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The Loss Generation

Young Americans are more cautious, less hopeful about nation's economy

By Jenn Abelson
Globe Staff / March 8, 2009
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It was spring 1995, and four Bentley College roommates had plastered the walls of their Waltham apartment with more job offers than rejection letters. The economy was growing, and stocks were on the rise. The guys were feeling good, the way college graduates could back then, confident that they would make it big in business.

By 2001, Craig Berlinski and C.C. Chapman were earning more than their parents combined, and their college roommates Jim Spoto and Greg Maynard had made tens of thousands of dollars in the stock market.

Like many in their generation, the four roommates believed in an ever-expanding economy and an unstoppable stock market. But now, Berlinski keeps extra money in savings accounts and refuses to look at his retirement fund. Maynard and Spoto have watched their investments drop more than 50 percent. And most of Chapman's savings were wiped out when he carried two mortgages because he couldn't sell his house after buying a new one.

Their first decade out of the school will be remembered not for its unprecedented boom, but for the striking string of bubbles that have burst: technology, housing, stocks. This recession's stunning job losses, plunging home values, and plummeting portfolios have turned 30-somethings uncharacteristically cautious. It's a sweeping shift in psychology for a group that is entering its prime earning and spending years - one that could turn them into a generation of savers and have a lasting effect on the economy.

"If I didn't have the memories of the good times, it wouldn't be so hard to accept now," said Berlinski, 36, who described the high life working at EMC between 1997 and 2004. He traveled the world, ate out most nights, grew his brokerage account to $50,000, and watched the Hopkinton tech company's stock break $100. (Today it's at about $10.) "But it was fiction. And it has changed my mind and my approach."

Thirty-somethings have been hit particularly hard by the current financial crisis, which last week sent the Dow Jones industrials average to its lowest level since 1997. Blame it on bad timing. They often bought homes and stocks at or near their peaks and now face the steepest losses. Indeed, over the past decade, this group has seen a greater accumulation and loss of wealth than any other age cohort, according to financial analysts. In 2007, households headed by someone under age 35 had an average household net worth of about $106,000, said Michael Feroli, an economist at JPMorgan who recently detailed the trend in a report titled "The Young and the Leveraged." That sum plunged 28 percent to $76,000 by the end of 2008, the largest drop among all age groups. Meanwhile, the percentage of 30-somethings taking hardship withdrawals from their retirement plans jumped to 2.6 percent at the end of last year from 0.9 percent in 2000, according to Fidelity Investments.

"The investing experience over the past 10 years has totally skewed their view of the way markets typically work. It's definitely going to change the way this group does longer-term investing," said Sharon Rich, a financial planner in Belmont. "You saw after the Depression that the mentality of conservative investing - leaving it under the mattress or in the bank - lasted a generation."

Such an attitude could stunt the economic recovery. That's because this age group is entering a period normally characterized by sustained spending, whether it's starting a family, buying a bigger home, or getting another car.

Nigel Gault, chief US economist at IHS Global Insight, said many 30-somethings could be reluctant to return to stock investments after their harsh realization that what goes way up can come crashing down quickly. A new fiscal prudence and increased savings will ultimately help the economy in the long term, he added, but reduce the size or scope of future booms.

"They've learned some lessons fairly early on that other generations haven't had to learn because we haven't seen market moves like this since the 1930s," Gault said.

These days, Berlinksi, a staffing manager at Veritude, a temporary staffing firm, is feeling insecure. His brokerage account has shed half of its value, falling to about $25,000. Job loss is on his mind. Last year, Berlinski's $50,000 home equity line was slashed to $25,000. He can't refinance because the Framingham home he bought for $295,000 in 2001 is now worth about $265,000. So projects like a new deck and driveway are on hold.

"It's all been so jolting," said Berlinski, who majored in business communications.

Chapman, too, is feeling the brunt of the housing bust. At the start of the decade, Chapman, who studied computer information systems, had saved more than $25,000 in retirement funds working in information technology. But he drained that account in 2003 to buy a small home in Milford for $250,000.

At the time, it seemed like a no-brainer. Chapman and his wife figured they could live there comfortably for five years, and, given the way housing prices were soaring around them, make a profit when they wanted to upgrade. In summer 2007, they fell in love with a new, larger home and signed the mortgage without selling their first house. They put the old home up for $265,000. And then they waited in agony, lowering the price for nine months while paying both mortgages, until someone was willing to buy it for $220,000 last April.

"It was hell," said Chapman, who has two children. "Paying two mortgages is not easy, and it drained whatever savings we had."

Today, his retirement fund is pretty barren; he hasn't made a contribution since starting a digital marketing firm in 2007. Any extra money these days is in a cash account, including flexible CDs that don't charge withdrawal fees, a choice spurred by the hard lessons the 35-year-old has learned.

"I know things could go drastically wrong," Chapman said, "so I want to make sure I have income to tap into."

Spoto, director of accounting at Bain & Co., is known affectionately by his Bentley pals as "the slow and steady one." He has held the fewest jobs since graduating - just two - and is the only one whose income has increased consistently over the past decade.

Spoto, who studied accounting in college, is meticulous about paying off his credit card every month, maxing out on contributions to his retirement plan, and investing bonuses into mutual funds. So it's particularly painful for Spoto, 35, to watch his portfolio, including college savings for his two children, drop 55 percent in recent months.

Last year, Spoto and his wife put most of their bonuses into a renovation for their home in Sharon that cost roughly $50,000. Now they are afraid the value of their investment has decreased. But Spoto has sought the silver lining: He says at least he can enjoy the addition with French doors and surround sound every day instead of seeing the money evaporate in his brokerage account.

These days, he is keeping most of his extra money in high-interest savings accounts and CDs, and has grown his emergency fund from five to eight months worth of expenses. Last month, Spoto took his first dip back into the market, investing $2,000. Over the past week, the investment had already lost nearly 5 percent of the value.

"We are taking baby steps back into the market. You think how much further can it go, but we said that two months ago, and it's gone down since," Spoto said. "We're cautiously back in, and I am definitely being more conservative."

If Spoto was the steady one, Maynard has seen the wildest swings of this bunch. By age 27, he was making $320,000 at a reseller of Internet technologies and data communications. His total net worth hit $750,000, and $500 sushi dinners with colleagues were not a rare event.

"It was a fictitious time," Maynard said. "If you didn't realize it was a fictitious time, you got burned."

And it was a hard fall for Maynard after the tech bubble burst. He has had nine jobs over the past decade, with three bouts of unemployment. He has watched his retirement funds drop from $130,000 to $60,000, and his investments in mutual funds fall from $110,000 to $40,000.

After he lost his job in 2006, Maynard, who studied business communications, returned to Bentley (which has since become Bentley University), feeling dejected and looking for guidance. He met with the school's vice president.

"I asked him what do people like me, who are used to working 24-hour days and being successful, do?" Maynard said, "And he said, 'You work for me.' And he hired me to be a fund-raising salesman in the development office."

Now, Maynard, 35, is happy to finally have some stability for his wife and two children. Still, he is trying to refinance his home to pay off a home equity line, and get $10,000 in cash to provide a cushion in case things go terribly wrong.

"This is our 1929," Maynard said, referring to the stock crash that marked the start of the Great Depression. "But I have all the confidence in the world that if we can survive this, it'll go up from here. But right now, I just want to keep on doing what I'm doing."

Jenn Abelson can be reached at abelson@globe.com.

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