When economic historians review the last 10-15 years, one observation that is likely to come to the fore is that this was a period when the assumptions as to what was necessary to obtain personal prosperity began to change. To be sure, the economic forces underlying the changes had been in process for some time. However, it is only in recent years that people have actually started to recognize that the rules had, in fact, changed.
One assumption that more and more people are starting to question is the rule that you have to get a college degree. To be sure, those with a degree make more on average than those who don’t over an entire lifetime. However, people are starting to notice that whereas any degree was valuable before, today it depends on what you are studying as to whether a degree is worthwhile. Degrees in math, science, and engineering are often worth the money, but those in 17th century French literature are not. Furthermore, college has become more expensive and a student can end up leaving school with a degree and the equivalent of a mortgage payment. For degrees that will give you a good job, this might be a worthwhile trade off. For someone with a useless degree, having to make the equivalent of a mortgage payment (that could have gone to a real mortgage payment) can seriously hobble their attempt to build a future.
The second assumption that is being called into question is that prosperity requires that you buy a home. When it seemed that housing prices could only increase, then buying a home was a form of forced savings. Even today, buying a home in certain places can still be a good investment. However, as the economic downturn taught us, buying a home is not a “sure thing”, and in some places can still be a wealth-killing investment. Buying a home is no longer the automatic key to prosperity that it once was.
The third assumption that has been called into question is that the next generation will be more prosperous than the one before it. Through the baby boom generation, the experience was that the next generation was materially better off than the generation before it. However, with the economic downturn and subsequent anemic recovery, this assumption is also being called into question. There are several factors that are driving this pessimism. Globalization and the shortage of well-paying manufacturing jobs have meant that engine of economic prosperity for the middle class has been shifted into a lower gear. In addition, large school debt has meant that college graduates are now graduating having to pay off loans, which hampers their ability to build savings. The debt & consumer culture that emphasizes having it now means that many have gone into debt to buy “toys”, as well as the fact that Generation X is having to raise their kids, prepare to take care of aging parents, save for junior’s college, and suffer from stagnating wages, and the economic headwinds are overwhelming for many people.
Going forward, many Americans will have to (and indeed already are having to) recognize that what is possible is somewhat more limited than it was in the past. Reduced expectations and more realistic planning can help to navigate this new reality. For example, it may be that for many, kids, a great house in a great neighborhood AND a comfortable retirement may simply not be possible and they will have to make trade-offs. For Americans raised to believe that they can have it all, the new reality is the biggest assumption change of all.