The Ambition Tax

Why America's young are being crushed by debt—and why no one seems to care

Any real estate agent will vouch for the fact that now's an ideal time to be home-shopping, with interest rates at all-time lows. The debt-laden young, however, often don't qualify for the best rates, especially if they've been delinquent in meeting their obligations. Warren points out that in 2001, when the typical mortgage rate hovered around 6.5 percent, Citibank's average was 15.6 percent.

The Kid only needs to put 3 percent down on a house, rather than the 18 percent that was typical during the 1970s. But the lower down payment is a curse in disguise, as it means the Kid will be saddled with much higher mortgage payments. Both he and his spouse will have to work full-time to stave off a foreclosure. "When we look at the median cost of housing, it used to be 30 years ago that a teacher could purchase a home on their own salary," says Tamara Draut, director of the Economic Opportunity Program at Demos. "Nowadays, it's hard for two teachers to purchase a home on their combined salaries."

With the Kid and his partner working full-time to pay the mortgage, they'll need day care for the family's new additions. Day care for a one-year-old costs more than $5,750 per year in two-thirds of American cities, and more than $6,750 annually in one-third of cities. And so the financial onus grows even heavier.

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With a little luck and lots of scrimping, the Kid and his kids could do all right, considering. Families like the Kid's are spending far less of their income on consumables than the previous generation—21 percent less on food, 22 percent less on clothing, and so on and so forth. Hopefully that spartan philosophy will keep the Kid afloat until middle age and beyond. Hey, he made it this far, right?

But what if some unforeseen catastrophe strikes, like a lost job, an illness, an ailing parent who needs around-the-clock care? The mortgage, the student debt, the credit card debt, the day care tab, health insurance—the margin for error is virtually nonexistent. By the most generous estimates, in the event of a financial emergency, the typical American family doesn't have enough saved up to last more than a few months. The Kid's just got to hope his legs can keep pumping on the financial treadmill, and that no one ups the speed.


The myth of economic mobility has taken quite a drubbing lately, and rightly so. In September 2002, an economist at the Federal Reserve Bank of Chicago, Bhash Mazumder, concluded that "the persistence in inequality is about 50 percent higher than previously thought"—in other words, jumping from one class to the next is trickier than advertised. More recently, a pair of French economists, Thomas Piketty and Emmanuel Saez, found that between 1973 and 2000, the bottom 90 percent of American taxpayers saw their average real income fall by 7 percent.

There's little agreement in the ivory tower as to why mobility is so hard to come by nowadays. Flailing around for someone or something to blame, economists have pointed fingers at regressive taxes, greedy corporations, weakening unions, and Wal-Martization. "The underlying factors that cause substantial immobility in the U.S. remain poorly understood," Mazumder confessed in his 2002 report.

From the vantage point of the Kid and his millions of real-life contemporaries, one big answer is obvious: The system punishes the young who dare strive for something better. For those on the young side of 35, debt and its ripple effects have made upward mobility a fiction more often than not.

Yet the presidential candidates seldom address the economic burdens of the young. Ask a candidate to outline his economic plans, and it's all about Medicare, Social Security, slashing the deficit—important issues, to be sure, but of little consequence to the millions of Americans in their twenties and thirties who agonize every month over their avalanche of debt and diminishing prospects. Howard Dean kicked around the student loan issue at a few press conferences before he flamed out, and John Edwards proposed giving a year's tuition to students willing to work 10 hours a week in their community. Other than that, the rhetoric has been scarce, and concrete proposals scarcer.

The conventional wisdom dictates that this is merely smart politics, since the young tend not to vote. Nor do college kids make for particularly sympathetic characters—they're often portrayed as hedonists who simply want to spend Mommy and Daddy's cash on a Cancún bender.

So the Kid pays his ambition tax in virtual silence, like that stereotypical sarariman putting in a 16-hour day with nary a complaint. Somewhere on the other side of the world, a Japanese youth preparing for his first trip to the U.S. may read the Kid's woeful tale and marvel, "How tedious, how pointless, how restrictive, how dreadful." He'd be right.


EDITOR'S NOTE: Student loans in six figures. Credit card sharks in cahoots with your college. Mortgages you'll finally pay off—from the grave. For ambitious people between 18 and 34, reaching the middle class today means taking on unprecedented debt. This article marks the first in an occasional series of election-year reports on the American economy as it's now being lived by our youth.

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