Your university paid an exorbitant amount of money to hire a celebrity speaker, you've thrown your mortarboard in the air, and now it's time to join the real world. If you graduated today, what choices would you make? And how would these decisions affect the economic growth, trends, and specific stocks in the long run?
The party is over
Unfortunately, as soon as you step off campus, you most likely are dragging around a negative net worth. That's not to say you aren't worth anything, but financially, your debts will outweigh your equity. The median student debt balance sets you back $12,800 in debt. The median credit card balance sets you back another $1,645. You'd like to pay off these debts as quickly as possible, because it's difficult to beat the interest rate on your student loan of 6.8% in any other investment. You pack up and head home to live with your parents -- like 85% of your classmates -- and prepare to enter the workforce.
Finding an income
As much as you love sleeping in the same twin bed you've slept in since elementary school, you're ready to find a job, pay off debt, find a place of your own, and start a family. You had a few interviews while in school; however, the companies ended up taking no one from your class. Of your friends, roughly 57% currently have a job, even though 43% of those are working at a job that doesn't require their four-year degree. You're not too worried, though: You've read that it takes an average of six months to find a job if you couldn't land one before graduating.
Luckily...
Your father's friend has a job for you! You only earn the median salary for recent graduates, $30,000, but it's a start. But you, along with 62% of your classmates, believe more education is necessary for a successful career. Your plan for the future: continue living at home to save money and pay off debt faster, and head back to school for an advanced degree (and another load of debt).
The economic consequences
As discussed earlier, I believe that student debt payments put a damper on this economic recovery. Of course, graduates with lower incomes and more student debt hurt growth, but so does the mind-set and altered behaviors that come with a recession. A research paper from UC Berkeley noted that "stock market returns and inflation early in life affect risk-taking several decades later." Just as our relatives who lived through the Great Depression live frugally and would rather patch up a pair of pants than buy a new one, societal changes, like living at home after college, will accompany this recession.
Other changes
Even though Warren Buffett believes housing will rebound, new graduates may not follow the traditional path of homeownership. Because of the busted real estate market, new graduates may scoff at the idea of a "starter home" and prefer to rent, rather than tie up their money in an asset they've seen decline in value. This means that housing-related companies could languish. Clayton Homes, a Berkshire Hathaway (NYSE: BRK-B) subsidiary and maker of manufactured homes, only sold about 51,600 homes in 2011 compared to 146,700 homes in 2005. USG (NYSE: USG), the largest manufacturer of wallboard in the US, saw only modest improvement in 2011 over 2010, with a net loss of $390 million, versus $405 million.
Another large purchase, a car, might also see less demand from graduates. The Federal Highway Administration reported that the proportion of 16-year-olds licensed to drive fell from 43.8% in 1998 to 29.8% in 2006. Also, a study funded by Zipcar (Nasdaq: ZIP) found that 53% of 18- to 34-year-olds were likely to use a car sharing program (more than five times as likely as those over 55 years old). Fewer licensed drivers, more drivers willing to share cars, and less of an income to pay for a car could dampen car sales to the younger generation. Additionally, the behavior of holding on to a car for longer (currently at a record 10.8 years) could persist far into the future, slowing demand for top carmakers like General Motors (NYSE: GM) and Toyota (NYSE: TM).
The Foolish takeaway
The students graduating today have more debt and a different mind-set when it comes to investing and spending than their predecessors. New graduates observed how difficult it is to find a job and become debt-free, and how real estate values can decline. The changes in mentality may not be as pronounced as those during the Great Depression, but valuations built on unchanging behaviors from older to newer generations might need to be revisited.
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