Here’s Why Millennials Are Trailing Behind Financially
Article Published by: Forbes.com
In money terms, millennials lag behind their elders. Just why is this? To find some answers, we turn to Grant Webster, a wise lead advisor at Dowling & Yahnke, an independent investment advisory and financial planning firm in San Diego, Calif.
Larry Light: For many years, it’s been conventional wisdom that children will enjoy a better standard of living than their parents.
Grant Webster: It’s stunning—the degree to which this axiom is no longer a given.
On many different fronts, millennials are faring worse financially than their parents. A report conducted by Young Invincibles, a research and advocacy group for Generation Y, and funded by the Ford Foundation, illustrates a variety of ways in which millennials have not kept up with their parents.
Light: What do the numbers tell us about their incomes, compared to forbears?
Webster: The 75 million millennials make up the greatest share of the workforce. But workers between the ages of 25 and 34 earn lower average salaries, $40,581, than baby boomers did at the same age, $50,910, when adjusted for inflation. These figures represent a stunning salary decline of 20%.
Salaries earned at the beginning of a career are critical because they often set the stage for an individual’s lifetime earnings. In 1989, a young adult without a college degree earned roughly the same income as a college graduate with student debt does today.
Light: Part of their burden is that college costs more now, right?
Webster: Unlike their parents, young adults today face ever-rising college costs and historic student debt. While millennials who’ve earned college degrees generally make more than those who don’t have a degree, they have not done as well as baby boomers at the same age.
The net wealth of millennials is only half that of baby boomers at that age. The report characterizes net wealth as what remains when you subtract your debts from your assets.
Young adults with college debt have seen their net wealth plummet in just two generations. In 1989 baby boomers with college debt had a net wealth of $86,500. A quarter-century later, millennials’ net wealth has plunged to $6,600.
Light: What do the numbers tell us about college degrees and accumulated assets?
Webster: When baby boomers were young adults, they owned double the assets that young adults do now. Having a college education hasn’t protected millennials from these declines. Average assets for millennials with a college degree, as well as college debt, have declined 71% and for graduates without debt, average assets have dropped 45%.
Light: Why has this happened?
Webster: Millennials have been lagging behind their parents’ generation for several reasons. Here’s a quote from Tom Allison, deputy director of policy and research for Young Invincibles, to explain this:
“These findings uncover that millennials have been set back significantly, by not just the Great Recession but by decades-long financial trends, resulting in major generational declines in financial security between millennials and baby boomers when they were the same age.” The report lists lower government educational aid, lagging minimum wage mandates, rising racial and income-group inequality and higher student debt as among the causes to the millennials’ lagging behind.
“Millennials make up the greatest share of the workforce and the largest generation in history, so in many ways the situation facing young adults today forecasts the financial challenges ahead for the nation.”
Light: What can be done?
Webster: Even though millennials may be facing more financial headwinds than previous generations, they certainly have plenty of time and resources to play catch-up. By developing smart investment and savings habits early on, millennials can change the course and prosper just as their parents’ generation did.
About Jaime Bonetti Zeller
Jaime Bonetti Zeller is an investment professional and entrepreneur with businesses in multiple industries. He is president of Servicios Consulares Eurodom, the local partner in the Caribbean region for VFS Global, a leader global outsourcing and technology services specialist for diplomatic missions and governments worldwide. Jaime Bonetti Zeller also started the company Sofratesa de Panama inc., an organization in the engineering services industry located in Panama City.