at of London’s Kingston University.
“Any attempt to make money out of the stock market or out of property in particular is almost doomed to failure, the only way is for leverage to keep on rising”.
Failure to address this self-perpetuating problem, means the economy will go into “a permanent funk” because during the postwar period, the major source of increasing demand was rising credit.
This was the reason Europe and America took the hit of the GFC head on. Australia survived it by with a property bubble,continuing private borrowing all way through the slump.
The country is now at the point where rising credit is not going to continue and the economist predicts a “slow-down” over the next two or three years.
“It comes down to the stabilisation of the rate of growth of debt on economic activity when the private debt level is high compared to GDP,” Keen says.
“With total demand being GDP plus change in debt, then if debt is (a) large and (b) growing much faster than GDP, simply a slowdown in its rate of growth to the same as the rate of growth of GDP is enough to cause a large fall in aggregate demand, which hits asset markets first since they are so volatile.”
The economist explains it like this: Say a country with a GDP of 1000 growing at a nominal rate of 10% a year and a private debt level of 2000 with growing at a nominal rate of 20% per annum. Total demand, being GDP plus the change in debt, equals 1400. If the following year GDP increases to 1100 and the growth rate of debt slows to the same as GDP, then demand for the following year equals 1100 plus a change in debt of 10 per cent of 2400, (240), the sum is 1340, which is 60 lower than total demand the prior year, even though both GDP and debt continue to grow.
“Of course what happens with such a slowdown is that debt change can go negative, and GDP growth itself also falls, so this is a best-case scenario,” he says. “If debt stops growing - goes from 20% per year to 0% - then total demand goes from 1400 to 1100, a huge fall. That's effectively what happened in the USA, and Japan in the 1990s.”
“These effects then trash both employment and asset markets,” he says.
Economist, author and founder of LF Economics, Lindsay David, unfortunately concurs with Keen’s assessment and said most young Australians have a better chance of making something of themselves overseas.
“The next generation of Australians have very few prospects at the moment, hence the critical need to transform and diversify the economy,” he said.
So we thought it wise to find some canny millennials and members of Generation Y who are already putting this sage advice into practice and shake them frantically until answers come out:
Caption: Andrew Petersen (right), with his brother Brian (left)
Chicago native Andrew Petersen is a 32-year-old college graduate with more than 20 different revenue streams. They include dog-walking, hospitality, freelance digital marketing, web design, commercial video editing, trade shows for children’s clothing, and teaching English as a second language.
Having been raised in the shadow of the stock-market crash in 1987, he learned not to trust the “linear career mindset” that our parents and grandparents depended.
“Your emergency savings should not be in the market and should be more liquid (available soon as cash),” he said. “They say the higher the risk the higher the potential return, but remember that those people making those risky, high reward investments can usually afford to lose that $10,000. Can you?”
The struggling economy inspired Petersen to start “working smarter”.
“I don’t consider any work beneath me,” he told SBS. “Most of my project opportunities are offered quarterly or twice a year... So for other income I have to stay creative. I practice new design techniques to keep my skills sharp. I borrow money from credit cards (called a cash-over withdrawal in the US). I sell things I no longer need online. I go for a week here and there without buying anything but food and paying rent. I always re-evaluate my utilities like my phone data plan and website hosting fees.”
Petersen considers cost savings a source of revenue “but, to consider this a source of income only works with necessities,” and treats his personal finances as he would a business.
“Here is something to think about,” he says. “There is a sale on a sweet pair of shoes. You know, the kind that are dress up/ dress down and comfortably cool. They are on sale for $80 instead of $100… a 20% savings, yippee! However if you have any consumer debt and pay 10% interest per year for your consumer debt, then these shoes will ostensibly cost an extra 10% per year until all of your consumer debt is paid off. If you end up paying off your consumer debt in 6 years, then your total cost for the pair of shoes is $141.72 (including compound interest). You went from thinking you were saving $20 to paying an extra $61.72.”
As for advice, Petersen recommends developing a “curiosity for becoming financially independent” by “reading reading reading”.
“It will encourage you to think more strategically, understand new financial vocabulary, and game-ify your savings,” he said. “Learn to love compound interest… it is as rewarding to understand as it is to execute.”
Talk to adults, ask them for advice. Volunteer with your community during long periods of under-employment. Don’t bother keeping up with the Jones’s. Vote with your dollars. Learn how to say “no” and still keep the peace, use the stock market for your retirement fund and invest in large value index funds with low fees.
“Think of this move as a safe way to get a taste of compound interest (as you automatically re-invest dividends) and protect against inflation,” he said.
Petersen also recommends spending less on bars and restaurants, learning to enjoy shopping for food and cooking at home, stocking up on food items that are for sale and buying your necessities in bulk.
“Start building credit history, learn how to track it and improve it.”
Ryan Spaccavento was 25 when he began working for himself.
He opened a Marrickville Pizza Shop, “Nom Pizza” with his friend and co-founder, David Anderson, before selling his half of the business and launching a corporate coffee cart entity, Coffee On Cue which began at Tullamarine airport and quickly expanded.
Ryan spent his early twenties honing his business skills by working at a start-up called Proxima (which he now has equity in), while also working in roasteries and cafes during the day.
“I fell in love with coffee,” he said. “
It was around the same time the coffee cart opportunity came around when he was asked to come on board by a friend and colleague he had already worked with in Sydney.
“I flew out and stayed on friends couches to help get it started over the first four months,” he said. “Now we have more than 500 clients.”
Expecting the stability our parents were offered is unrealistic in today’s economy, he says.
“If you look at where our parents came from, it was considered normal to go to school get an education and go work for a company the rest of your life and be dependent on it to save and support for yourself,” he said. “That is unrealistic in today’s economy. You need to be able to create your own opportunities because what you’re doing may not be relevant in 5-10 years so you need to be adaptable and broaden your skill set at a rapid pace.”
Caption: Founder and CEO, Tamar Krebs with two Group Homes Australia residents
Group Homes Australia is start-up style aged-care business, which focuses on but does not limit its services to those living with dementia. It aims to provide a a degree of normalcy and purpose in thedaily lives of their clients. It was founded in September 2009 and run by CEO, Tamar Krebs, now 38.
There are currently seven homes located in local communities across the upper north shore, northern beaches and eastern suburbs of Sydney. They are positioned outside the government’s aged care accreditation system, receiving no direct State or Federal government funding,
Tamar said living in New York with her great-grandfather from the age of three to 11 “while he was very sick”, inspired her to launch the group homes.
“I had the privilege of walking his end of life journey with him,” she said. “I was the last person he spoke to and he said, ‘I love you doll.’ I knew from that moment that I wanted to make a difference in aged care.”
Later as an adult Krebs worked in aged care for more than 18 years managing nursing homes, and dementia units.
“I started to ask myself why we as a society feel the need to warehouse our elderly.”
“If we live our entire life in a community surrounded by friends and family, then why at a person’s most vulnerable point in their life do we lock them away from society and their familiar suburb? hy do we focus on their disability?
“All this lead to the search for people to be able to age in a home that looks, feels and smells like a home in a person’s familiar suburb.”
An aging population is an economic challenge that will only increase in urgency over time.
Krebs says she employs mostly millennials in their early twenties, a sign that maybe there’s something in this whole aged care thing.
“More millennials should be involved in aged care and other forms of social enterprise,” she says.
Claire Connelly is a freelance writer, journalist and consultant. She writes for The Australian Financial Review, SBS, The Australian, The Age, specialising in finance, technology, economics and policy. She tweets here.
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