Did you know that millennials are the least wealthy generation, despite the fact that they currently represent the largest group in the U.S. workforce? Business Insider reports that boomers are 10 times wealthier than millennials. So what gives? We’re about to investigate why the millennial vs. boomer generational wealth gap is so drastic, and what factors have contributed to it.
What is the Generational Wealth Gap?
The term generational wealth gap describes the difference between the amount of wealth accumulated within one generation, relative to the wealth accumulated within another generation.
Wealth is typically accumulated in the form of savings, investments, and other forms of assets, including real estate. The Federal Reserve measures just how much wealth is accumulated by each generational age group in totality.
In this instance, we are examining the generational wealth gap between millennials and baby boomers. Millennials were born between 1981 and 1996, and are currently aged between 25 and 40. Baby boomers were born between 1946 and 1964, and are currently aged between 57 and 75.
Why Is There a Generational Wealth Gap?
Before we dig into the reasons behind the current generational wealth gap, it should be made clear that some difference in wealth level between two generations is normal and to be expected.
Let’s look at Gen Z for instance. They’re currently aged 24 and under, which means that the majority of them have not yet entered the workforce. Therefore, we can’t expect them to have accumulated very much wealth. In contrast, their parents (mostly Gen X) have been in the workforce for several decades and thus have had more time to pay off debt while earning, saving, and investing their money. It’s only natural that Gen X as a whole would own more wealth than Gen Z.
That leads us to the question, why are economists buzzing about the wealth gap between boomers and millennials? Isn’t that to be expected?
The answer is yes, but only to a certain extent. Because millennials are younger than baby boomers, a wealth gap is to be expected. Boomers are largely moving into retirement, while the bulk of millennials are just beginning to work their way up from entry-level to mid-career positions.
However, data from previous generations indicate that the gap shouldn’t be as large as it is today. In addition, millennials are having to wait a lot longer for the wealth tide to turn, in which they’ll begin to inherit wealth from their parents.
There are several reasons why experts believe that this generational wealth gap is occurring. First, millennials were hit hard by the Great Recession. Many of them were graduating from college or just starting their careers when the economic crisis began. The fallout bled into the Affordability Crisis. Generally speaking, millennials had a slow start out of the gate, and continue to struggle with crushing student loan debt and increasing costs of living.
Just when many millennials may have finally been getting their careers and finances on the path to growth, the COVID-19 pandemic hit. Many Americans are dealing with layoffs, pay cuts, and furloughs, leaving the least tenured workers the most vulnerable.
Economically speaking, millennials have not had much of a break and the closing of the wealth gap is further delayed.
What is the Wealth Gap in America 2021?
The current wealth gap in America is $54.77 trillion.
According to Bloomberg, millennials only hold 4.6 percent of the wealth in America. The amount is $5.19 trillion. In juxtaposition, boomers hold 53.2 percent, or $59.96 trillion. They are 10 times wealthier than millennials, and twice as wealthy than Gen X.
How Much Wealth Do Millennials Have Compared to Boomers?
Millennials own 10 times less wealth compared to boomers. To help paint the picture, let’s explain what millennials don’t have.
In a recent article, Bloomberg ran a comparison of wealth accumulated by the eldest millennials at the age 40, relative to what boomers had when they were aged 40. Here are some interesting facts:
A year of college costs millennials $24,600, while it only cost Boomers $10,300.
61 percent of millennials own a home, while boomers owned 66 percent at their age.
Today, the median cost of a home is $328,000. When boomers were 40, homes only cost $216,000.
The millennial middle age net worth is $91,000 compared to the boomers’ $113,000.
14% of 40-year-old millennials own stocks, compared to the 17% of boomers when they turned 40.
Overall, Millennials are behind when benchmarked with the wealth boomers had accumulated around the same age. Building wealth for millennials has been stunted and delayed by a variety of economic events, meaning that they have much less time than boomers had to play catch-up. This is a real concern when thinking about the financial future, such as retirement. Even when economic conditions do improve, millennials are concerned with issues such as paying off credit card and student loan debt before they can even begin to think about putting money into savings and retirement.
Are Boomers Richer than Millennials?
Yes, boomers are 10 times richer than millennials. Together, boomers own $54.77 trillion more than millennials do.
In 1989, 40-year-old boomers had a median income of $70,000, median wealth of $112,000 and median debt of $60,000. In other words, income and wealth far exceeded debt. In contrast, millennials have more debt relative to their income and accumulated wealth.
With a median debt of $128,000 and income of $73,000, millennials have a much harder time paying off debt and building wealth. In addition, you might notice that the median income for millennials is only $3,000 more than the median income for boomers back in 1989. Wages remain stagnant and are outpaced by inflation.
For these reasons, boomers were better set up to accumulate the wealth that they’ve amassed today.
Protect Your Wealth with an Estate Plan
The stark generational wealth gap between millennials and boomers illustrate just how important it is to share the wealth from generation to generation. As boomers enter retirement, they should be thinking about how they can support younger generations.
Millennials are struggling, and it’s to no fault of their own. Rather, they are being hit the hardest by the unfortunate series of economic events in the recent past. As they deal with the fallout, they can only hope to pay down debt and accumulate enough wealth in time for retirement. With the eldest of millennials turning 40, economists are concerned that there isn’t enough time for some of them. The transfer of wealth from boomers to millennials through proper multigenerational wealth and estate planning would provide a significant relief to millennials as a whole.
Millennials should also be thinking about setting up an estate plan. They know better than anyone that unexpected events can happen at any time. Setting up at least a basic Trust or Will can provide a peace of mind knowing that your financial affairs are dialed in, in case anything happens.
Whether you’re a millennial, a boomer, gen X, or gen Z, it’s never too early or too late to create your estate plan. At Trust & Will, we can help you create the perfect estate plan that best supports your personal needs. Whether it be planning for your financial future or planning out the transfer of your legacy, we’ve got solutions for you. Get started today.
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