Gen Y Has it Over Boomers

It's dicey suggesting there are "winners" coming out of this financial crisis, but it seems to me that Gen Y is sitting pretty compared to Boomers.

• Better Retirement Prospects. Bear markets are a young investor's BFF (Best Financial Friend.) They make it possible to buy low and then patiently let compound growth work its magic for three or four decades. A recent article penned by T. Rowe Price's Christine Fahlund for the American Association of Individual Investors took a look at the 30-year returns of investors who started investing during a bear market vs. a bull market. The bear beginners win by a wide margin, according to Fahlund:

"The Great Depression decade of the 1930s marked the beginning of the worst 30-year period for equity investing. Yet, the S&P 500 provided a respectable 8.5% annualized return from 1929 to 1958. The investor who stuck to this systematic investment plan over that 30-year period ended up with a total return of 960%. The investor who started in 1970 had a remarkable total return of 1,753% over 30 years because he benefited mightily from the unusually strong returns earned in the 1980s and 1990s. In sharp contrast, the investors who began in the bull market decades (the 1950s and 1980s) earned less than 400% over 30 years."

• No Illusion Your Boss Has Your Back. The reality of today's economy and workplace is that no job is safe. We're all dispensable, no matter how talented or hardworking. But older Boomers may still be holding onto a vestige of the "old days" when there was an unwritten expectation that doing a good job was all you needed to keep a good job. Gen Y workers have no such muscle memory. I think that's a big advantage in navigating work/career. It's just natural for Gen Yers to keep their skills nimble and up to date, network effectively, and not take it too personally when caught in the midst of a downsizing or reorg. Boomers can do all of that, but it takes more of a conscious effort to adapt to the new realities of 21st century career management. I'm also thinking Gen Y doesn't need to be lectured on the importance of having some emergency savings after living through the financial crisis.

• An Allergy to Bubbles. After watching their parents (or grandparents) suffer the fallout of binging on the stock and real estate bubbles of the past decade, Gen Y probably has a pretty clear-eyed take on the damage done by investing in manias. There will no doubt be new bubbles coming down the pike, and maybe I suffer from a bit of wishful thinking here, but I wonder if the same way the children of the Depression grew up to be the thrifty generation, Gen Y's response to what has happened will be a resiliency to being suckered into bubbles.

• The New Normal is also the Old Normal. Gen Y wasn't investing, spending and otherwise financially screwing up during the Old Normal. The New Normal that Boomers are struggling to get in sync with is pretty much all Gen Y knows. There's no transition to make.

One Big Honkin' Caveat My argument hits a major speed bump for any Gen Y'er sitting on a mountain of student loan debt. It's not just that college costs continue to rise at a rate well above inflation (no news there) but because Gen Y walked straight into the maw of the private loan industry during a period when it grabbed huge market share fueled by Wall Street's let's-securitize-anything craze. From the middle of the '90s to the middle of the '00s private student loans grew from 4 percent of the market to close to 25 percent. I'll keep it fairly polite and say private student loans are at best a very bad deal for most borrowers. Private loans typically carry variable interest rates that can end up being triple the maximum on a federal student loan (federal loans are fixed rate) and they are hard to consolidate after graduation into a manageable fixed-rate loan. Moreover, private loans also don't have any payback flexibility if you're unemployed or not earning much straight out of school. Federal loans offer a series of payback options as well as forbearance and deferment of payments in certain situations, and outright loan forgiveness if you agree to sign up for a qualified public sector job after graduation. Of course, no one really bothered to spell all that out to students at the point they were signing on the dotted line for private student loans.

While the Obama administration pushed for legislation last year to cut out private lenders as the middlemen for federal loans (the bill passed the House but then stalled out as health care sucked all the oxygen on the Hill for the last half of '09) there was no relief offered for students stuck with onerous private loans. Right now the only Washington aid would seem to be for future college students: If we ever see a Consumer Financial Protection Agency formed, overseeing the propriety of private student loan debt when less expensive alternatives are available would likely be one of its most important jobs.

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