America’s largest generation may also be the most lost when it comes to wealth.
Millennials, or people born between 1981 to 1996, are trailing in expected wealth accumulation compared with older generations at the same age, according to a new Federal Reserve of St. Louis study.
The study, conducted by policy analyst Ana Hernandez Kent, lead economist William Emmons and lead analyst Lowell Ricketts, found an even more startling divide between millennials with college degrees and those without.
In 2016, millennials with degrees had about 6% less wealth than expected based on the typical wealth held at the same age by older generations. But millennials who lacked degrees had 44% less wealth than older generations at the same age – a gap that Federal Reserve of St. Louis’ Emmons said was “surprising.”
The divergence could reflect economic changes that have buffeted that age group. Many entered the workforce during the recession, just as wages plunged for high school grads. Even though the typical pay for high school grads has increased in the last few years, it still remains below its peak in the early 2000s, according to the Economic Policy Institute. At the same time, the wage premium for college grads has grown.
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Higher incomes give individuals the flexibility to build wealth, which could explain why millennials without college degrees are falling so far behind their better-educated peers, Emmons says. But many other socio-economic issues could also be at play, such as the decline of marriage and home ownership rates for less-educated Americans.
While college-educated millennials may have an advantage because of their higher earnings, there’s also a downside: the spiraling cost of higher education, which has far outpaced household income growth. Instead of saving to a buy a home, in other words, millennials with college degrees are paying back their student loans – which could explain why they’re also trailing older generations in wealth accumulation.
The upshot is that Americans born after 1980 are facing challenges that older generations typically didn’t deal with.
“The world changes a lot,” Emmons said. “Being a young person today is different, and maybe it's harder today than it was in the past."
The issue could lead to longer-term problems, such as a generation that’s more reliant on Social Security than older Americans, Ricketts notes.
Millennials are well aware they’re falling behind previous generations in milestones like home buying or getting married, says Amanda Abella, 31, the author of “Make Money Your Honey,” a book about entrepreneurship and money.