Millennials are not as badly-off as they think — but success is bittersweet
For most of the past two centuries, if you asked a young adult in the west whether they had a better standard of living than their parents enjoyed at the same age, you would have been drowned out by a unity of yesses. More money, more things to spend it on, longer and healthier lives to look forward to.
But that has all changed. Today, almost one in four US millennials — the cohort born between 1981 and 1997 — say their lives are materially worse than their parents’ were, a record high for any generation of Americans asked that question.
On the other side of the Atlantic, almost half of the UK population says today’s youth will have a worse life than their parents, up from 13 per cent 20 years ago, according to an Ipsos Mori survey. The malaise is clearly deeply felt, but does it reflect reality? One statistic that is often wheeled out in support of the millennial plight is the wealth deficit. A widely shared chart from the US shows that young adults held only 3 per cent of US household wealth in 2019, while baby boomers owned 21 per cent at roughly the same age.
At first glance it’s a slam dunk, but this example has a flaw, as first explained by Jeremy Horpedahl, an economist at the University of Central Arkansas. Boomers are so-called because they are a very large generation. At the time they held 21 per cent of the wealth, they made up almost twice as large a share of the adult US population as millennials do today. If we instead take Horpedahl’s suggestion and compare inflation-adjusted per capita wealth within each generation over time, millennials are in fact almost perfectly tracing boomers’ footsteps.
So, are millennials wrong to complain? I fear not. The per capita measure is a beautifully simple rejoinder, but it misses one crucial detail. Wealth accumulation — just like income — matters primarily to millennials today as a means to home ownership, especially as we move into an era of high interest rates. If we deflate wealth by the index of house prices instead of the CPI, millennials’ assets only go about half as far as boomers’ once did. We’re left with a smaller millennial deficit than the original chart implied, but a deficit nonetheless.
One area of undeniable progress is education. Millennials entered the labour market with more degrees under their belt than any generation before them, and they’re happy to acknowledge it. But where has this got them? Britain’s millennial workforce boasts twice as many graduates as Gen X at the same stage, yet its incomes are tracing exactly the same path. For boomers and Gen X, more education than their predecessors translated into higher incomes. For millennials these benefits are yet to emerge.
And that leads us back to home ownership. Here we have a generation more educated than any before it, earning as much as any of its predecessors (and indeed on track to out-earn boomers in real terms). Yet in Britain, this translates into a home-ownership rate which lies 23 per cent below where boomers were at the same age, and 10 per cent lower in the US.
Those aggregates mask significant differences beneath the surface, too. Degree-educated millennials in London are 41 per cent less likely to own a home than degree-educated boomers were at the same age. And if you think that’s bad, pity the non-graduate under-40s in London, just 20 per cent of whom own a home (among non-graduate boomers of the same age, 60 per cent were homeowners).
It’s a similar story in the US. Outside the hottest graduate job markets, millennials have done fairly well at catching up with boomers on home-ownership. But in particularly expensive real estate markets such as New York and San Francisco, America’s most skilled and highest-earning generation cannot afford to put down roots in the way its parents did.
By one definition, millennials have no less money in their thirties than boomers did at the same age — but boomers got there first and bought the best houses in a cheaper market. Millennials have done everything they were told to do, but the fruits of their labours are proving elusive.