Why Generation Y is broke - MSN Money

Why Generation Y is broke

20- and 30-somethings are in a financial mess. Is it because we're dumb, arrogant or simply uneducated?

By Emma Johnson, MSN Money

What makes Sophia Wallace a typical member of her generation?

The 28-year-old New York resident has a master's degree from a prestigious university, a successful career in photography, stamps in her passport from around the globe and, until recently, personal finances that were out of control. "Oh my God, I overspent!"

When Wallace graduated with a student-loan debt of $60,000, she found herself overwhelmed to the point of financial paralysis. She tore through a $5,000 loan from her dad as bills stacked up. She had no idea where her money was going -- despite making what she defines as a good salary. The sense of powerlessness crippled her.

When friends recommended she hire an accountant, Wallace packed a FedEx box with bills, receipts and mail and sent it off.

"He wrote me a letter that said, 'You've got to get your life together! Most of these bills aren't even open.' It was a really humbling thing," Wallace says. "But the next time, all my receipts were on a spreadsheet. No one had ever taught me to make a budget or balance a checkbook." What do you know about money?

Today, people in their 20s and 30s are more educated than ever before. Some 85% of those aged 25 and older hold a high school diploma, and 27% have a college degree. This generation of adults is also, of course, the most technologically sophisticated to date, with about half using cell phones for text messaging and 90% on e-mail.

Talk back: Is Gen Y dumb or just lazy?

And yet stats indicate our generation's financial literacy is abysmal, with personal finances to match. Only 52% of high school seniors passed a recent national financial literacy test, meaning adults entering the work force do not know enough about basic budgeting, interest rates or taxes to make sound decisions for their own lives. Quiz: Will you end up in your parents' basement?

As a group, we have failed to get a grip on fiscal reality:

• The median credit-card debt of low- and middle-income people aged 18 to 34 is $8,200.
• The average college debt for recent grads is more than $20,000 and rising.
• People between the ages of 25 and 34 make up 22.7% of all U.S. bankruptcies (but just 14% of the population at large), according to a recent report.

Carmen Wong, the 30-something author of "Gener@tion Debt: Take Control of Your Money -- A How-To Guide" and a former Money magazine staff writer, defends her age group. The problem is not lack of smarts, she says, but can be chalked up to an