WE’RE MAKING LIFE TOO HARD FOR MILLENIALS

Aug 2, 2015 by

TO some, millennials — those urban-dwelling, ride-sharing indefatigable social networkers — are engaged, upbeat and open to change. To others, they are narcissistic, lazy and self-centered.

I’m in the first camp, but regardless of your opinion, be fretful over their economic well-being and fearful — oh so fearful — for their prospects. The most educated generation in history is on track to becoming less prosperous, at least financially, than its predecessors.

Earning Much Less, Despite More Education

A BIG PAY CUT …

Change, from previous decade, in median earnings of 18- to 34-year-olds. Figures in 2013 dollars.

+

$871

+

$639

2000

$37,355

2009-13

$33,883

1980

$35,845

 

1990

$36,716

MEDIAN

EARNINGS:

… FOR THE BEST-EDUCATED GENERATION

Percent with bachelor’s degree or higher among 18- to 34-year-olds.

1980

15.7%

1990

17.0

2000

19.5

2009-13

22.3

–$3,472

They are faced with a slow economy, high unemployment, stagnant wages and student loans that constrict their ability both to maintain a reasonable lifestyle and to save for the future.

Longer term, rising federal debt payments and increased spending on Social Security and Medicare will inflict a tremendous financial burden on them, threatening their own prospect of receiving promised retirement benefits.

 

To a considerable extent, that’s the fault of my generation, the baby boomers. We were the children of the Greatest Generation, but we may also be the most irresponsible generation.

 Less Wealth

Median net worth of 18-34-year-olds. Figures in 2013 dollars.

$20,000

$18,200

$15,000

$10,000

$10,400

Drop of 43 percent since 1995 peak enjoyed by Generation X.

$5,000

’89

’92

’95

’98

’01

’04

’07

’10

’13

Americans between 18 and 34 are earning less today (after adjustment for inflation) than the same age group did in the past. A typical millennial averaged earnings of $33,883 (in 2013 dollars) between 2009 and 2013. That was down 9.3 percent (after adjustment for inflation) in just a decade and is the lowest since 1980. Older Americans have fared considerably better; earnings of all full-time workers were roughly flat between 2000 and 2011.

Still more striking is that millennials have endured falling earnings even though they have attended college in record numbers.

So what’s going on? A major reason is the recession. Those who graduate in weaker economic times typically earn less than those who enter the work force during more robust periods. Starting behind often means never catching up.

Millennials who didn’t attend college have found their wages particularly squeezed, perhaps because of the decline of middle-skilled jobs in sectors like manufacturing, a clear consequence of globalization.

The wealth of millennials has been hit even harder than their incomes. Their median net worth was just $10,400 as of 2013, down 43 percent from the $18,200 that Gen Xers had in 1995 when they were under 35. With incomes squeezed, millennials are not only not saving much; they are dipping into whatever savings they do have.

That’s worrisome when combined with weak incomes and low net worths. Millennials also participate less frequently in 401(k) plans and, scarred by the recession, invest less and keep more than half their money in cash — not a great long-term strategy.

Another huge drag on the finances of younger Americans is the mountain of student debt that has been piled up in recent years. Members of this year’s graduating class left their campuses owing an average of $35,051, about twice the levels borne by their counterparts two decades earlier (after adjusting for inflation).

Tuition Races Upward, Debt Mounts

INFLATED

IN DEBT

BIGGER BILLS

Change in prices, 1993-2015

Percent of bachelor’s degree recipients with college debt upon graduation.

The most indebted 10 percent of those with bachelor’s degrees owed $54,984 or more

at graduation.

234%

71%

+200%

$50,000

60%

COLLEGE

TUITION

$40,000

+150

Median bachelor’s debt:

$26,500

46%

40

$30,000

+100

$20,000

63%

20

+50

$10,000

INFLATION

In 2012 dollars.

’95

’00

’10

’15

’95

’00

’10

’15

’96

’00

’04

’08

’12

That’s in large part because college is becoming less affordable even as it has become increasingly necessary. Since 1993, average tuition has risen by 234 percent, far above the 63 percent overall inflation rate.

Saddled with debt and thin paychecks, millennials are delaying purchasing cars and new homes, low mortgage rates notwithstanding. By June of this year, homeownership among Americans under 35 fell to 34.8 percent, down from a high of 43.6 percent in 2004.

 Fewer Young Homeowners as Rents Rise

NOT BUYING …

… BUT PAYING HIGHER RENTS

Average rent in the 50 largest metro areas is approaching its 2000 peak.

The portion of those under 35 purchasing homes reached its lowest point this year since the census began tracking it in 1994.

$1,152

42%

$1,150

40

$1,100

38

$1,050

36

$1,000

34.8%

In 2014 dollars.

34

32

$950

’95

’00

’05

’10

’15

’95

’00

’05

’10

’14

Some of this may be cultural — younger Americans seem less interested in major possessions like cars and homes. But they are also delaying marriage and having children, which I believe is an indicator of strapped finances.

Just to complete a dismal picture, millennials will also be the victims of the irresponsible fiscal policies pursued in large part by members of my generation. The massive budget deficits of recent years and projected needs to meet future obligations to retirees will result in a steady increase in federal debt, from less than 80 percent of gross domestic product today to an estimated 181 percent of G.D.P. by 2090.

Rising national debt levels may threaten the ability of millennials to collect on promised Social Security and Medicare benefits. That’s not lost on millennials — only 45 percent expect to receive Social Security benefits during retirement (compared with 68 percent of baby boomers).

Upward March of Federal Debt

181%

180%

Percent of G.D.P.

160

140

120

ACTUAL

PROJECTIONS

When millennials will retire:

 

2045-62

100

74.1%

80

60

40

20

2000

’10

’20

’30

’40

’50

’60

’70

’80

2090

We can’t completely undo the financial obstacles younger Americans face, such as their weak earnings. But we can start to put in place policies that will ease their burden. First and foremost would be to get the nation’s economy onto a stronger growth trajectory.

That’s a daunting challenge that would require revamping federal outlays to emphasize areas like education, infrastructure and research and development. Spending more on these areas would require higher taxes on my generation, which is getting a lot more from government than we are paying into it.

As part of redressing this imbalance, we need to reform the entitlement programs, for example, by reducing Social Security benefits for the highest income Americans. And important steps could be taken to both ease the burden of student debt for those who have already graduated and provide less expensive college opportunities for the rising generation.

Let’s at least start with a greater acknowledgment of the plight of millennials and the role that we — in many cases, their parents — played in creating it.

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