Recessions are never a good time for anyone. A stagnant economy means financial, emotional, and physical-health consequences for everyone, from Baby boomers to Gen Z. However, the next recession stands to hit Millennials particularly hard.
Millennials were bloodied in the last downturn, struggled in the recovery, and are now left more financially vulnerable than ever. They are failing to make it to the middle class as they inch toward middle age. More likely than not, they will be the first generation to end up worse than their parents and grandparents.
It was the last downturn in 2008 that actually set Millennials for economic calamity. They graduated into the worst jobs market in 80 years. Some failed to launch and get gainful employment. A few years of high unemployment and living in their parents’ basements meant a full decade of lost wages.
As of 2019, Millennials were earning no more than Gen Xers were when they were at the same age, and 20% less than Baby Boomers, despite the economy being much bigger and richer.
The students of the 1990s and 2000s have also had another factor that took a toll on their post-educational earnings: $1 trillion of educational debt. According to the Congressional Budget Office, about a ¼ of Gen Xers and ½ of millennials who went to university took out loans to do so. This is even made worse because the cost of tuition has gone up 100% since 2001.
For those that had taken out private student loans, a rate hike from the Federal Reserve can potentially raise your student loan payments by 0.5% to 1.0%.
Lower earnings and higher student-loans shut Millennials out of the housing market, thereby losing a seminal way to build wealth. Our ownership rate is a full 8% lower than that of the Gen Xers or the Baby Boomers when they were the same age. According to the National Association of Realtors, the median age of home-buyers has also risen to 46.
As a result, Millennials have not benefited from the dramatic rebound in equity and housing prices that occurred since the 2008 financial collapse. They have also been forced to shell out billions of dollars in rent as housing costs have gone up in many urban areas such as N.Y., S.F., and L.A. This is a large generational transfer of wealth from the young to the old. Boomers and Gen Xers own the houses, thereby benefiting from asset appreciation and debt pay down from the rent checks paid by tenants.
Cost pressures have also made it difficult for Millennials to save and invest. According to the Federal Reserve, the share of Americans under the age of 35 who own equities has fallen from 55% in 2001 to 37% in 2018. Also, ⅔ of Millennials have zero retirement savings. This means they have benefited NOT ONE BIT from the boom in stock prices from 2008-2020.
From a net worth perspective, Millennials are worth less than members of older generations are at the same point in their lives. According to the Federal Reserve, the net worth of your average Millennial household is 40% less than Gen X households and 20% lower than Baby Boomer households at the same age.
Could the Millennials make up this lost ground? Maybe… If wage growth accelerates dramatically, New York and L.A. decides to build millions of new homes, and Congress announces student loan relief. But this is unlikely. Student loans are simply too burdensome, and the cost of living in many of these large urban centers are simply too high. Only a minority of high achievers in high-demand sectors such as finance and technology will overcome this millennial disadvantage.
The next recession will likely make the “Millennial disadvantage” even worse. Millennials have already put off saving for retirement and buying homes. A downturn that leads to higher unemployment and lower wages will force them to wait even longer to start accumulating wealth.
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