The Surprising Financial Turnaround for Millennials

A Surprising Financial Turnaround

Millennials have faced many economic challenges unique to their generation, but they’ve recently encountered a surprising financial turnaround. As a result of the Great Recession, the COVID pandemic, and the rising cost of living, this generation has long lagged behind others when it comes to major milestones like homeownership and wealth building — until now.

Today, millennials are wealthier than any former generation was at their age. And a remarkable financial trajectory suggests that might not change anytime.

The net worth of millennial Americans has increased substantially in recent years. The median wealth of those born in the 1980s rose to $130,000 in 2022, according to data from the Federal Reserve Bank of St. Louis. This figure has more than doubled from $60,000 just three years prior.

Younger members of the generation born in the 1990s have much less in terms of overall wealth, as they are on the whole in an earlier stage of their careers. However, they have seen even sharper gains over the same period, quadrupling their net worth to a median of $41,000.

Despite the many challenges millennials have faced, they are beginning to close the wealth gap left by their predecessors. But how did this gap disappear so quickly?

Real Estate, Stocks, and the Wealth Boom

Much like former generations, the millennial wealth boom can largely be attributed to two major drivers: real estate and investments.

Homeownership has proven to be a crucial factor, with millennials’ housing wealth growing by $2.5 trillion over the last four years. For many years, the high cost of homeownership priced out prospective millennial buyers. But there have been several lulls in the housing market in recent decades, including in the early 2010s, and more recently amid the pandemic.

For millennials who managed to enter the market at the right time, even scraping together a modest down payment has paid off handsomely. Home prices across the country have since soared to all-time highs.

Stocks and retirement accounts also play a role in millennials’ financial upswing. Members of the generation have generally been proactive about contributing to retirement accounts earlier in their careers, taking advantage of workplace 401(k) plans and mutual funds. With many employers automatically enrolling their young employees in retirement plans and the stock market pushing to record highs, this generation is now seeing their investments bear fruit. The average 401(k) balance among millennials in early 2024 was around $59,800, more than double the average just five years prior. On top of all this, younger generations are experiencing a massive wealth transfer as older generations reach retirement age.

However, it’s worth noting that this surge in wealth doesn’t capture the full picture. While these gains are promising, many millennials remain conscious of potential future challenges, such as the rising costs of childcare and healthcare, and longer life expectancies. The “average” measure of wealth attributed to millennials may also be warped by the highest earners, and misrepresent the standing of the generation as a whole.

Notable Wealth Gaps

Indeed, the wealth gains of millennials have not been evenly distributed. The richest 10% of millennials hold 20% more wealth than the wealthiest baby boomers did at their age, highlighting a growing wealth gap. Meanwhile, the average millennial at 35 has 30% less wealth than boomers did, with many still struggling to afford homes, reduce debt, and accumulate savings.

High-earning millennials, particularly those working in the tech sector, have benefited from rising wages and asset appreciation, while those on less lucrative career paths face stagnation. Blue-collar workers, burdened with debt and lower homeownership rates, often fare worse than their parents.

But there’s a silver lining: millennials possess certain traits that economists believe will aid their long-term financial success. Higher levels of education are boosting income potential, and choosing to have fewer children helps some households manage budgets more effectively.

Ultimately, the generation’s early setbacks may have hidden benefits, helping to impress a more cautious and calculated approach to wealth-building and contributing to this surprising financial turnaround. Many millennials are focused on financial security, economic flexibility, and a healthy balance of living in the present while planning for the future.

Sources:

WSJ: The Dramatic Turnaround in millennials’ Finances

Fox Business: Millennials Are Wealthier Now Than Their Parents Were at Same Age

Financial Post: Millennial Wealth Has Surged 144% Since the Pandemic, but Generational Gap Still Wide

Fortune: ‘High-Status’ Millennials Are Richer Than Boomers Were at the Same Age. The Rest Aren’t So Lucky