The Federal Reserve Bank of St. Louis published a new report examining the relationship between a person’s birth year, and measures of his or her family’s economic status, including income and wealth. Fed economists determined that substantial wealth declines were visible across the age spectrum around the Great Financial Crisis (GFC) but found that young families suffered the most.
The report suggested that millennials (born between 1981 and 1996) not be just broke, they are at most significant risk of becoming a “lost generation” regarding wealth accumulation. Coming of age post-GFC has been difficult. Many millennials are stuck in the “gig economy” with stagnating wages. On top of that, this avocado toast generation is fighting against a rapid surge in living costs coupled with mounting debt on their books via auto loans, credit cards, short-term loans, and student debt.
The net worth of a typical millennial household born in the 1980s is about 34 percent below what was expected, the report stated.
A Lost Generation?…Fed economists determined that millennial households lost even more financial ground between 2010 and 2016, falling farther down the economic hellhole and behind the typical wealth life cycle.
” This represents a missed opportunity because asset appreciation is unlikely to be as rapid in the near future as it was during the recent period. Two reasons for optimism are that the 1980s cohort has many years to get back on track and it is the most educated—hence, also potentially the highest-earning— group ever,” the report said.
The Wilshire 5000 Total Market Full Cap Index, a market-capitalization-weighted index of the market value of all stocks actively traded in the United States, outlines the rapid repricing of the market post-GFC. The index advanced +450 percent from 2010 to 2018 — leaving many millennials behind.
In total, just 54 percent of Americans are invested in the market, either through individual stocks, mutual funds, pensions or retirement plans like a 401(k). That is down nearly 11 percent post-GFC.
While Wall Street and Washington push propaganda pieces to attract millennials into the stock market casino, it is the belief that this generation is too broke to even participate in these financial games.
HERE ARE SOME OF THE CHARTS THAT RELATE TO MILLENNIALS, FROM THE FED REPORT:
Figure 1: Median Family Net Worth and Income
Figure 2: Change in Median Net Worth, Relative to 2007
Figure 3: Change in Median Income, Relative to 2007
Figure 8: Change in Estimated Age-Specific Wealth Levels since 1989
The report concludes: “It is far too soon to know whether families headed by someone born in the 1980s will become members of a lost generation for wealth accumulation. To be sure, there are grounds for optimism. Yet there are reasons to be very concerned about the financial outlook for many young Americans.”
Fragile millennials could soon be staring at the next recession with the economic expansion that started in mid-2009 and already the second-longest in modern economics most likely will end around 2020, as the Federal Reserve continues tightening financial conditions through interest rate increases and shrinking of its balance sheet.
Earlier this month, 59 percent of forecasters surveyed by The Wall Street Journal said to expect a recession by 2020. This is not what millennials want to hear.
“The current economic expansion is getting long in the tooth by historical standards, and more late-cycle signs are emerging,” said Scott Anderson, chief economist at Bank of the West, who was among those forecasting a 2020 recession.
When the next great recession/depression strikes, it could deliver the final deathblow to put this “lost generation” out of its financial misery.