Post-Recession, Millennials Trail Their Baby Boomer Parents Financially

Post-Recession, Millennials Trail Their Baby Boomer Parents Financially

Due to unfortunate timing, 75 million young adults of the millennial generation entered adulthood while the economy was in, or just recovering from, one of the worst economic recessions in the history of the country. Their incomes are 20% lower than what the baby boomer generation earned at the same age, according to a study by Young Invincibles, a millennial advocacy group. The younger bunch has half the net wealth than their parents’ generation had accrued by the same age.

Tom Allison, deputy director of policy and research for Young Invincibles, says income earned early on often sets the stage for lifetime earnings. When you begin at a lower salary rung, he says, it’s difficult to negotiate a high salary.

The advocacy group found that young adult employees earned an average of $40,581 in 2013, compared to $50,910, inflation-adjusted, young adults made on average in 1989.

The lower earnings lead to a lower standard of living, financial planner Adam Glassberg says. Less saving early in careers will lead to millennials working longer, likely well into their 70s.

Glassberg explains that by putting off home purchases due to not having the savings necessary for down payments, millennials will likely end up making house payments well into their retirement years. It also will be harder for millennials to borrow from equity in homes to send kids to college.

The St. Louis Federal Reserve found that due to high unemployment and underemployment following the recession, many millennials did not enter the housing market when prices were low. They, therefore, missed out on the advantage of building wealth through sharply rising home values during the housing recovery.

Despite the burdens of sizable student loans, the Young Invincibles’ study found that getting a college degree is practically a necessity now. Young college graduates today reach earnings roughly equivalent to what someone without a college degree could earn in 1989, federal data shows.

Even millennials without student debt are trailing their boomer counterparts. Recent college grads without student loans are trailing 25 to 34-year-olds of 1989 who also finished college without debt, with median net worths of $75,000 and $125,572 respectively.

This discrepancy may have factors other than just income. The nation’s marriage rate has been in decline, especially among younger adults, according to the Pew Research Center. In 1960, 82% of 25 to 34-year-olds were married, but in 2010, that share was down to 44%. With marriage and children lower on the priority list for younger Americans, the need to buy a home and build net worth doesn’t seem quite as pressing.

Though millennials trail their parents’ generation in building wealth, one area where they are ahead of baby boomers is retirement savings. According to Allison, that is simply due to changes in the workplace, where employers often remove money from paychecks automatically and deposit it into 401(k) plans. Baby boomers often had pensions through employers, so the money wasn’t generally considered part of that individual’s net worth.

According to the Employee Benefits Research Institute, few people who don’t have 401(k) plans save for retirement on their own, raising concerns that many young people could eventually hit retirement without sufficient savings.