Even In Their “High Earning Years”, Millennials Saddled With Debt Aren’t Making Enough
While many millennials are heading into the chapter of their lives where they are expected to earn the most, the drag of high debt-to-income ratios and the lingering effects of two recessions and a pandemic are all but ensuring the generation’s earnings “prime” isn’t as meaningful as it has been for past generations.
Lowell R. Ricketts, a data scientist for the Institute for Economic Equity at the Federal Reserve Bank of St. Louis, recently told the Wall Street Journal: “In perspective, you can kind of understand how the millennial generation is a microcosm of the K-shaped recovery that we’re seeing and also just the divergence in wealth overall. I think you have to factor in the labor market changes over time as well, but there’s a kind of more of a sense of insecurity, even though you might be now earning a high salary or wage, that might not be guaranteed tomorrow.”
The Journal points out that workers generally hit their peak median weekly earnings between the ages of 35 and 54, before earnings plateau or start to fade lower. Workers now see a median 22% increase in income when moving from the 25-to-34 to 35-to-44 age bracket. This compares to increases of 20% in 2005 and 16% in 1986.
But despite the increased bump up in earnings, millennials are dealing with significantly more debt than past generations. And they’re also getting started accruing assets, like homes, later in life. As of 2020, the median age of a first time home buyer is up to 33 years old, from 30 years old in 2010.
Millennials are also having babies later in life. The CDC notes that the mean age of mothers was 27 in 2019, a record high.
A 2020 study from the National Bureau of Economic Research notes that millennials are still working to recover lost ground from the 2008 financial crisis. William Gale, one of the authors of the study, told the Journal: “You carry that with you for a long time, maybe your whole career.”
The study revealed that the 2007 to 2009 recession “significantly reduced” wealth for all age groups. Millennial households held 12% less wealth in 2016 than in 1989.
The Federal Reserve Bank of St. Louis found in 2019 that debt-to-income ratios for millennials were 23% higher than expected.
And overall real wages in 2018 had the same purchasing power as 40 years ago, meaning that millennials aren’t necessarily seeing more flexibility in their budgets, despite wage gains and the current recovery boom.
Andrea Pica, a 39-year-old from Neptune City, NJ, told the Journal: “The extra money I make every year just gets funneled into something new, in the necessary things in our life.”
Tim Eng, a 35-year-old product manager from Connecticut, says he takes on longer hours and more stress to meet his personal salary goals. “You’re not going to make more income without drastically uprooting your life. It’s about making the most of what they have,” he said.
Ricketts concluded: “Gen X can’t move up to senior positions currently held by boomers, and then millennials can’t move up to their positions. The broad numbers point to a challenge in that narrative that ‘baby boomers are done and setting sail on their boats to go fishing.’ This is really a story of folks still working.”
Fri, 08/13/2021 – 18:10