Prices for things like homes, education, and childcare have advanced well beyond what’s affordable on a median income, leaving them behind previous generations in achieving several common American milestones.
Why are they struggling to match the success of their parents? Why are they saddled with financial burdens that appear to be outsized compared to their incomes? What happened, and what can be done?
At the moment, millennials are getting their answers from the Democratic presidential hopefuls. And they’re telling young voters that the economy is currently skewed toward those who already have assets. Recent tax reforms benefits corporations and older generations. The only way to fix the inequities in the current system is to forcibly take more assets from those who possess them through taxation and redistribute them through social programs. It’s simply a matter of identifying those who will pay more while directing the benefits to those who are best served.
This is the messaging you’re hearing from nearly all of them: Warren, Harris, Booker, Bernie, Buttigieg, Beto…even de Blasio. It’s a message that probably doesn’t resonate with many people over 50, but that’s the point. We’re the generations that were able to cobble together small but growing incomes to gather the markers of successful lives. We had car loans, home loans, and some of us even had student loans, but they were within reason given our income. As more women went to work, we put our young children in daycare and paid for after-school care, but again, the cost was well worth the benefit of the extra income from the second earner. While the message may not resonate with us, there’s no question that we will be the ones required to pay.
It’s too early to tell if Trump will be re-elected in 2020, or if the Republicans will retain their majority in the Senate. It’s likely that at least one of those two things will happen, which will slow the progress of the redistribution machine. But 2022 and 2024 aren’t that far away. As time goes on, younger voters will continue to gain more clout on the electoral maps. And by then, we’re likely to have suffered the next recession, which will only make things worse.
We need to pay attention to what the younger generation is demanding—and expecting—from the government, because it will directly affect our bank accounts and investments. From healthcare to childcare, there are several areas of life where we are likely to provide significant support, transferring assets from older to younger generations. The programs will be big, transformative, and expensive. Looking at some of the proposals from current Democratic candidates, we can get a sense of what will happen down the road.
The recurring theme in all of this is simple: Hang on to your wallet!
Young Americans Lagging Behind
The Census Bureau shows that the rate of homeownership in younger groups remains well below the long run average, even though the homeownership rate among older groups has recovered to pre-financial crisis levels. Just under 60% of Americans 35 to 44 years old own a home, whereas the national average rate of homeownership is about 65%. Thirty-six percent of those under 35 own homes, compared to the long run average of 40% for this age group. These numbers started falling during the financial crisis, bottomed in 2015, recovered a bit for two years, then went sideways in 2018.
The reason for falling homeownership is obvious: money…or rather, a lack of it.
Immediately after the financial crisis, lenders were strict in requiring large down payments. Even though housing programs have relaxed and now will offer loans with near zero down for first-time buyers, prices have run up so fast as to put the prospect of homeownership out of reach.
As for children, the U.S. birthrate just touched an historic low. The United States needs 2.1 children per woman of child-bearing age to keep the population steady, replacing each parent plus a bit for mortality and those who don’t have kids. In 2018, the birthrate fell to 1.72.
The numbers weren’t consistent across all ages. Teenage births dropped dramatically over the past decade, which is good. But births to women in their twenties were down overall, while births to moms in their early thirties were flat, and those to moms over 35 ticked higher.
The reasons for not having children, or even starting later in life than previous generations, are easy to find. The New York Times surveyed 1,858 young adults, ages 18 to 45, last year, asking why they aren’t having their ideal number of children. The respondents could list multiple reasons. The top five responses were:
• Cost of childcare: 64%
• Not enough time: 54%
• Economic concerns: 49%
• Can’t afford more children: 44%
• Financial instability: 43%
Again, the issue is about money…but Millennials are also finding themselves preoccupied during peak child-producing years by continuing efforts in education. That’ll become even more so the case for the members of Generation Z, who are attaining levels of education well beyond what the Boomers and Generation X achieved. The rate of high school graduation—not GED, but actual graduation—has increased from less than 80% in the 2000s to 85% today. College graduation rates have remained steady at about 68% of those who enroll, but a larger percentage of the younger generations are giving college…the old college try. Almost 40% of Millennials and Gen Zers earn a college degree, which is slowly dragging the overall rate of college grads in the population higher.
Of course, all this schooling comes with a financial cost. Tuition has long outpaced income, and now student loan debt is far more common. Americans carry more than $1.5 trillion in student loan debt, and the burden is generational. Forty percent of people under 30 carry such debt, while only 20% of those over 30 days they have any.
Among those graduating college, 70% will enter the workforce already owing money, and many others who tried college but didn’t graduate will also run into debt. The scary number being thrown around is that the average student loan det is about $38,000, but that number skews toward those who get post-graduate degrees, most of whom go on to careers that give them an income sufficient to pay their loans and still meet their goals.
The real issue lies with the typical undergrad, or even those who never graduate.
According to the Pew Research Center, students who earn a bachelor’s degree and take on student loans leave college with a median balance of $25,000. It’s not the eye-popping average of $38,000, but it’s not chump change, either. It’s a car you can’t drive, or a down payment on a home you can’t afford. Think about how long it took you to save your first $25,000.
For those who try college but don’t graduate, the median loan balance is $10,000. A lot less than the average, but remember, this is for people who don’t get the benefit of the degree.
And it’s not just that costs are shooting higher; they’re also increasing at a much faster pace than income, either putting milestones out of reach or saddling newly minted adults with prohibitive costs.
With a chasm opening between the younger generations and their financial goals, it’s no surprise to see them migrating toward a political camp that promises to address social inequities, and to do it with other people’s money.
The Growing Slant on the Young Voter
Over the past dozen years, male and female voters from each generation have zigged and zagged politically, with some getting more conservative and others becoming more liberal. The differences range from minuscule to moderate, except for those of one group: Millennial women.
As Pew Research charts show, this influential group has moved dramatically to one side of the voting booth.
From 2002 through 2017, conservatives gained ground among three groups: both men and women in the Silent Generation, and Millennial men. But the gain of any group that stands out is for Democrats among Millennial women, jumping from 54% to 70%. Because of their numbers, that transition more than offsets the growing conservative tendencies of the Silent Generation in past elections, and it’s set to seriously tilt the scales in elections to come.
In the 2018 mid-term elections, more voters under 50 turned out at the polls than voters over 50, the first time that’s happened since at least the 1970s.
By 2020, 23% of the electorate will be over 65 years old, but the boomers and older generations will be just 40% of voters, down from 70% in 2000.
As more young, educated, financially strained voters go to the polls, they will be looking for answers to their economic ills, and they will find them in the plans promoted by candidates like Senators Elizabeth Warren (D-MA) and Bernie Sanders (I-VT).
They will vote for the social programs, but older, outnumbered voters will pay for them.