Regardless of your opinion on the global pandemic of Covid-19, the response duration is winding down and the economy is reopening. Chances are, several years from now the shutdown that lasted several weeks will be an amusing memory and not nearly as impactful as the long-lasting economic effects. Here are some of the numbers:
- 30 million Americans filed initial unemployment claims since mid-March 2020. This does not include millions more in-process, ineligible, or who simply did not apply.
- 4 million homeowners have been approved for mortgage forbearance as a result of the pandemic. No doubt millions more are in the pipeline and look at forbearance as a last resort.
The Federal Reserve Bank pushed its balance sheet to over $6 trillion as it continues bailout every financial market in sight. Bailouts will continue and possibly increase in size.
In addition to massive federal and local tax revenue decreases, estimates are that state budget shortfalls will ultimately reach about 10 percent in the current fiscal year and as much as 25 percent in fiscal year 2021.
Small businesses have been particularly hard-hit, and many of them will not be reopening, ever. Predicting the future involves probability of occurrences, and evaluation of risks, and it appears that the probability that life has changed forever is a good one. This would be a change on par or greater than the long-lasting effects of the 9/11 event.
For younger person starting out in Texas, what are the opportunities and risks involved with the likely probability for the future? It goes without saying for the foreseeable future jobs will be much harder to come by, especially those that are higher-paying. However, there are some bright spots. Popular opinion and government policy seems to favor the return of many industries, especially manufacturing, to U.S. shores. In addition to manufacturing, pharmaceuticals, medical equipment and related services, and technology will be areas hopefully returned to the U.S., and offering future gainful employment opportunities.
For those contemplating a university education, those completing a degree, and those recently graduated: this moment is a serendipitous opportunity to dodge the shaky employment market and continue your education in the meantime. When things settle back to a stable economic footing, which they undoubtedly will, you will be in a better position to take advantage of the long-term economic and financial changes in the United States. Higher education experts are predicting drops in enrollments in the Fall 2020 term across the country, and it may be a once-in-a-lifetime opportunity to receive admission to the graduate program of your dreams. There is a good chance many prestigious universities will also be forced to drop what has been sky-high tuition up to this year. So, the opportunity is to continue your education, rather than struggle with the job market, at the current juncture.
Taking student loans has always been a difficult choice and commitment for many students, however there are some positive trends. There is a tremendous movement to lessen the payment burden of these politically, and with continued currency inflation, the value of any debts incurred decreases relative to the reduced purchasing power of the U.S. dollar. That is certainly a safe trend to bet on a decade or more out! In other words, paying back one dollar of loan 10 years from now will be much less of a burden than how much that dollar is worth at the current time. A good rule of thumb for acquired student loan debt is one half of expected annual income. If you maintain a level of that amount or lower, you will be well within the threshold of hitting a critical mass where the debt becomes an excessive financial burden. Further, every dollar of loan should go directly to tuition. Good credit on the loans will make it easier to acquire other financing, including the all-important home mortgage. Taking on loans is a tall order, but paying out-of-pocket cash for tuition, home, car, and medical is an even taller order over a lifetime. It is the smart and practical use of debt that makes the difference. In fact, those that like to pay cash out-of-pocket for everything many times made their cash over decades with the smart use of debt combined with asset appreciation, and dollar depreciation.
Further, there is a trend of businesses and individuals rushing to Texas as soon as they can get here after their own dramatic and atrocious experience in many of the states that were extremely hard-hit by Covid-19.
In short, the opportunity for a young person at the current moment is to continue your education aggressively, rather than struggle with a dilapidated employment market. When industry returns, particularly to the state of Texas, you will be in a stronger position to acquire employment and prosper in areas where the biggest job growth and highest paying jobs will occur.
On the other hand, you could continue to work, or attempt to work, in the general services sector: the type of jobs including restaurant, bar, salon, hotel, retail, airline, and related "high personal contact" jobs - these were the very first jobs lost many never to return during the pandemic. In other words, not a safe bet for the permanently changed workforce landscape due to Covid-19. In contrast, jobs requiring educational levels tended to be more resilient and long-lasting despite the pandemic response.
For current graduates, continuing on to a Master's degree has never been more attractive. During the approximately 2 years required to complete a Master's degree, enough time will have transpired for the economy to have undergone its requisite changes and reinvigorated itself. By the time you graduate, there is a good probability this degree will pay for itself in short order.
Another important trend to be aware of that has been in place for many decades is the separation, or bifurcation, of the wages and salaries of the more highly educated versus those with a high school education or less. In short, if you look at the chart of trends over time, those with a bachelor's degree or higher are achieving better purchasing power and standards of living versus those with high school only, whose relative share of the income pie is dropping. Gone are the days where you could have a factory line or union job in many industries and maintain a robust standard of living, long-term job security, and retirement benefits. Those with lesser education are falling behind, whereas those with important credentials are actually gaining ground in many areas, such as in software, technology, healthcare, and engineering. The events of Covid-19 will no doubt exacerbate and accelerate those long-lived secular trends.
In conclusion, for someone contemplating continuing their higher education, being frugal, practical, and realistic with one's educational goals and choices is very important as well. We know of the many stories of those picking the wrong degree, at the wrong school, at the wrong price point - this can lead to lack of a job, excessive student loans, wasted effort, and long-term stress and regrets. Our young people need to pick the right degree, at the right school, at the right price, and take out acceptable amounts of loans to ensure success. Whatever your choices, especially if you are young person, please be cautious, get good advice from a trusted mentor, and follow your passion as well. I would be happy to personally address any of your questions, comments, or criticism at my university email. The future for East Texas is bright in the post Covid-19 world, especially for those who plan for the future and choose correctly.