American millennials think they will be rich

MORE THAN half of American millennials, the generation of people born between 1981 and 1996, believe that they will one day be millionaires; one in five think they will get there by the age of 40. These are the findings from a survey conducted in 2018 by TD Ameritrade, a financial-services company.

But a working paper by the Brookings Institution, a think-tank, offers a sobering antidote to this youthful optimism. It finds that millennials are less wealthy than people of a similar age were in any year from 1989 to 2007. The economic crisis of 2008-09 hit millennials particularly hard. Median household wealth in 2016 for 20- to 35-year-olds was about 25% lower than it was for the similar-aged cohort in 2007.

American millennials are comparatively poor because many of them came of age during the financial crisis, when demand for labour was low and borrowing money became harder. The recovery has been slow, which has further reduced millennials’ long-term earning potential. A paper by the Federal Reserve, published last year, found that millennial household incomes were 11% lower than they were for people in Generation X (those born between the mid-1960s and 1981) at a comparable age; they were 14% lower than for baby boomers at the same point in their lives. A growing number of young people have taken on debt to finance their studies. And because real wages have not kept up with inflation, the cost of living has risen.

Worse still, the Brookings paper reports that young people’s prospects for accumulating wealth in old age are grim. Millennials do more freelance and part-time work than other generations did, which makes it more difficult to obtain an employer-provided pension. Only 55% of this generation have access to retirement plans, compared with 77% of Generation X and 80% of baby-boomers. Moreover, those who do have employer pensions are more likely to have defined-contribution pensions than defined-benefit ones, meaning that they bear the risk if investment returns disappoint. And as America seeks to plug its long-term fiscal shortfalls, millennials will have to bear the burden of any future cuts to Social Security and Medicare. All of this helps to explain why the share of people aged 25 to 34 who are living with their parents has increased from 10% in 2000 to about 15% today. That is not quite the high life millennials imagined.

But all is not lost. Millennials are living longer and are the best-educated generation in history. Taken together, this could yet mean that the youngest millennials, who have been less scarred by the crisis, could contribute towards their retirement pots for longer. Then there is mum and dad: even if they don’t become millionaires, millennials will one day inherit from their parents, and that may help redress their relative poverty.