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The Educational Divide; Future of Your Job; Is Homeownership Worth It?; Saving for Retirement

Aired December 31, 2011 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

CHRISTINE ROMANS, HOST: An education, a job, a home and a good retirement - every part of the American dream is changing.

Good morning, everyone. I'm Christine Romans.

Coming up, the growing gap between our generations. We look at the challenges, the stereotypes, and what we can do to make sure that each generation can do better than the one before it.

We begin with education. College tuition and fees have risen more than 400 percent over the last 30 years. Things sure have changed.

Take Baby Boomers. Many of them were the first in their family to go to college, right? Well, today their children and grandchildren, they may hold a degree, but it comes at a steep price and they're still looking for a job. Student loan debt now stands at $865 billion, topping credit card debt for the first time.

Let's bring in Ryan Mack, president of Optimum Capital Management; John Doggett, professor at the University of Texas at Austin; Aaron Smith, co-founder of the group called Young Invincibles, a non- partisan organization focused on issues facing young Americans; and Ruben Navarrette, CNN.com contributor.

Aaron, I want to start with you. It's your generation, the Millennials, ages 18 to 30. How do they feel about this shifting - the shifting situation for education? It costs more, you're not guaranteed a job, but you know you need it.

AARON SMITH, CO-FOUNDER, YOUNG INVINCIBLES: And there's tremendous concern out there. We know that, as young Americans, that we need that education to get ahead. There's huge benefits from getting a college degree, but as - as you mentioned, the - the price of going to college is going up faster than inflation. It's going up faster than even health care.

ROMANS: Yes.

SMITH: And, unfortunately, the - the policies that we're putting in place, like slashing aid to higher institutions at the state level and cutting Pell Grants, are exactly the wrong kind of policies that are going to make it more affordable to get - to get a higher education and to get ahead.

ROMANS: John Doggett, I want to bring you in because, you know, the ability to go to college, it was a milestone for an individual and for a family. You know, has that milestone, the price of that milestone, changed? And how do we convince kids that, yes, it really is worth it to get a college degree. I'm really sorry that it's going to cost you so much.

PROF. JOHN DOGGETT, UNIVERSITY OF TEXAS AT AUSTIN: Well, it's crucial that kids get a college degree, but the milestone has become a millstone. If we look at what's happened with student loan indebtedness, it's gone up 511 percent since 1999. It's twice as fast as the subprime crisis that took down the banking industry a couple of years ago.

So, we are now telling our kids you have to have a college education, but it's going to cost you an arm and a leg and another leg, and that just doesn't make any sense.

ROMANS: I know, and you have to be so strategic about the education you're getting because we know that some places are hiring and some aren't. And - and you and I, John, have talked about that a lot - Science, Technology, Engineering, Math and how, you know, the rest of the - the rest of the world, quite frankly, is churning out kids with really superior skills in some areas.

Ruben, I want to bring you in. Let's talk about the American family, because everything's changing here, and - and maybe the cost of an education, the cost of everything is one of the reasons why this is happening here.

Barely half of all adults in the U.S., a record low, are currently married. This is according to a new Pew Report. And take a look at this, in 2000 the cost of raising a child was $165,000, give or take. By 2010, it was more than a quarter of a million dollars. That's not counting college.

So you've got people who are graduating from college going into an economy at a time when they should be thinking about having children, getting married, homeownership themselves, and they're saying, wait a minute. I'm not going to do it the way my - my parents' generation did.

RUBEN NAVARRETTE, CNN.COM CONTRIBUTOR: Christine, you're right. It's all - it's all different, and the first thing they've got to understand is they can't take the - the life experience that their grandparents went through and their parents went through and apply it to themselves.

They've got to realize that the degree is not going to be worth as much now as it was before. Instead of setting their sights on a bachelor's degree, they're going to have to go for a Masters, a Ph.D., a law degree, a graduate degree. And, beyond that, they're going to have to start thinking strategically, even while they're in college, about getting that next job.

Everything's different. I think one of the main problems is we liked to sort of use our parents and our grandparents as a frame of reference, and we lose sight of the fact that the world has changed enormously, and this is one example of that.

ROMANS: You know, Ryan, you talked to a lot of - you know, a lot of young people. I mean, you talked to people who are trying to improve their finances. I mean, you know an awful lot about money. It's not a given that this generation can do the same things - so Generation Y can do the same things Generation X did and live a little bit better, is it? It's - it's not a given anymore.

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: Absolutely not. The - the bottom line is this, we are now in the day of having to learn how to create our own experience, even while in college.

I mean, we have - we work with a lot of folks, a lot of young folks, even have a lot of mentees of mine who they might go to that local city college, and granted that local city college might not be looked at as prestigious as a Harvard University. But it's time for individuals who are younger to start volunteering in your community and making documents of exactly how you're volunteering, starting your own businesses and maybe failing at your own business so you can at least highlight that experience that you've created while you're in college, once you've graduated college, so you can start making yourself look and appear more marketable.

Doing all these things and more to make sure - again, you're creating your own experience and not just relying upon that college education. I mean, granted college - average - average work life earnings go up by $1 million for those individuals who go to college than those who do not. But that pool of individuals who graduate college is starting to grow and grow, so that it's becoming smaller and smaller in terms of opportunity for individuals who graduate, especially Generation Y that just graduated.

So we have to learn how to create our own experience. Don't wait on the ship to come in. Learn how to swim out to your own ship, and don't use that college as your only crutch to be successful.

ROMANS: Oh, Ryan, that's such good advice. You know, so if you have that college degree, your lifetime earnings are, what? $1 million more?

MACK: Yes.

ROMANS: But more and more people know that, and they're getting the degree, and so that pool of opportunity is shrinking. That's some really important advice.

Everyone, stick where you are. There's so much more to talk about. You're going to be with me to do it.

And, you know, it used to be you had a job for as long as you wanted a career, and then you decided it was time to retire. Not anymore. We're going to look at the new normal for all of the generations.

(COMMERCIAL BREAK)

ROMANS: Welcome back to YOUR BOTTOM LINE. Once was you graduated from high school or college and then you got a job. You had a job for as long as you wanted a career, until you retired. Not anymore. More than 13 million Americans are out of work.

Ryan, Generation X, those are people 31 to 46 years old, they're at the highest earning point in their lives. Can you make the argument that - that your generation is going to suffer more than the other generations because the financial crisis hitting right when they should be at their peak.

MACK: I mean, absolutely. I mean, the bottom line again, as you said in the beginning, you know, Science, Technology, Engineering and Mathematics are - is continuously growing. The - the technology unemployment rate is about 4.2 percent, whereas the rest of the unemployment rate is 8.6 percent nationally.

So many of us in Generation X are not necessarily trained in those areas, so we're finding ourselves in terms of (ph) the pool and opportunity of jobs becoming smaller and smaller. So we're scuffling right now, trying to go around maybe getting retrained, going back to school, and many of us in Generation X are finding refuge in that additional Masters program, going back to law school, and not necessarily just to get an education but just to make sure they can live off of student loans while they continue to just kind of wait out this recession.

So, again, we just have to make sure that we're getting retrained, we're getting educated, and knowing about those areas that are hottest. But if you're not educated in those areas like Science, Technology, Engineering and Mathematics, you're not going to get that job. So it's really up to you to figure out exactly what you can do to prepare and position yourself best for this recession and - and this hard economy.

ROMANS: You know, John Doggett, if you're - if you're a Boomer and you're hearing me talking about STEM, STEM, STEM, and you go around the country talking about STEM, STEM, STEM and someone's just lost their job and they're in their 50s, they don't feel like they're in a position to be retraining for STEM after 30 years on the job. How do they reboot? Do they need to reboot?

DOGGETT: Well, you know, Boomers want to reboot, they need to reboot, because they're afraid of retirement now because, in many cases, their big nest egg was going to be the equity in their house, and we know what's happened to house equity levels. They've dropped in half. The problem is, is that if Generation X is having a problem retraining, the Boomer generation is having the bigger problem retraining.

We really have no choice. Some of us are fortunate, like myself. We work with young people all the time, and so we're very comfortable with technology, but I've seen some of my peers who've never had to work with young people, looking at new technology, and they find it very challenging.

This is the most frightening time for Boomers ever because many of us thought that we'd be able to retire with dignity and comfort, and what we're finding is that that's just not happening.

ROMANS: Ruben, you know, you've written about Millennials, and your Millennials are comfortable with technology, but then there's also this feeling that they are kind of entitled, particularly at work -

NAVARRETTE: Right.

ROMANS: -- and you've written about this. Does the workforce need to adapt to these Millennials, or do the Millennials need to adapt to the workforce?

NAVARRETTE: A little bit of both. But mostly it's the Millennials that have to adapt.

I hear from sometimes hundreds of employers, whenever I write about this subject, because they've all got a story to tell about some young person who they interviewed, in their early 20s, who comes in with this air of, OK, I'll - you know, I'll work here. I'm doing you a favor. When am I going to be up for vice president? And there's a sense of not wanting to pay your dues, of - of being in a hurry.

I mean, this generation - my generation, X, certainly has a - a sense of immediacy about it, and Millennials have it even more so. They go to one Internet company over another because they say I - I can get it faster, faster, faster. So they want everything right now, and it - it plays into the -

ROMANS: And so Aaron, the young kids, you know, there's this perception in the workforce that they need to learn how to play ball with the Generation Xers and - and the Baby Boomers, and even the Silent Generation that - that's still working. And oh, by the way, don't expect to - to be handed as much as the - as the Boomers were in terms of - of government - government contract for retirement.

SMITH: I mean, look, young people, I think, want the same things that every generation in this country wanted, and that's opportunity. You look - this is a generation, I think, that has tremendous potential. We talked about how we're tech savvy, how we're entrepreneurial. It's a generation that's serving our country overseas.

This is a generation that has a lot to offer, and I - and I think we need to invest in them. And absolutely, I mean, young people need to be part of figuring out this new economy, but we also have to invest in them and give them that opportunity to succeed.

And if I can add just one thing, it's we talk a lot about college graduation. The reality in this country is that two-thirds of young adults actually don't get a college degree. And, in the past, you had that opportunity without a college degree to get a middle-class job, and that's going away. So that's - that's one of the things we're most concerned about.

ROMANS: Let's keep it there for a second, because there's more to talk about here. We're going to talk next about owning a home. It was a huge part of the American dream, and that's changing, too. Why smart young people say, a mortgage? No way. (COMMERCIAL BREAK)

ROMANS: For Baby Boomers, a white picket fence, two-car garage and a mortgage to pay off in 30 years, that was part of the American dream. Now, as we pull ourselves out of the financial crisis, that dream might well be changing.

John, you say that for - for many Boomers, their home was their nest egg. Now, it's a broken egg. This is really going to be critical for how people retire and how younger people view homeownership.

DOGGETT: Well, it's really frightening for a lot of Baby Boomers because they anticipated that when it was time to retire they'd be able to sell their home, downsize and take a lot of cash out, and that's not happening for a lot of Baby Boomers because of what's happening in the market. However, the reality is if I'm young, this still is a great time to own a home. Interest rates are at historical lows, house values have gone down significantly, and what we know is that when the economy turns around, which it has to do eventually, interest rates and house values are going to go up.

So, if I'm a young person who has a job, I would really think seriously about buying a house right now, because this is a great environment. If I - if I'm a Baby Boomer, I'm sweating bullets because I'm worried I'm going to lose my job to some younger person, I'm worried that my pension may be cut or my retirement may be cut, I'm worried that property taxes may go up and force me to sell my house at a loss.

So, if I'm a Baby Boomer, it's not a fun time to be alive right now. If I'm a young person, it's the greatest time to buy houses that I've seen in a long time.

ROMANS: Let's - let's bring in Aaron. Aaron, you know, homeownership, though, not necessarily the dream for your generation. When I talk to young people, they say, look, if I - if I want to get a job in Seattle but I'm living in Baltimore now, I can't have a mortgage. Or they even sometimes feel bad for their friends who have to take care of all of the costs associated with a home because they just want to make sure that there's, you know, good amenities there and that they can jump out of it with a month's notice, right?

SMITH: Well, I mean, first of all we find that many young people do want to buy a home. We found that 46 percent of young adults actually said that they were delaying purchasing a house.

But, you know, the economic anxiety out there does make you think twice about buying a house. If you already have student debt, you're going to add the mortgage on top of that. You're not sure about, you know, what your job situation is going to be. I think those are real challenges, and it - that's - the unfortunate thing is that it affects the whole economy when young people are not investing and - and buying a house.

ROMANS: Well, and the conversation that people are having, quite frankly, is can I get back on mom and dad's insurance, for health care insurance? And can I - how many years can I live at home before, you know, I completely - my parents completely go crazy?

I mean, they're - we're talking about multigenerations living - we're talking about, frankly, the Silent Generation moving home with their Boomer kids, and then, you know, the Boomer are now called the Sandwich Generation because their kids are calling about (ph) a college with all these debt.

You know, Ruben Navarrette, it's interesting because when we talk about multigenerations living at home, you know, 28, 29 percent of homeowners are underwater on their mortgage. You've got child care costs that are going up. You've got people's out-of-pocket expenses for health care still going up.

There's just a new reality about homeownership and the costs associated with it. Are we changing what we think is the American dream, do you think?

NAVARRETTE: Yes, I think so. You know, going back, again, World War II, the generation was you've made it when you have a home. Not just the white picket fence but, you know, rather than pay rent, you're going to actually have something that you can call your own.

The Baby Boomers bought into that. They subscribed to that. But one thing you have to understand about the generations, no matter what the generation is going through, someone else is always watching. And - and what happened to the Boomers in '91 (ph), the recession, when those folks who are now in their 60s were in their 40s, when they got hit by that recession and laid off in many cases, the message to my generation of Xers was don't put all your eggs in one basket.

ROMANS: Right.

NAVARRETTE: Likewise, today, younger Millennials are watching what's happening with Xers in these mortgages, saying, oh, my goodness. Let's - look what happened. You know, you put all this money into it, the property dropped. All the things that John talked about before, all these various anxieties, the uncertainty of the market, and they say, I'm out. You know, I don't want to do that. I'd rather just go rent.

And so every generation sort of learns from the other, and there's an apprehension. It's sort of look at what the other generation's going through, saying I don't think I want to do that. No, no. Not for me.

ROMANS: There are two numbers, everybody, that absolutely terrify me about retirement. Two numbers. I'm going to tell you what they are and whether my fear is shared by - by my guests and perspective - respective generations. That's next.

(COMMERCIAL BREAK)

ROMANS: All right, here are the two numbers that terrify me. Fidelity Investments estimates that a 65-year-old couple retiring this year will need $230,000 to pay for medical expenses throughout their retirement. That's out of pocket, and it doesn't include nursing home care. That, according to MetLife, adds another $87,000 per year for a private nursing room. And if you want a roommate, it's going to be only in the $70,000 range. Wow.

Ryan, we really need you to help us financially prepare here for retirement these days. Those are big numbers.

MACK: I mean, the bottom line is, I mean, we have not done the right things in order to get prepared for this. I mean, a typical retiree - pre-retiree, 55 or over, only has about $60,000 in retirement savings, and that's well short of the numbers required. Those numbers don't include the numbers to eat, which is probably on average about over $200,000 just to feed themselves through those years, as well.

So a lot of the expenses that we're not doing, and especially when you put it to the - to the fact that over 90 percent of all households essentially are relying upon social security as a primary source of income. I mean, this is - these numbers are preposterous when you also look at the number that less than - over half of America said they have less than $2,000 of workers save for retirement at all.

So there are some certain things that we can control. Again, there's a lot of things going on in Europe, a lot of things going on in the government, a lot of things going on all across the world and - that we can't control. But what we can control is, starting right now, better late than later, so it doesn't matter how old or young you are, start putting money in that retirement account and saving aggressively - as aggressively as possible.

ROMANS: But Ruben, this - this just reiterates that there's two Americas, right? So there's - there's the America that's going to be able to save that money and going to be able to plan and have the kind of income. They can save all that money. And then they're going to have to pay all their money when they're old to support themselves.

Then there's the other part of the equation, where people who will never be able to save that money, either can't or won't, and then the public will have to pick up the tab.

NAVARRETTE: Right. Christine, it's actually even more complicated, because in many cases, you may find that some of these folks who are at the lower income levels are actually more frugal. They do a better job of saving. They're used to having less.

You know, one of the things, again, that characterized the World War II generation, having gone through the Great Depression and having to go through resources, and - and in World War II the idea of sacrifice, saving money away. The Baby Boomers come along and for - as you know, Madison Avenue, for 30, 40 years have been going back to using Beatles songs to sell cars, and they tell Boomers, come on, you deserve it. You know, you work hard, buy yourself a new car, and so the Boomers didn't have any money saved.

Ultimately, it may be that the wealthy people, just because you're wealthy doesn't mean you know how to manage your money, doesn't mean you know how to save your money. And so it's not really a question of rich and poor, it's a question of when you were born.

ROMANS: That's really interesting. John, look at this. I want to - I want to look at this number for you. Forty percent of Americans say they will never be able to retire. Is your generation in crisis mode?

DOGGETT: Well, I don't think we're in crisis mode, but I think it's absolutely true. The definition of retirement has changed during our lifetime.

When I was growing up, the idea of retiring with a gold watch - a gold watch was a reality. Right now, I quite frankly think I'm going to continue to work as long as I'm healthy, and I know a lot of my friends are going to continue to work as long as they're healthy -

ROMANS: But you love to work. That's another thing about your generation, though. I mean, you loved to work.

DOGGETT: Well, whether we loved to work or not, we don't have any choice. We can't afford to retire.

Let me give you one example. A friend of mine from law - from college just retired after 38 years working with the Los Angeles Prosecutor's Office, and he retired because he had a great program. His retirement pay is 100 percent of what he was making full time.

ROMANS: Wow.

DOGGETT: And, in spite of that, he is now working as the assistant dean at our former college. So, even though he's retired and being paid 100 percent, he is working full time.

Retirement for the Baby Boomer generation is working until you physically can't afford to work anymore -

ROMANS: All right, Aaron -

DOGGETT: -- and that's a real change.

ROMANS: -- you get to - you get to round it out here, because, my friend, this is what the financial experts will tell you, time is your best friend. You have a whole course of a working career, Aaron, in front of you to save money for retirement. Do you feel like your generation is thinking now about saving for when they're 80?

SMITH: I don't even know how you can think about it. I mean, when you're thinking about paying for your rent and your car payments and your student payments, you know, paying - saving money to retire, let alone saving money for your kids to go to college is going to be an afterthought.

I mean, we actually found that 81 percent of young adults think that protecting social security is a priority for Congress, and I think it's because of these economic insecurity problems. We don't know where we're going to get the money when we've got all these other costs right now.

ROMANS: Yes. I know you and your group have been very active in - on that front and on those sorts of issues.

You know, I want to thank all of you because this has been just a fascinating sort of trip through the - the generations and the issues facing them. Ryan Mack, thank you so much; John Doggett, Aaron Smith and Ruben Navarrette.

Let's come back and - and talk about it maybe in 2012, all of us together with all of the hopeful things that may be turning around here in the near term. Thanks, everybody. Have a wonderful weekend.

All right, what are your thoughts on the generational divide? We want - we want you to weigh in. Generation X and Y, you can find us on Facebook and Twitter. Our handle is CNNBottomLine. My handle is @ChristineRomans. Boomers, you can visit our show page at CNN.com/YourBottomLine. And for the Silent Generation, here's our fax number - just kidding.

If you want to know more about the topics we cover here, don't forget about my new book with Ali Velshi. It's called "How to Speak Money." It's a guide to handling the money maze in your life and all of these issues affecting you, no matter how old you are.

Back now to "CNN SATURDAY" for the latest headlines. Have a great weekend, everybody.