Older millennials close the wealth gap with their parents


Americans in their 30s are starting to close the wealth gap with previous generations, although black millennials are lagging far behind, according to a new study from the Federal Reserve Bank of St. Louis.

In 2019, the net worth of households headed by people born in the 1980s was about 11% lower than researchers expected to be based on the wealth of older Americans at the same age, a huge improvement over the 40% gap in 2016.

Researchers worried about student debt and the legacy of the financial crisis could turn Generation Y into a “lost generation” that would never create wealth comparable to that of their parents and grandparents. The outlook now looks much brighter – at least for some of them.

“These degrees ultimately pay off, they pay off that debt and access homeownership and the milestones that older generations were able to achieve earlier,” said Ana Hernández Kent, senior researcher who worked on the analysis at St. Louis Fed’s Institute. for economic equity.

However, households headed by people born in the 1990s, which include millennials and older Gen Z members, were 50% below expectations in 2019, the researchers said. This suggests that patterns of wealth building may have changed permanently, Dr Kent said. Young people now start with more debt in their twenties and then start paying it off, buying a house and saving money in their thirties.

Researchers also found that millennials now owned homes at similar rates to previous generations at the same age. The analysis, which is expected to be released online Tuesday, did not break down the specific factors that have narrowed the wealth gap.

The Fed’s survey of consumer finances, on which the analysis was based, previously found that the median net worth of households headed by people under the age of 35 increased 19% to around $ 14,000 between 2016 and 2019. The median net worth of households headed by people aged 35 to 44 saw even larger gains, increasing by 44% to about $ 91,000 during this period. Equity is calculated by subtracting a person’s liabilities, like mortgages and college debt, from assets like home equity and inventory.

These gains were attributable to an increase in the homeownership rate, although student loan debt levels remained stubbornly high. For generations, homeownership has been the foundation of Americans’ wealth.

Not all senior millennials have seen the same encouraging trend, according to a related analysis from the St. Louis Fed scheduled for release later this week. Households headed by people without a four-year university degree born in the 1980s were 19% below expectations. And black households in that age group have lost ground, the researchers found, with net worth 52% lower than expected based on previous generations of black households.

Brian Lee bought a downtown Los Angeles condominium in 2009 after the housing market crashed with help from his parents, who gave him money for a down payment. Mr. Lee, 36, took out a mortgage for the rest and paid it off. The value of the apartment also rose significantly as house prices rebounded.

He started saving in his 30s by hiding the bonuses of his job managing e-commerce and marketing for the clothing business owned by his parents, who are Korean immigrants. He put about $ 500,000 in brokerage accounts and an IRA. His holdings briefly rose in value to over $ 1 million at the end of January – he owned

GameStop Corp.

stock, which is up sharply this year, but now sits around $ 590,000.

Some millennials have not been able to accumulate so much wealth. Karlton Laster, 30, graduated from Ohio State University in 2012 with $ 50,000 in student loan debt. When her mother graduated from the same public university more than three decades earlier, the costs were much lower and she walked away with $ 2,000. Mr. Laster, who is black, has always been one of the top students in Cleveland and his family encouraged him to pursue a master’s degree.

Her graduate degree in public policy from Northwestern University added an additional $ 80,000 in loans. He also racked up around $ 10,000 in credit card debt covering living expenses for a prestigious but unpaid scholarship in Washington, DC.

Mr. Laster, a local director of an environmentally focused nonprofit, earns more money than his parents at his age. But his responsibilities are important. While his parents already owned a home at his age, Mr Laster, whose father died in 2019, now lives with his mother and sister. He considered trying to buy a house but decided it wasn’t worth it given his credit condition. and rising real estate prices. For now, he is devoting his disposable income to paying down debt, building emergency savings and retirement funds, and tithing his church.

“I moderate what I thought was adulthood,” said Laster. “I’m more educated and have better opportunities than my parents, but they had a system in place that was much better for bringing them into the middle class.

Write to Rachel Louise Ensign at [email protected]

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