When I was first developing my ideas for this blog, I would talk to my best friend Ilana about her perspectives on money, investing and finance. One night, I asked her what she thought of the word “wealth.”
Many other millennials and young people likely feel the same about “wealth” remaining an idea. So, what gives?
My super light and fun research revealed a few compounding issues that affected many millennials in the beginning of their wealth-building years: 1) We have lived through two major recessions, and many young professionals were just starting their careers in 2007–2009; 2) student loan debt has increased exponentially as the cost of college tuition rose faster than the rate of inflation for decades, starting in 1980; and 3) wages have remained stagnant while inflation and cost of living have increased.
Economic Recession
In 2001, around the time when the millennials born in the early 1980s were in college, the economy entered a recession for a period of eight months from March to November. My only potent memories from this time were of 9/11 when I was in second grade. My baby boomer parents, in contrast, recall that “9/11 caused a sharp and shocking drop in the market, and the uncertainty of the time caused people to view what had been a fairly mild recession with more fear, causing more volatility.”
The dot-com bubble that burst in 2000 also contributed to this recession, and many people lost their jobs as unemployment climbed to 5.7% by the end of 2001.
Then there was the Great Recession that lasted from December 2007 to June 2009. This one I remember. I was at the tail end of middle school, and it was on everyone’s minds—yes, even 13-year-olds! My parents recently told me, “It did put a hurt into our 401(k) and stock values. It started with the burst bubble of the housing market, and then unregulated financial institutions, especially mortgages. We didn’t buy or sell a home, so we weren’t affected too much there. Beginning in 2009, stocks started to slowly come back and did well for the most part for 10 years.” My dad says it was “a wake-up call, and I tended to watch the market more closely for signs of volatility after that. I still do. Not that I can do that much about it!”
This recession greatly impacted not just the U.S., but the world. Many countries felt the shocks at different times. At the end of 2009, U.S. unemployment was at 9.9%.
According to an article from Trust & Will, in both of these instances of recession, people with the least amount of wealth—millennials—were the most affected.
Student Loan Debt
First, I want to say that I was extremely lucky in that I had very little student loan debt despite going to an out-of-state, private liberal arts school. My parents started 529 college savings plans for me and my brother in 2001, right around the time of that recession, and my dad recalls that they grew nicely over the years despite blips in the market. I’m so incredibly grateful for the planning that preceded me. It gave me a huge leg up and allowed me to simultaneously start paying off my debt and saving as soon as possible.
When I asked my parents about how much they paid for college, my mom remembered writing a check for $1,000 for a semester (!!!) and my dad said it was between $3,000–$4,000 per year for him. Nowadays, the average tuition for a year at an in-state public school is around $10,000; for out-of-state public school, around $23,000; and for private school it’s closer to $40,000.
Let me throw some more numbers at you from that same Trust & Will article: “In 1989, 40-year-old boomers had a median income of $70,000, median wealth of $112,000 and median debt of $60,000. In other words, income and wealth far exceeded debt. In contrast, millennials have more debt relative to their income and accumulated wealth. With a median debt of $128,000 and income of $73,000, millennials have a much harder time paying off debt and building wealth. In addition, you might notice that the median income for millennials is only $3,000 more than the median income for boomers back in 1989. Wages remain stagnant and are outpaced by inflation.”
It’s likely that most of the debt millennials are carrying is related to student loans. An article from Visual Capitalist investigating the rising cost of college tuition found that “Since 1980, college tuition and fees are up 1,200%, while the Consumer Price Index (CPI) for all items has risen by only 236%.” This staggering difference need not be quantified further: College is so damn expensive that we need the government to subsidize our education, but we need the education to qualify for a career to pay off the debt!
Thankfully, there is some good news. For the first time since 1980, the cost of college tuition is finally not rising faster than inflation.
Wage Stagnation
As I briefly mentioned in my book review of “Broke Millennial,” wages stayed roughly the same for 40 years compared to inflation, as supply likely overwhelmed demand in the job market.
When I looked into this further, I found a Fast Company article that noted, “While recent pay hikes are certainly a positive development that will benefit millions of workers, they are not close to making up for years of wage stagnation.” They also can’t outpace inflation over the last year, which has overtaken most of the raises people received in 2021.
In addition, the purchasing power of the average American hasn’t really changed in 40 years and everything around us has become more and more expensive, forcing many people to work multiple jobs just to pay rent and get food on the table. Some news outlets will give this a trendy name like “polywork,” as if it’s something new and exciting to report on instead of people being overworked and underpaid into eternity.
Conclusion
Though I won’t be able to solve all of these economic problems in this blog post alone, knowing that all of these factors are at work helps me to understand why millennials have struggled to bridge the generational wealth gap. Are there any other possibilities you think I missed? If you’re an older millennial, how have you combatted these external circumstances? If you’re a younger millennial with a lot of student loan debt, stick around because I’ll be looking into how you can invest even while you pay it off.
Another item that previous generations had that Millennials do not (for the most part) are pensions and a retirement fund. Most millennials have to put aside their own money now for retirement leaving less spending money now, whereas many Baby Boomers did not.
Hi Jacki! You’re right on the money with pensions, I grew up not even knowing what they were because I had a feeling they would never apply to me. Pensions are few and far between now, but I have been hearing about them more recently. Millennials are a generation that definitely has to rely more on themselves instead of their employers and the government.