The Board of Governors of the Federal Reserve released a new report that attempts to address the issue of whether or not Millennials are really are worse off at the same point that other age cohorts have been at similar ages.
The economic wellbeing of the millennial generation, which entered its working-age years around the time of the 2007-09 recession, has received considerable attention from economists and the popular press. This chapter compares the socioeconomic and demographic characteristics of millennials with those of earlier generations and compares their income, saving, and consumption expenditures. Relative to members of earlier generations,
Some conclusions in the report include:
- “Specifically, the real average full-time labor earnings of a millennial male household head in 2014 were about the same as those for a comparable male Generation X household head in 1998 and over 10 percent lower than those for a comparable male baby boomer household head in 1978.”
- “For female heads of all households, real average full-time labor earnings increased moderately between 1978 and 1998 and between 1998 and 2014, reflecting, in part, rising female educational attainment. However, the median labor earnings of female millennial household heads in 2014 were about 3 percent lower than those of comparable female Generation X household heads in 1998.”
- “[A]verage real labor earnings for young mal e household heads working full time are 18 percent and 27 percent higher for Generation X and baby boomers, respectively, than for millennials after controlling for age, work status, and a n umber of demographic variables. For young female heads of household working full time, these generational gaps in labor earnings are in the same direction but somewhat smaller—12 percent and 24 percent, respectively. For family income, the regression shows that Generation X and baby boomer households have a family income that is 11 percent and 14 percent higher, respectively, than that of demographically comparable millennial households.”
The Fed report also concludes Millennial debt levels are slightly lower:
The real average total debt balance was around $49,000 for Generation X members in 2004 and about $44,000 for millennials in 2017.
Moreover, according to the report, “millennials also have significantly less credit card loans and miscellaneous other debt.”
The debt that Millennials do have is not connected to assets. Millennials have mortgages, which, given lower homeownership rates, suggests Millennials have less home equity as part of their net worth totals:
In 2004, 28 percent of Generation X members had a mortgage, well above the 19 percent share of millennials that had one in 2017. … That said, the median mortgage balance for millennial mortgage borrowers in 2017 was somewhat higher than for Generation X mortgage borrowers in 2004 ($105,000 versus $94,000), reflecting, in part, the net in crease in real house prices during the same period.
Instead, debt seems to be more connected to student loans and to auto debt.
The report concludes that Millennials have a lower net worth than other age cohorts at the same stage:
Turning to net worth, which puts together the asset and debt comparisons described above, we find that millennials in 2016 have substantially lower real net worth than earlier cohorts when they were young. In 2016, the average real net worth of millennial households was about $92,000, around 20 percent less than baby boomer households in 1989 and nearly 40 percent less than Generation X households in 2001.
The median total assets held by millennials in 2016 is significantly lower than baby boomers in 1989 and only half as big as Generation X members in 2001.
Overall, the report paints a picture of younger workers who have fewer assets, lower incomes, and more student debt.
A common response in the media has been to blame Millennials for buying “too much Whole Foods vegan fare,” or for having too many other luxury tastes that render them incapable of building wealth. However, the Fed report notes that the consumption patterns of Millennials are not significantly different from those of other groups when incomes and other factors are taken into account.
Millennial workers started their careers in the post-Great Recession world and what Brendan Brown calls the Great Monetary Experiment.
They had to deal with the fall-out of the Great Recession itself which was widespread unemployment for a period of years, with slower income growth in the first several years of employment, which can have a long-term effect on wealth accumulation. O
And Millennials appear to have been hit especially hard by this, as noted in this report from the St. Louis fed.
All of this, of course, happened on the Fed’s
Essentially, we have a group of workers who start out their careers in a bad labor market, brought on by more than 20 years of money-pumping by Volcker (later in his term), Greenspan, and Bernanke. Also, banking regulations have been re-factored by federal politicians and regulators to favor established firms and the already-wealthy, not young workers.
“It’s basically impossible for banks to make mortgage loans to anyone but wealthy customers.” – Karen Petrou
Basic methods of saving, like savings accounts, offer interest rates that don’t even keep up with inflation.
Combine this with rapidly climbing home prices, and we have a formula for an economic system where being an ordinary worker — who needs to build wealth from scratch — is facing low yields, less accessible debt, high housing prices, and lower incomes.
This has led to greater inequality, and a growing gap between younger workers and older ones.
Leave a Reply