Millennials Aren’t Killing the Economy—They’re Just Broke

Here’s what you need to know about the Federal Reserve’s recent study.

Millennials can’t get a break. In the last decade, they’ve been accused of killing everything from car sales to homeownership.

But a new report from the Federal Reserve suggests that millennials aren’t the driving force behind the decline of America’s industries. According to the research, consumer shifts can likely be attributed to changes in technology rather than the unique tastes of avocado-loving twenty-somethings. And if millennials are spending less than Gen Xers or Boomers were at their age, it’s likely because they simply have less money.

Overall, the Great Recession, skyrocketing student-loan debt, and stagnant wages have hit millennials hard. Here are three key takeaways from the Fed’s report that should make even the most vocal millennial hater take pause before joining in the generation bashing.

1. “Millennials are less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth.”

In the report, the Fed’s economists compared the annual labor earnings of full-time workers (at least 30 hours per week) and broke down the data by generation and gender and found the following:

  • Millennial head-of-household males earned a comparable amount to Generation X, but 10 percent lower than Baby Boomers.
  • For female millennial household heads, average labor earnings increased steadily, most likely reflecting a rise in women’s education and participation in the labor force. Their median labor earnings, however, were about 3 percent lower than Generation X.
  • The average labor earnings for young male household heads show a generational gap that is higher for Generation X (18 percent) and Baby Boomers (27 percent) than millennials. For young female household heads, Generation X (12 percent) and Baby Boomers (24 percent) likewise have higher average labor earnings.
  • Assets, particularly stocks, have drastically declined for millennial households. In 2016, millennials held about $176,000 in mean value of assets compared to $173,000 for Baby Boomers at comparable ages in 1989 and significantly lower than Generation X’s $227,000 in 2001.

A result of coming of age during the Great Recession, millennials were greatly affected by the real estate collapse and ensuing financial crisis. The lasting impact has contributed to a feeble job market, student loan debt with limited parental contribution, and lower savings.

2. “For debt, millennials hold levels similar to those of Generation X and more than those of the baby boomers.”

Utilizing the Survey of Consumer Finances (SCF) to compare assets, liabilities, and net worth of millennials to Gen Xers, Fed economists found that millennials tend to have less assets and more debt, resulting in a lower net worth. They also uncovered the following:

  • Millennials had a notably higher average student loan balance than Generation X. Only 20 percent of Gen Xers had a student loan balance, while 33 percent of their millennial counterparts did. Further, the median balance was about $5,000 higher for millennials.
  • The rise in student loan borrowing reflects three main factors: the higher costs of education, an increase in college enrollment since the Great Recession, and increasingly limited parental contributions.
  • Educational attainment has steadily increased for each subsequent generation. In fact, 65 percent of millennials have obtained at least an associate’s degree—markedly higher than the 50 percent rate for the Silent Generation.
  • Young people today take on comparatively higher debt than their predecessors to pursue a college degree with little to no guarantee of a return on investment. High indebtedness has made it harder to save any money, let alone be able to afford milestone purchases like a starter home.

3. “Conditional on their age and other factors, millennials do not appear to have preferences for consumption that differ significantly from those of earlier generations.”

According to the researchers, “the taste and preferences parameter of a consumption function that includes age, income, and other demographic and economic factors is not different for millennials than for members of earlier generations.” Essentially, there hasn’t been a dramatic generational shift between cohorts.

The Fed economists also found that the lower rate of homeownership among millennials was primarily due to lower income levels and affordability. Young Baby Boomers and Gen Xers made significantly more money than millennials at the same point in their lives, allowing them the ability to purchase homes.

Looking at car sales, there’s little evidence that millennial households have different tastes and preferences than households of prior generations. When millennials do purchase, they appear to take on more debt in order to do so. Based on Equifax and CCP data cited in the report, 40 percent of millennials had auto loans compared to 36 percent of Gen Xers.

Contrary to popular belief, young people buying fewer houses and cars doesn’t prove that they don’t want these things. Quite the opposite. Millennials simply cannot afford them.

Bottom Line

The millennial generation has long been scapegoated as the killers of not-so-thriving industries and institutions due to their particular tastes and preferences. However, the Federal Reserve study suggests that the reality of the situation is much more complicated than that.

Millennials were promised the American dream—a pathway to success through obtaining an education and entering the workforce. They were promised rising wages, cars, and houses. But student loan debt in conjunction with the Great Recession, lower earnings, and fewer assets has left them barely able to afford the rising cost of living. Millennials have been portrayed as killers of the economy when, perhaps, it should be the other way around.