“Emerging Adulthood” and Life Cycle Planning

It was exciting and gratifying last weekend when the New York Times published a really excellent article by Jeffrey J. Selingo in its “Education Life” section that wove together several themes we’ve written on during the last two years and cited many of the same sources you’ll find in our life cycle planning bibilography.

I encourage you to read the entire article, titled “Will You Sprint, Stroll, or Stumble Into a Career?”

I will be reading Sellingo’s recently published book from which the article was drawn, There Is Life After College: What Parents and Students Should Know About Navigating School to Prepare for the Jobs of Tomorrow.

When I finish, expect to read more analysis here, along with implications for the wealth managers, attorneys, and other advisors who work with families affected by these issues (which, by the way, is almost everyone…).

The article identified three types of “emerging adult.”  (Parents, you may have been one type – or planned for your child to be a particular type – but find out your child is another. So pay attention!)

• Sprinters tend to pick a college major and stick with it, accumulating a “progression of internships that look more and more impressive,” and have “little or no student-loan debt, freeing them to pick job opportunities without regard to pay.” Others are “slow but methodical, assembling the building blocks for a successful career by investing in their own human capital.”
• Wanderers tend to have a poor coupling between college and the job market, often leading to underemployment, followed by a return (retreat?) to graduate school, which often leads to increased student-loan debt.  “Wandering” can carry a high opportunity cost, because “the bulk of salary increases tend to come in the first decade of employment.”
• Stragglers “spend much of their 20s looking for what they were meant to do.”  Many don’t go to college, or if they go, they don’t finish.  Collecting college credits but not a degree burdens them with student-loan debt without giving them a claim on the bachelor’s degree earnings premium.

You can browse what we’ve already written on these issues here:

• “Life Cycle Estate and Financial Planning for Early Adulthood” emphasized the primary importance of skills acquisition, wariness of student-loan debt, and accumulating human capital, first and foremost.
• “Overfunded 529 Plans: Avoiding Too Much of a Good Thing” identified how Section 529 plans are a mis-match in many ways for the “real world” expenses a family has to fully launch a young adult.  Qualified higher education expenses for tuition, room, and board are nice, but they don’t reach to equally important issues like funding starter apartments in Manhattan or Mountain View, or subsidizing unpaid internships on Capitol Hill, or paying for international travel during a “Gap Yah.”

• “Managing Volatility: Inheritance Strategies for the Lower Upper Class” focused on the dispersion in economic outcomes among the “educationally successful” and their children – as aspiring actors in LA and hedge fund analysts from Brooklyn come back to the Flyover and sit down at the same Thanksgiving table.  It explained how targeted investments in economically relevant postgraduate education can be a critical “pre-funding” for a child’s inheritance, and it discussed related  estate plan equalization options.
• “Managing Risk: Inheritance Strategies for the Upper Middle Class” identified the pressures on meritocratic professional families to fund college at the same time as they navigate retirement funding and hedge against risks of unplanned early retirement and/or job loss after age 50. For families in this cohort, we suggested allowing children to incur student loans, but then assist with their repayment after other risks of this life cycle stage such as bear markets and unexpected corporate mergers were navigated successfully.
• “Design Options for Education Trusts” discussed ways families can thoughtfully fund human capital acquisition by their descendants, while mitigating problems of “perpetual students,” preserving fairness among descendants, and motivating timely degree completion.

Even if The Grey Lady had never gotten around to noticing these issues other advisors and I see week in, week out in almost every aspect of our practices, they would still be tremendously important.

I’m heartened to see that Selingo is bringing focus and insight to them, and look forward to reading his book in detail.

Has Life Cycle Planning arrived?

Perhaps so!