The Young and the Nestless

The rising cost of education and a booming real estate market are weighing heavily on Hawaii’s 20- and 30-somethings

April, 2006

Go to school. Get a good job. Buy a house. Start a family. Repeat.

“I always thought that my education would pay off someday. If I got an advanced degree, I could get a better job, or land a higher position,” says Vera Sanchez, a 30-year-old accountant, who recently relocated to Las Vegas (see textbox below). “However, when I started to interview with companies, it quickly became apparent that I wouldn’t be able to get the kind of job I wanted at the pay that someone with my experience and education deserves.”This five-point formula has reliably guided generations of young and clueless adults to economic prosperity. It’s what helped the Greatest Generation scale even greater heights on the home front and made the Baby Boomers boom. However, for Generation X and succeeding generations of young Americans, the simple formula has gotten increasingly complicated, especially during the past decade, when soaring education costs coupled with slow income growth meant that young adults were entering the workforce later. They were also making less and owing more. In addition, in Hawaii, a red-hot real estate market, which has pushed the median sales price of a single-family home to $615,000 and condominium to $295,000, is making the American Dream just that, a dream.

Vera Sanchez never dreamed of living any other place but Hawaii, but in March the 30-year-old Kauai native packed up her things and moved to Las Vegas, without a job, job prospects or business contacts. For Sanchez, the uncertainty of a new city was preferable to the certainty of Oahu’s limited job market and its out-of-control real estate world.

“To tell you the truth, I don’t know why I chose Las Vegas,” said Sanchez a week before her departure. “I’m not familiar with the job market there. But I’ve been to Las Vegas enough, so that I do know what’s a good area to live in and what’s not.”

Sanchez, who was an accountant at the Queen’s Development Corp., got her degree in Business Management from Honolulu’s University of Phoenix, before receiving her MBA from Chaminade University in 2004. Her seven years of higher education were financed with more than $40,000 in student loans, a sum which she will have to start repaying later this year.

The last straw came this past summer, when Sanchez started to look for a small condominium to purchase. She concentrated her efforts in the Makiki and Punahou areas and was shocked by what she found. Everything she saw was either too small or too old or too expensive.

“I just couldn’t see myself living in those places. The market is just ridiculous right now,” says Sanchez. “I would have loved to stay in Hawaii, but I just don’t think that I can survive financially.”

Education Pays

Despite Sanchez’s sentiments about her qualifications, statistics prove one part of the prosperity formula: education pays. Higher education is a critical component of workers’ earning power. According to a 2002 report sponsored by the state Public Interest Research Groups, a collection of nonprofit, nonpartisan public-interest advocacy groups, a college degree is worth as much as 75 percent more than a high school degree. Spread out over the course of a normal career, that amounts to more than $1 million in earnings. In Hawaii, according to the U.S. Census Bureau, the median earnings of a high school graduate 25 years and over in 2004 was $25,518 compared to $39,028 for college graduates, a 52.9 percent difference.

Following World War II, Islanders hit the books in ever-growing numbers. In 1940, only 5.3 percent of Hawaii residents had completed four years of college, but spurred on by the G.I. Bill, that number slowly grew to 6.1 percent in 1950 and 9 percent in 1960. The rate then took off, most likely the result of the passage of the Higher Education Act in 1965, which set up the college financial aid system as we know it. In addition, a couple of years later, Congress established the Pell Grant program, which covered a majority of tuition costs for needy students. By 1970, 14 percent of Hawaii residents had completed four years of college or more. By 1980, that number was up to 20.3 percent. In 2003, the rate reached 28.2 percent.

However, even the degree and the extra dollars it earns may not be enough to keep up with the cost of living. In 2004, the median annual household income in Hawaii was $53,123, which was No. 8 among the 50 states and an 11 percent gain over 1994’s income numbers. But the rate was far behind the previous decade’s increase of 32 percent, when Island median income grew from $28,877 in 1984 to $42,255 in 1994. Meanwhile, from 1994 to 2004, median household spending increased 30 percent.

The Graduate
Crawford, who attended a junior college in Alabama for two years, secured a full scholarship from HPU to help coach the school’s cheerleading squad. He shared a one-bedroom Waikiki apartment with three roommates, paying $200 a month. To help with living expenses, he got a job coaching gymnastics to children in the afternoon. He also worked the graveyard shift at Abercrombie & Fitch restocking shelves. The problem was that, between school and his three jobs, Crawford only had enough time for a couple hours of sleep a night. He worked the hellish schedule for three weeks before his body finally gave out, and he couldn’t get out of bed one morning.When Shea Crawford came to Honolulu in July 2004 to attend Hawaii Pacific University, he was intent on not acquiring any student debt to finance his education. The 25-year-old native of Huntsville, Ala., had seen his family’s small business fold and his parents struggle for years with bankruptcy.

Crawford, who has never owned a credit card, finally relented and borrowed money. He quit his job at Abercrombie & Fitch and took out a student loan to help pay his living expenses. Today, he lives in a tiny studio in the back of a house in Liliha. It’s not much to look at, but he doesn’t have to share a single square foot with anyone else.

Still coaching at school, Crawford has a paying internship at Sports Radio 1420, a sister company of Hawaii Business, as well as a full load of classes. He is scheduled to graduate next month with a bachelor’s degree in Public Relations and $9,000 in student loans. He plans on staying in Hawaii after graduation, even though friends and relatives have pointed out that the cost of living in the Islands is much higher than his home state or neighboring areas of Florida.

“I’ve accumulated $9,000 in debt over the last year and a half. At first, I thought that sucked. But after talking with some of my classmates, who owe much more, I’m thinking that that number is pretty awesome,” says Crawford. “I’ll stick it out here as long as I can. I know when it comes to eventually buying a place for myself, I could get a lot more for my money on the Mainland. But I like my chances in Hawaii. I figure that I’m already used to living on next to nothing, and I’m a very patient guy.”

Education Also Costs

The cost of a college education has never been higher. According to the U.S. Department of Education, during the academic year 2004-2005, undergraduates attending public, four-year institutions reported an average price of $14,320 for in-state students and $21,621 for out-of-state students. These prices reflect 22 percent and 33 percent increases, respectively from just three years ago.

But help is on the way, sort of. According to the College Board’s 2005 financial data, almost $129 billion in student aid was distributed in academic year 2004-2005, nearly $10 billion more than the previous year. The average aid per student increased by 3 percent between 2003 and 2004 and 2004 and 2005, after adjusting for inflation. However, the type of aid continues to change dramatically. Between the academic years of 1996 and 1997 and 2001 and 2002, total grant aid for undergraduates grew twice as fast as borrowing, but that pattern has since reversed. In 2004-2005, the percentage of total undergraduate aid in the form of grants declined for the third year in a row. In 1975-1976, Pell grants covered 84 percent of tuition at four-year public institutions. Today, that number has dropped to 39 percent.

Loans now comprise the bulk of a student’s financial aid package. In just the past decade, the amount of money borrowed in the form of Stafford loans has more than doubled, from $15 billion in 1992-1993 to $35 billion in 1999-2000. As a result, the average student borrower now graduates with $27,000 in debt, three times the amount of a decade ago. The average undergraduate student loan debt now represents about 9 percent of a young adult’s income today.

The High School Graduate

About 16 years ago, “Tracy” (who asked not to be identified for this story) left the University of Hawaii Manoa. The computer science major, who had been at UH for a couple of years, just couldn’t imagine herself sitting in front of a monitor for eight hours a day. She got a job as a waitress, partly because she needed a break from school and partly because she was shy and wanted a way to break out of her shell.

It worked. The now-outspoken Tracy was in the restaurant business for a couple of years before landing a job as a jewelry designer, where she learned how to goldsmith and set diamonds. Today, Tracy, 35, works at a jewelry manufacturer. Living on her own since she was 19, she says that she makes a comfortable salary in the $40,000 range and hasn’t struggled to make ends meet like many her age. But she also lives differently than many her age.

“I’ve always been able to afford what I wanted, but, then again, I never really wanted a Gucci bag, or anything like that. I’ve had only two pairs of shoes for I don’t know how many years,” says Tracy. “If I don’t feel that I have money, I don’t spend. However, there’s a lot of pressure to dress a certain way or have a certain thing, and I can see how people can get drawn into that.”

Homeownership may be another thing entirely. A newlywed, she and her husband have been contemplating buying a house in Hawaii, but the overheated real estate market has given them pause. Since her husband is in the Navy and will eventually be re-posted, they’ll probably end up buying elsewhere.

“It’s not a matter that I couldn’t do it [homeownership]. It’s just a matter of that being the only thing I could do. Then you have kids and how do you deal with that?” asks Tracy. “The way the economy is structured, this can’t be good for society in general. It is highly odd for me that the government says that this is OK, while there are so many people floundering.”

Brain Drain No. 3

For UH Manoa ethnic studies professor Jonathan Okamura, all the bad news sounds like old news. Young people’s increasing frustration with not being able to get ahead, or even stay afloat, in a booming state economy is similar to the complaints voiced in the ’80s and then again to a certain extent in the mid-’90s.

“The problem is a lack of social mobility. Our economy, still dependent largely on tourism, is a limiting factor,” says Okamura. “Today, the economy may be doing well, but most of the jobs are in the retail and service sectors. What we have now is a replication of what happened in the booming late ’80s. I think we’ll see a lot of young people leaving the Islands again.”

Okamura says that this latest brain drain, the third is as many decades, probably won’t be as furious as the one in the ’90s, when the California economy was taking off, while Hawaii’s was still mired in a recession. He also notes that the University of Hawaii’s system-wide tuition increase, 140 percent spread over six years, is likely sowing the seeds for future economic and social distress by cutting off higher education opportunities to large segments of the population, especially marginalized minorities.

UH Manoa’s 2005-2006 in-state tuition is still a bargain at $3,504, but, according to Okamura, administrators are missing a unique opportunity to level the educational playing field. Besides, Honolulu is a very expensive city to live in.

Think Different

Times are tough for some young folks. However, times have always been tough. Every generation has had its unique challenges and today’s young adults are no different. According to Ron Wall, extension specialist in family economics at the University of Hawaii Manoa, they just have to start thinking differently. No other generation has had as much material wealth as early as today’s young adults. Financial security is within reach. They just have to stop spending.

“As high as housing prices are in Hawaii, it is still possible for many young people to eventually buy a home,” says Wall. “Politicians like to talk about how they’d like to change the rules of the world we live in. We can’t, we’ve just got to live by them. I would ask these kids, who say they can’t afford real estate, what kind of car they are driving and how often they buy a new car. Keeping a car for maybe 10 years saves a lot of money. Also, in Hawaii, we have a lot of people living with their parents well into their 30s, maybe even later, and many of them aren’t paying any rent. That’s a lot of money to invest and save, but they’re not doing that. They’re spending it.”


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