Feb. 15, 2023

Where's the Millennial Middle Class?

Where's the Millennial Middle Class?

And who's in the millennial 1%?

It’s a bit of a trope that the millennial generation has had a rough go of it, economically. 

After experiencing the Great Financial Crisis during their formative years, attending higher education during a massive debt-fueled student loan bubble, and entering adulthood while home prices were juiced higher and higher, the majority of millennials are now “behind pace,” financially speaking.

In 2015, Pew Research conducted an interesting survey: It found that 89% of Americans considered themselves middle class. The survey then attempted to break down what middle class wealth actually looks like, landing on a median net worth of around $125,000 in today’s dollars. 

I was curious how many millennials had surpassed that threshold, and as it turns out, the answer is…not many.

This episode was inspired by headlines about the impending “Great Wealth Transfer,” often positioned as a solution to millennials’ money woes. But will it be? Let’s dig in.

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Katie: Welcome back to The Money with Katie Show, Rich Girls and Boys. I'm your host, Katie Gatti Tassin, and this week I'm asking the question, “Where the hell is the millennial middle class?” I'd like to begin today with a quote that I saw on Twitter, as most quotes that I stumble across are on. “I grew up middle class. Our chef and nanny only worked for us during the week. We had lobster flown in for special occasions only. I had to take out the trash. Today I would need to make one and a half million dollars per year to live like this. What happened to the middle class?” 

Okay, obviously this is satire, but the account that posted it, Fervent Finance, he's making the point that pretty much everyone thinks they're middle class, even people who are objectively rich. But as the cost of living continues to rise more quickly than median wages, this idea becomes more broadly interesting. The young adults of today are shuffled into a system that creates even bigger winners and losers than their parents' generation. And the way the standard of living one generation may become accustomed to as adolescents shifts radically as they are priced out of those same lifestyles as adults, even if their professional success rivals or even exceeds that of their parents.

Generations are societal constructs. So the definition of “millennials” will vary, but for definition's sake, the millennials we’ll be talking about today are those born between 1981 and 1996, which would make them around the ages of 27 and 42 today. Speaking of societal constructs, what does “middle class” mean anyway, and how do we think about class stratification more generally? To back up a half step, wealth inequality is typically measured using something called the Gini Index. So the Gini Index is a statistical attempt at quantifying how unequal the distribution of money is in a given system, where a coefficient of zero would be perfectly equal distribution, and a coefficient of one would be perfectly unequal distribution. And I think you'll see where I'm going with this in a minute. Because of the 35 countries named by the Organization for Economic Cooperation and Development, or OECD, the US has the fourth-highest Gini coefficient, at .375, with only Turkey, Mexico, and Costa Rica ranking as more unequal by that measure. 

So all that to say, yes, income and wealth inequality is a fixture of American life more broadly by this measure. It is especially pronounced in the millennial generation. According to data from the Federal Reserve’s 2019 Survey of Consumer Finances, the median net worth of someone aged 30 to 34 is just like $19,000, or thereabout. While the net worth of a top 1% 30- to 34-year-old is $1.37 million. This means that the net worth of this tranche of 1% millennials is 70 times larger than the median for their age bracket. And the story's even more damning for the 35- to 39-year-olds, for whom the median net worth is about $36k, while the 1% net worth is $2.8 million, which is 77 times larger. So the data isn't perfect, and now it's three years old, so the 30 to 34 crew that they were studying back then, they're now 33 to 37, and the 35 to 39 camp are now 38 to 42. Although it is worth noting that they're still in the millennial generation—they're just older now. So for context, the 60 to 64 group that's inclusive of boomers has a 1% net worth that's 60 times larger than the median counterpart, and the 65+ camp’s 1% net worth is only 54 times larger than the median, as opposed to that 70 to 77 times range. So the millennial generation has a higher level of wealth disparity, which is particularly interesting given how millennials are often discussed as this economic monolith. We'll be right back after a message from the sponsors of today's episode.

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Katie: “Middle class,” as we've already highlighted, is a bit of a slippery, nebulous term. A 2015 Pew Research study found that 89% of Americans believe they are middle class, 10% believe they were lower, and only 1% called themselves upper class. And while income is usually the metric that we use to siphon out from lower, from middle, from upper, middle class as a term tends to connote something else: It's about economic security and the chance for upward mobility.

In a lot of ways, middle class is more of a vibe than a quantifiable characteristic. And as Nick Hanauer mentioned in our interview a few months ago, the existence of a large middle class is in many ways a deliberate construction of policy, as opposed to a naturally occurring side effect of a free market capitalist system. We'll link that episode in the show notes if you would like to go back and give it a listen. Still, we have valuable data, so let's try to identify middle class wealth, or put another way, a middle class net worth. 

Pew notes in their study, the median wealth of the middle class in 2013: $98,000, compared to the median wealth of the upper class, at $650,000. Now that's for the whole society, not just one generation’s overall. Adjusted for inflation, that puts median middle class wealth at $125k today and median upper class wealth at $816k today. Unfortunately, there are no clear lower or upper bounds, so it's not like you can say, oh, once you breach this boundary, now you're officially middle class. So the best measure that we have really are these median thresholds. They kind of give you this ballpark. But the fact that this is such a wide range reinforces my earlier thesis that middle class is a vibe, not necessarily a specific number in your bank account.

So how large was the millennial middle class in 2019 when the survey was conducted? For the 30- to 34-year-old cohort of millennials in 2019, so our middle-of-the-pack-aged millennials, the millennial middle class were those approximately in the 81st to the 98th net worth percentiles, according to the 2019 Fed Survey of Consumer Finances. That is to say, only 20% of millennials aged 30 to 34 had a net worth that hit this middle class median wealth threshold that we defined earlier, of $125 grand. A full 80% of them were below that benchmark, and only 30- to 34-year-olds above the 98th percentile, the top 2%, breached the upper class median barrier of around $800k. For the 25- to 29-year-old crowd in the survey, our youngest cohort, who are now 28 to 32 and still firmly millennial, the middle class was the 90th percentile upward. So the top 10% would be considered broadly middle class by wealth. Those in the 25th percentile had a negative net worth, and those in the 50th percentile had a net worth of around $10,000. 

For example, if you are 28 years old today and you have $25,000 to your name, you're in about the 66th percentile of millennials. You are richer than 65% of your peers, and you have about a hundred grand to go before you'd be at the median middle class wealth designation of the broader society. Now, to be fair, there's a kind of an elephant in the room here that we could probably explain some of this away by the simple factor of age. It is common to have more debt and therefore a lower net worth when you're young, and accrue more wealth over time as your investments compound. For example, the median net worth for the 50–54 crowd was $122,000. That said, the type of debt young people hold today compared to the type of debt their predecessors had in their young age is different. In some ways, we're kind of witnessing a grand experiment at scale, because we have not yet seen a generation come of age and begin building wealth with such a staggering liability on their balance sheets that didn't have a hard asset to offset it, the way student loan debt does. Still, when you consider it that way, it's almost like people have a better shot of aging into the middle class.

That explanation is consistent with data found in conservative economist Thomas Sowell's book, Discrimination and Disparities, which I've been reading to try to challenge my own perspectives. He notes on pages 90 to 92 that “a University of Michigan study that followed a given set of working Americans from 1975 to 1991 found that 95% of the people initially in the bottom 20% were no longer there at the end of the period. 29% of those initially in the bottom quintile rose all the way to the top quintile, while only 5% still remained in the bottom 20%. At some point between the ages of 25 and 60, over 75% of the population will find themselves in the top 20% of the income distribution.” End quote. 

So at the risk of oversimplifying, the study that he is referencing in his point is that wealth is not static, and that a huge determinant of wealth is how old you are. It's your age. But what's interesting about the millennial generation is how there seems to be a subset that's gotten really ahead early in life in a way that previous generations did not, a group that's on an economic path that's radically defiant of what we generally believe to be true about millennial economic circumstances.

So why is there a sub-cohort of millennials that's thriving when the majority clearly are not? This discussion, to me, boils down to a few key ideas. Number one: the boomers’ wealth and the impending great wealth transfer in which millennials stand to inherit tens of trillions of dollars. And then number two: the biggest factors in millennial outcomes, namely whether or not they have student loans, if they own property, and their incomes. I would note explicitly that two of the three I just mentioned are strongly influenced by the amount of wealth that their parents have. My friend Bridget Casey, a Canadian personal finance expert who published a piece in the Globe and Mail called “There's No Such Thing as a Millennial Middle Class,” will be weighing in today.

And of course there are a few big differences between the US and Canada that are worth calling out. The Canadian housing market did not correct in the 21st century the way the US market did, so it is even more expensive, relatively speaking, though the Canadian Gini coefficient is lower than the US’s overall, and Canadians have universal healthcare, so it's not a one-to-one comparison, but they are our North American neighbors and there are a lot of similarities. Millennials are experiencing what Bridget calls parallel realities. Here's Bridget on the differences between rich and poor millennials in Canada. 

Bridget Casey: I think what's become really interesting in our generation versus previous generations is we are seeing the wealth gap within our generation more than just between generations, because often when we're speaking about generational wealth, we're comparing millennials to boomers or even Gen X, but when you really dig into the numbers, a millennial is really like two cohorts within one, and one group is doing better than any other generation in history. Actually, the richest millennials are the richest people ever. Their net worth is the highest at the youngest age, but the consequence of that is the millennials that are not thriving financially are actually doing the worst. And then when you combine them and you get the average, I mean that's why the average doesn't look so bad. And the stats that I actually found, and I pulled them directly from Statistics Canada, say the top 10% of millennials, their median net worth is actually $588,600. And this is double that of Gen X when they were the same age. 

Katie: So there you have it. Let's dig into the great wealth transfer. Depending on who you ask, millennials are estimated to inherit between $30 trillion and $80 trillion from the boomers. Cerulli Associates, a research and consulting firm, published $68 trillion in 2019. And it seems like that's the number that's really stuck. It kind of appears most of the time in headlines, but regardless, boomers controlled more than half of all household wealth in the US as of 2021, which isn't super surprising, given this generation benefited most from the post-World War II economic boom, and are now in the second halves of their lives, having given that wealth decades to compound, per my earlier point. So on its face, this sounds like a good thing. Like, ah, the millennial generation as a whole is about to get a hell of a lot richer, right? Wrong. 

The Federal Reserve’s analysis shows that millennials who are already in the top 10% of the income distribution are twice as likely as millennials in the bottom 50% to receive an inheritance. This quote comes from New York Magazine. “The millennial rich and upper middle class will be the wealthiest America has ever known. Working class millennials, meanwhile, are poised to enjoy less economic security than their parents, as their wages fail to keep pace with the rising costs of housing and healthcare.” End quote. 

I doubt this really surprises anyone. It kind of reinforces this idea that upward mobility being super frequent and common in the US is largely a myth, or at the very least it's an old truth that has been rendered false over time. Visual Capitalist found someone born in 1940 to a family in the 50th percentile of earners had a 93% chance of out-earning their parents. Yet someone born in 1980 to that same family had only a 45% chance of out-earning them. And it's worth noting that it's not just posthumous inheritance that creates this gap. It's not just the great wealth transfer to come. In Bridget's piece, she identifies a few key factors in the difference between rich millennials and poor ones: student loans, property, and income. Millennials whose parents foot the bill for college and maybe even gifted them the down payment for their first home are in a radically different position today than those who did not have this leg up. 

Bridget Casey: That has been one of the biggest determinants in how well off a millennial is doing, is how much their parents have provided for them. And I've actually been writing about this for years. The term for it that I use, that I didn't make up but is a really good description of it, is called the Funnel of Financial Privilege. And essentially the funnel of financial privilege is this idea that if someone receives some financial advantage from their parents, there's a really high likelihood that they receive others, and those benefits tend to accrue. So someone who has parents that can afford to give them a down payment are likely the person who has parents that can also afford to pay for their post-secondary [education]. They're also the same parents that can probably afford to pay for a good chunk of your wedding. It becomes a funnel that really pushes them to a really high net worth earlier in life than people who didn't have any of those advantages, that tend to get left behind. 

Katie: So there's a double whammy at play here. Not only did access to family capital allow this group to avoid taking out debt, it also granted them access to an asset class that was on the brink of being propped up by expansionary monetary policy. So millennials by our definition today were between the ages of 15 and 30 in 2011 when the real estate market bottomed, meaning the eldest millennials were in a prime position to buy their first properties right as real estate was cheapest. And it wouldn't remain cheap for long, though really, as long as you got in before 2020, you saw the value of your asset skyrocket. Real estate is in many ways a game of luck. Your ability to buy low and sell high often depends on economic factors outside your control. And elder millennials with generous parents were well-positioned to take advantage of one of the largest downturns in history. Here's Bridget again on education and housing. 

Bridget Casey: In Canada, our housing market is grossly inflated, and that's been known for 10 or 15 years. Everyone's been crying “bubble” for as long as I can remember. And so what has happened in recent years, we have seen house values increase so rapidly. And so if you were able to get a down payment very early on, right after when you graduated university or even while you were in university, you really benefited from that run-up in home prices. Whereas if you didn't receive a down payment, you just got left further and further behind. And many millennials actually feel they will never be able to afford a home. 

Katie: So as Bridget noted, there is a bit of a correlation between millennials that benefit from one. They are more likely, statistically speaking, to benefit from the other. And based on these two factors alone, higher education costs and housing, you start to get two radically different classes of millennial experience, and variations of the two somewhere in between. For example, a combination of scholarship money and parental support put me through college without debt. And I am currently a high earner, though I don't own any real estate, and I did not benefit from that expansion. But real estate appears to be a massive player in millennial 1% wealth. So I stumbled across this 17-page 2019 PDF from Coldwell Banker while I was reading up for this episode. And it's loaded with images that look like they literally searched “satire of the 1%” in Getty Images, and then just auto-populated the report with it: yachts, private jets, the whole nine. But it had a few eye-popping claims. 92% of millennial millionaires own property, and the average number of properties a millennial millionaire owns is three, and their average real estate portfolio value is $1.4 million. 

Weirdly, the report also claims that only 20% of millennial millionaires went to college, which kind of thrusts the whole thing into questionable territory for me. But I was unable to find any data that either refuted or confirmed that claim, because most other sources used this source as its citation material. Obviously we have to consider the source; they are a real estate company, but assuming these numbers are anywhere close to accurate, the real estate run-up in the US has played a substantial role for wealthy young people. This tracks, as real estate is an asset class most often purchased with leverage. And once you own one asset, you are often able to parlay that asset into owning more. A single large cash infusion from a well-to-do family member at the right time can spark a mushrooming real estate portfolio with relative ease, if you know what you are doing. We'll be right back after a message from the sponsors of today's episode. 

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Katie: Incomes are another consideration. And Bridget points out that one field in particular has been a boon for those born between 1981 and 1996. 

Bridget Casey: And I was thinking about what major shifts we've really undergone in the past 20 years, and one of the biggest developments of that was the internet and social media and all these tech startups that we had. And that really changed the entire global landscape and the markets and the job opportunities for millennials. And suddenly you had this option where maybe you could join a tech startup as a very early stage employee, or even you could be the founder of one. Like think of people like Zuckerberg, that's another millennial. And if you had the luxury of getting into one of these technology companies very early, or even if you found a way to build a business online, like this goes for every single influencer that's online, every blogger, some people are million-dollar YouTubers, and that's because of the technology. So this has been an incredible opportunity for millennials to build wealth, and it was really accessible to most people. Like you can still become a TikTok star, and all you need is a phone, and you just didn't have that kind of opportunity in past generations. And the result was many, many millennials were able to become multimillionaires in a short timeframe, just because of the technology that was available in order to do so. 

Katie: So Bridget mentioned Zuck, and my favorite neoliberal fun fact is that pre-Meta meltdown in 2021, Mark Zuckerberg supposedly owned 2% of all millennial wealth. Now, it's probably disingenuous to claim that the advent of tech prominence is the first time in history that an industry has unlocked high salaries for young people, because before tech it was finance. And of course there's still a lot of money to be made in fields like law and medicine. The aforementioned Coldwell Banker report pointed out that only 14% of millennial millionaires are business owners, which suggests that the majority are either employed by someone else or living on someone else's capital entirely. And importantly to me, it highlights that millennials that have struck gold through taking advantage of new media, like Alex Cooper and her $60 million Spotify contract, are an aberration. 

The point is, “millennial” is not an all-encompassing economic life sentence. According to Bridget, it appears there is only the very rich millennial and then everyone else, which creates an interesting conundrum for media outlets trying to cover the generation as a whole. Although we have seen a definitive tonal shift in the last few years. In an excellent essay for The Drift, Kiara Barrow wrote, “Widening income and wealth inequalities and millennials’ dim economic prospects have led the media to reevaluate its initial verdict on the generation. First we were entitled, distracted avocado toast addicts who could not budget. But the past few years have seen an increasingly sympathetic shift, as even the bootstrap scolds have been forced to admit that structural factors may be impacting our generation's failure to meet expected benchmarks of middle-class adulthood. Publications that were once obsessed with admonishing us became obsessed with declaring our economic prospects hopeless.” End quote. 

But as we've seen, all millennials are not created equal. Much like the population as a whole, the top 10 to 20% of millennials are really thriving. The other 81% to 90%, not so much, if the earlier figures revealing that only the millennial net worth above the 81st percentile qualified as middle class wealth were any indication. So what's at stake for this generation? Bridget again. 

Bridget Casey: The consequences of not addressing how severe this class divide is becoming, especially within our own generation, are severe. There's economic consequences and there's also just well-being consequences. We're ending up with this, like I said, there's two cohorts within the millennial generation: those who are thriving and those who are barely surviving. And when you end up with a class break like that, it stalls the economy, because if you really erode the middle class, you lose that consumer base that we need for economic growth. And you also end up, unfortunately, with a lot of civil unrest. And I think that's what we're starting to see hints of, like this movement of “eat the rich” is just beginning, and it's going to continue to grow stronger, because when people do not feel seen, when they don't feel heard, when they don't feel valued, and when they don't feel like they can enjoy economic security, it does eventually, as we know from history, lead to a riot, and some heads will roll. And if you're one of the millennials that have succeeded in this space, I mean you don't wanna be the one on the guillotine. 

Katie: We also asked Bridget what she thinks we can do about it, and she articulated her fears about the path that we are going down. 

Bridget Casey:  think the things that we really need to do to combat this is we need large-scale policy changes that really support the low-income people that are struggling. I really believe in things like free postsecondary education, free healthcare. I would love to see a universal basic income, because I do think we have to protect the most vulnerable populations because I don't think anyone should die from poverty, which is to die from wealth inequality. I think it's really tragic and unfair, but we won't have those social supports and we won't have those changes in protections in society unless people vote for them. But I think in the west, in North America where we live, where our culture in both the United States and Canada is very individualistic. So it's hard to convince people that this is necessary. And what I really worry about is that we won't convince them in time. A lot of people don't realize that their security is totally disappearing until it will be too late. 

Katie: So in closing, where is the millennial middle class? After digging into this question, history would tell us that to some extent it is statistically likely that more of this generation will age into the middle class over time. That said, the previous generations that we often look to for a historical basis did not really face the same headwinds as millennials do today. The younger generations, I'll throw Gen Z in here too, have less margin for error. And this makes financial literacy, political engagement, and community care more crucial than they've ever been before, if you believe that increasing intragenerational inequality is a problem. 

As I've said before, I don't think financial literacy alone is the solution to these problems, like unaffordable higher education, the median home being twice as expensive in real terms as it was in 1985, all else held equal, but it can be a life raft in otherwise choppy waters. If you are dealing with student loans, you can't afford a house, and you don't stand to inherit a bunch of money from your rich ass boomer parents, there's really only one piece of the puzzle that we talked about today that doesn't rely as fully on external factors: your income. Increasing your income creates other opportunities, like increased saving and investing. And if you are trying to determine where to focus your energy as a millennial trying to get ahead in 2023, I think the answer is clear that it's increasing income, developing more marketable skills, working to surface more opportunities more frequently, trying your hand at different things. Income generated through increasing your human capital is the highest point of leverage for many young people without the other tailwinds that we described today, like family wealth or a house that you bought in Boulder in 2012. It's where your time and energy are likely going to go the farthest and provide the highest ROI.

All right, y'all, that is all for this week. I will see you next week, same time, same place, on The Money with Katie Show. Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is our chief content officer, and additional fact checking comes from Kate Brandt.