Middle-Aged Millennials

Older millennials don't have as much wealth as their parents did at the same age, but they're catching up

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As millennials begin to turn 40 in 2021, CNBC Make It has launched Middle-Aged Millennials, a series exploring how the oldest members of this generation have grown into adulthood amid the backdrop of the Great Recession and the Covid-19 pandemic, student loans, stagnant wages and rising costs of living.

Five years ago, older millennials were 40% poorer than previous generations were at the same stage of life. That wealth gap has shrunk in recent years, but it's still too soon to tell if obstacles such as student loan debt burdens, rising living expenses and the effects of the Covid pandemic will push this generation permanently off course. 

The oldest millennials are turning 40 this year, and yet the average older millennial born in the 1980s still hasn't managed to squirrel away the same level of wealth as previous generations accumulated at the same age.

Looking back five years, in 2016 the average older millennial was 32, earning a median income of $57,500 and had a net worth of approximately $27,900. But based on wealth rates previous generations recorded at similar ages, the typical millennial should have been earning a median salary of $65,900 with a net worth around $46,600 in 2016, according to calculations by the St. Louis Fed's Institute for Economic Equity, based on the Federal Reserve Board's Survey of Consumer Finances.

This means that older millennials essentially had a wealth gap of about 40% in 2016 compared with previous generations.

In the last three years, however, older millennials made significant gains in their wealth and are now only 11% below expectations.

Here's a look at why that wealth gap is starting to close and whether older millennials could catch up to their parents as they approach middle age. 

Why did older millennials fall behind?

When it comes to tracking wealth, net worth is a good yardstick. This is essentially all of a person's assets, including cash in checking and savings accounts, financial investments and the value of any real estate or vehicles owned minus all their debt, including credit card balances, student loans and mortgages.

Debt and homeownership can be significant stumbling blocks for millennials trying to build wealth. The number of American households with student loan debt doubled from 1998 to 2016, Pew Research Center found. In 2016, the median amount of student loan debt that millennials carried was $19,000, significantly higher than Gen Xers' balance of $12,800 at the same age — just one generation earlier.

"Every generation has its own set of unique challenges. But at the same time, you can't work full time and put yourself through college the way you could perhaps 30 or 40 years ago," says Ana Hernandez Kent, a senior researcher with the St. Louis Federal Reserve's Institute for Economic Equity.

Those born in the 1980s were also slower than their parents to move out, marry and buy their own homes, all of which affects household net worth.

The Great Recession also significantly impacted millennials by limiting job opportunities for many. Before the downturn, about half of college graduates had a job offer by the time they left school in 2007. Two years later, fewer than 20% did. 

Millennials also lag behind other generations in terms of wages. Despite more millennials earning college degrees, they earn 20% less than baby boomers did at the same stage of life, according to a 2019 report from the nonpartisan think tank New America.

Across the U.S., although wages have risen 18.3% since 2006, when inflation is factored in, real wages have actually fallen 8.3% overall, according to The PayScale Index. Among older millennials ages 33 to 40, real wages have fallen 10.3%, according to data PayScale provided to CNBC Make It. 

"There's a lot of secular changes that have occurred that have made it more difficult to accumulate wealth," Kent says. That includes higher tuition costs, rising costs of living and sluggish wage growth.

Millennials are finally catching up

Prior to the pandemic, older millennials were making strides in catching up to other generations' wealth benchmarks, likely thanks to trends like the long-running bull market, low unemployment rates and increased homeownership.

In fact, 59% of those born between 1981 and 1988 are homeowners, a recent survey conducted by The Harris Poll on behalf of CNBC Make It found.

As of 2019, the average millennial, now 34, has a median net worth of $51,400. That's just $6,400 off from what economists project those born in the 1980s should have accumulated at this point, according to the St. Louis Fed's Institute for Economic Equity.

Among ages 33 to 40, more than half of older millennials have escaped the paycheck-to-paycheck cycle, according to the survey from CNBC Make It and The Harris Poll. About 22% say they never run out of money in their budget before payday while about 30% say they seldom have issues.

Moreover, about 29% of older millennials say they have a lot of disposable income left in their budget each month after expenses such as housing, car payments, utilities and food are paid. 

Like many older millennials, April Franklin, 35, says she has gained a lot of financial momentum during the past four years. She finally earned her bachelor's in 2017 after working to attain a degree for over a decade. She has also been able to move on from Section 8 housing assistance and food stamps and even landed a full-time job last year after juggling part-time gigs for years.

April Franklin, 35, vowed to raise her children without the financial instability that plagued her own childhood.
Source: April Franklin

It's a long way from the unstable surroundings Franklin grew up in. Her mother had children at a young age — Franklin has three siblings — and struggled to keep the family together and financially afloat. "We stayed with relatives or in shelters. We were evicted multiple times. It was hard," Franklin says. They didn't always have health insurance and received dental care through a neighborhood outreach program, she adds.

Franklin vowed to do things differently for her two children, taking advantage of every opportunity that has come her way. "Hopefully, I'm on my way to something different," Franklin says. "When you live in poverty, you qualify for a lot of resources, and it can be a good thing. But sometimes those programs can keep people locked in their socio-economic status."

Not all millennials are seeing gains 

Franklin's achievements are perhaps even more laudable when compared with the data, which shows that disparities in wealth break down, among other things, along racial lines. 

Wealth among white families was just 5% off expectations in 2019, according to data analyzed from the St. Louis Fed. Yet Hispanic wealth was still down 10% from projections and, perhaps most alarmingly, Black families were 52% below wealth expectations.

Among older millennials, white families had roughly $88,000 in median wealth, while Hispanic households had $22,000 and Black families had $5,000 in 2019, according to the St. Louis Fed's Institute for Economic Equity.

"It's incredibly concerning because it's not like we're seeing a positive trend that they're making up for that lost ground. If anything, it appears to be the opposite, that they're losing and they're falling further and further behind," Kent says. 

This lagging wealth could have a ripple effect beyond just Black and Hispanic households considering the millennial generation overall is more diverse than the generations that came before it. About 57% of older millennials identify as white, compared with 81% of families born in the 1940s. 

"The fact that millennials are not reaching their expected financial potential may be related to their greater racial and ethnic diversity and the fact that predictions are based on all generations, the vast majority of whom are older and whiter," St. Louis Fed economists wrote

Unless trends dramatically shift, economists say, these disparities will likely persist, especially when taking into account that Black and Hispanic workers suffered disproportionate levels of unemployment over the past year. That wealth deficit among Black and Hispanic families could make it harder for all older millennials to close the wealth gap.

Will millennials fully close the gap?

Experts say there are reasons to be both optimistic and doubtful that older millennials will close the wealth gap. On the positive side, older millennials have gained ground in recent years. And that momentum may continue thanks to higher education levels among this generation and steadily rising homeownership rates, two factors tied to increased wealth accumulation. 

"When we talk about the millennials, we always say, 'yeah they've had these difficulties, but it is, of course, the most educated generation ever.' The highest share of people have college degrees," says St. Louis Federal Reserve economist Bill Emmons.

Typically, more education leads to higher lifetime earnings and more job stability. Last year, even as Covid-19 swept the country, those who graduated from high school brought in median weekly earnings of $789, compared with $1,416 for college graduates, according to the Bureau of Labor Statistics

But as this generation ages, the wealth gap becomes more difficult to close. "The oldest are reaching into their 40s now," Kent says. "There's less time if they are still behind."

Making that more difficult is the fact that many millennials are still carrying student loan debt. About 68% of those ages 33 to 40 have outstanding loans. That makes saving and building wealth more challenging, particularly as prices for consumer goods rise.  

The effects of the Covid recession on millennials could also stall or even erode some of the gains the oldest cohorts have made when it comes to their wealth. The pandemic significantly impacted employment rates among younger workers. About 30% of those ages 30 to 40 and 35% of those 18 to 29 reported that they, or someone in their household, lost their job amid the pandemic, according to Pew Research Center.

"The biggest declines in labor force participation have been among younger households, among communities of color," says Reid Cramer, a senior fellow at New America. Women and those in retail and service sectors also experienced widespread unemployment.

Income is the driving source of a lot of wealth, especially when you're still on the road to middle age. With the pandemic causing widespread job losses among millennials, it could push this generation even further behind and stall the little growth they have achieved, Cramer says.

For Franklin, the pandemic brought challenges and opportunities. In September, she was promoted to a full-time position with a $48,500 salary after working part time for years. The new gig meant she was able to give up working two jobs and increased her benefits, but she also had to rethink her budget because she's earning a bit less overall now.

"I used to think the middle class was rich, and now I guess I'm middle class," Franklin says. But sadly, that doesn't mean she feels rich today.

CNBC Make It will be publishing more stories in the Middle-Aged Millennials series around student loans, employment, wealth, diversity and health. If you're an older millennial (ages 33 to 40), share your story with us for a chance to be featured in a future installment.