My son, Matthew, and his wife, Cloudia, live in Monrovia, a suburb of Los Angeles in the San Gabriel Valley. We recently helped them move from a cramped, two-bedroom apartment in a not-so-great building to a sweet home comparable in square footage. With a small backyard, in a middle-class neighborhood. They love it, and we were thrilled to help out.
The bad news…it cost $5,000 just to move them and they’re paying around $3,800 a month in rent. The similar house next door sold a year ago for just shy of a million bucks. Matthew, who is turning 40 in May, makes a decent salary as a high school teacher. Cloudia, in her early 40s, is a pet sitter. Like most young families in Southern California, they are stretched to the limit.
Karen and I would love to help them buy a house (or a condo), but even if we could scrape together the 10-15% down payment, the monthly mortgage would be unaffordable.
Sound familiar?
What’s wrong with this picture?
The “American Dream”—what is it, and is it dead today? It has evolved over time and can include a number of variables—achieving success, upward mobility, educational advancement, personal and financial freedom, and, of course, the idea of home ownership.
The obstacles to achieving such goals are equally varied. Economic and social inequality, and student debt among them. My son, for example, carries upwards of $45,000 in student loan debt, low compared to others. Still, that’s a big chunk out of their monthly budget. Their best path toward home ownership is for Karen and me to, well, vacate our premises—for good!
Don’t get me wrong. His story is not all that gloomy. Lord willing, he’ll inherit a great house in an area that he’s already fallen in love with, the Pacific Northwest. All I’m saying is that by the time we reached his age, we’d owned a home for almost ten years. For us…back then…the definition of the American Dream was just that. Home ownership. We’d arrived!
But the dream has been stretched in different directions since then, I guess. It varies from person to person and can now be measured in personal fulfillment, work-life balance, and social progress. Many younger adults have either given up or don’t care about buying a house.
But…here’s the rub.
Rents in many cases are as high as mortgage payments, without the benefits of increased equity in the property over time as you pay down the principal on the loan. And there’s still the tax benefit of the mortgage interest deduction, despite recent changes to the law.
More than likely, there will be a pot of gold at the end of the rainbow when that 30-year mortgage is paid in full. My investment counselor would argue you’re better off in equities over the long term, but I think there’s something to be said for diversification. Besides, he owns a home in L.A., and that’s worth a ton. What’s good for the goose is good for the gander, right?
(Hmm…think I’ll add idioms to my list of Substack ideas.)
Gosh, these kids today face an uphill battle. Many start out under water just by going to college. The cost has almost doubled over the last four decades, and the student loan debt balance in the U.S. has increased by 66% over the last 10 years ($1.77 trillion).
The road to achieving the American Dream seemed much straighter back when, without all the twists and turns young folks face today. On top of living and education costs, we can add: Job market shifts…The widening gaps between the wealthiest and the rest of the population…access to healthcare…changes in family structures and dynamics.
Is the American Dream dead?
I don’t know. It looks different for sure.
What I do know is that this is still the land of opportunity. A place where hard work and ingenuity can still pay great dividends.
Our story…the saga of the Baby Boomers…is drawing to a close. Time for the generations behind us to take this wild ride.
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