- A New America report shows millennial income and wealth accumulation lags dramatically behind their parents' and grandparents' generations.
- Resulting from the Great Recession, rising debt, and volatile wealth flow, this imbalance will impair future generations if not corrected.
- The report's authors argue the shortfall can be redressed with comprehensive policy changes.
Millennials are defined by their diversity, but like every generation, they have experiences and milestones they all share.
In their formative years, millennials witnessed the rise of the internet, protracted wars in the Middle East, and a burgeoning political polarization. They ignited the experience economy and shifted the values of American culture. They are more educated than previous generations, yet stumbled into the workforce among the financial gyre of the Great Recession.
That last one has had a profound impact on the shared millennial experience. While the broader economy has convalesced, and Gen Xers have recovered the wealth they lost, millennials continue to lag behind previous generations, unable to find purchase in the financial system that made their parents and grandparents among the most well-off generations in history.
According to a New America report, The Emerging Millennial Wealth Gap, millennials currently earn 20 percent less than boomers at the same stage of life. In fact, millennial wealth accumulation is on track to fall short of their parents' lot. And this imbalance may impair subsequent generations, too.
Millennial income and debt
The Great Recession catalyzed the millennials' poor financial state. Just as the generation entered the workforce, businesses began downsizing, income wages nosedived, and millennials had to compete against an established workforce for fewer jobs. Since then, wage growth has been sluggish and recovery uneven.
But as the New America report illustrates, the recession is hardly the only factor at play. As is often the case, it's a nuance issue with many contributing influences.
For example, millennials are the most educated generation (for now). They have received more bachelor's degrees than previous generations, but that education has come at a cost. American tuition fees have increased faster than wages, with the average annual cost for attending a public four-year university at just over $19,000 (2015-16). At $1.5 trillion, today's student debt has surpassed loans for cars and credit cards, stymieing those who hold it from putting that money toward asset accumulation.
"It is not surprising that the median wealth of all millennials with any debt at age 30 is lower than those with no debt who attended college; however, their median wealth levels are also lower than young adults who never attended college," the New America report states.
Between student debt, car loans, and credit card debt, millennials maintain a higher debt-to-income-and-asset ratio than previous generations at the same age. Importantly, this debt is less mortgage debt and more consumer debt. The difference being that the former later becomes an asset value, while the latter does not.
Add to this debt sluggish wages and volatile income from an increased reliance on gig jobs—which lacks the assurances and benefits of full employment—and the millennial balance sheet has taken a huge hit.
How bad a hit? According to the New America report:
For families headed by an individual under the age of 35, net worth was 41 percent lower in 2016 than 1995. In contrast, households headed by someone over age 75 have seen their wealth rise. The recent growth of net worth among older households has been especially pronounced. It has increased 32 percent from 2013 to 2016, reflecting new growth in the generational wealth gap.
That generational wealth gap is further aggravated along racial lines. The report cites the median net worth of non-Hispanic White households at $171,000, compared to $17,600 for black households and $20,700 for Hispanic households. The authors chose the median because the mean proved substantially higher for all race and ethnicity households, "which reflects the concentration of wealth among the wealthiest in each category."
"Millennials are in a fundamentally different economic place than previous generations," writes Reid Cramer, director of the Millennials Initiative at New America, in the report. "Relatively flat but volatile incomes, low savings and asset holdings, and higher consumer and student debt have weakened their finances. The Millennial balance sheet is in poor shape."
A generation feels the effects
This graph from the World Economic Forum shows millennial income wage growth alongside average student debt.
This flagging wealth accumulation plays out in many of the stereotypes associated with millennials—stereotypes often wrongly attributed to other traits.
The trend of millennials living in their parents' basements has become a threadbare zinger, but there is truth to it. The number of young adults returning home has risen since 1997. Rather than the result of a lazy, lost generation who can't properly adult, the culprit is debt, stagnant wages, and the high cost of living.
Another result is the decline of millennial marriage. One study found a negative correlation between student debt and marriage. Under the financial strain, millennials less likely to embark on marriage and starting a family until much later in their lives. (Though, we should note, decade-long trends like women workforce participation and declines in teen pregnancy rates have also affect marriage rates.)
This wealth gap has also fueled the homeownership gap.
Millennials are less likely than Gen Xers and baby boomers to be homeowners, thanks to rising prices and fewer houses on the market. As the New America report notes, this single factor is perhaps the greatest detriment to millennial wealth building, as the home is often a household's largest asset.
"While the typical homeowner had a net worth of $231,400 in 2016, the typical renter had a net worth of $5,200, making this single variable among the most significant in explaining different wealth trajectories among American households," the report states.
A cascading recession?
Inadequate wealth accumulation is not solely the problem of a single generation. Unless corrected for, it can have a cascading effect that hinders future generations, as parental wealth informs what economic resources can be invested in their children's development.
A study out of the London School of Economics showed a strong causal link between household finances and children outcomes. It found evidence that low incomes prevent parents from investing in goods and services for their children. Additionally, these parents suffer from stress and anxiety, which can have further detrimental effects on their children. The study found that poor children are more likely to have worse education, health, and social-behavioral outcomes as a result.
The New America report also cites large bodies of research indicating that the family economic resources impact a child's human potential and their own economic outcomes.
Redressing the wealth gap
Democratic nominee Senator Elizabeth Warren wants to cancel student loan debt, a potential redress for the millennial income and wealth gap.
(Photo: Larie Shaull/Wikimedia Commons)
The conclusion of the New America report is that the intergenerational wealth gap must be redressed through system-wide policy changes. That's because wealth isn't simply luxury; it's the "key to financial security and economic mobility."
Those with little to no wealth accumulation cannot participate in the economy or society at the same level as their wealthy peers. They lack the tools and resources to reach their full potential, they cannot exercise or defend their rights as effectively, and in some ways basic needs become more expensive when they can be acquired.
The report's researchers cite eight potential responses to repair the millennial balance sheet, as well as examples of what those policies may look like:
1) Promote savings to build up cash reserves
Remove taxes for savings account interest up to a certain amount. Offer bonuses or matches on saved amounts.
2) Reduce the debt overhand
A large-scale cancellation of student load debt. Improve income-based repayment plans. End taxation on forgiven student loans. Make loan repayment a standard employee benefit.
3) Facilitate deposits to retirement plans
Incentivize savings through a government match program. Develop a public-option savings plan for people without an employer option.
4) Increase the supply of affordable rental housing while promoting paths to sustainable homeownership.
Pass laws to increase oversight over the mortgage market. Draft support systems to help people save for down payments.
5) Invest in the next generation's asset development
A government plan that provides every child with a savings account and seed deposit. State-based 529 college savings plans with progressive matching features.
6) Address the rising cost of college and reduce reliance on student loans.
Increase tuition subsidies for low-income students. Improve transparency at educational institutions. Better regulate for-profit educational institutions. More robust support for four-year program alternatives.
7) Promote new sources and opportunities to grow incomes and build wealth
Greater ownership in common assets (e.g., the Alaska permanent fund). Develop a "data dividend" where people are paid for sharing their personal data. More widespread adoption of employee stock and profit-sharing plans.
8) Support family caregiving
Increase and support better paid family leave. Improve income support for low-wealth families. Develop a universal family care system.
These are a few of the ideas offered by the report. But as Reid Cramer points out, the broad idea is to reinforce the pillars of our society to support everyone.
"In order to fashion a policy response to the emerging millennial wealth gap, it is instructive to acknowledge the pillars that historically have anchored the ladder of economic opportunity," Cramer writes. "For some, these pillars were never there at all; for others, they have weakened in the years since the Great Recession."
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Our hearts beat at a resting rate of 60 to 100 beats per minute. Lots of other things pulse, too. The colors we see and the pitches we hear, for example, are due to the different wave frequencies ("pulses") of light and sound waves.
Now, a study in the journal Geoscience Frontiers finds that Earth itself has a pulse, with one "beat" every 27.5 million years. That's the rate at which major geological events have been occurring as far back as geologists can tell.
A planetary calendar has 10 dates in red
Credit: Jagoush / Adobe Stock
According to lead author and geologist Michael Rampino of New York University's Department of Biology, "Many geologists believe that geological events are random over time. But our study provides statistical evidence for a common cycle, suggesting that these geologic events are correlated and not random."
The new study is not the first time that there's been a suggestion of a planetary geologic cycle, but it's only with recent refinements in radioisotopic dating techniques that there's evidence supporting the theory. The authors of the study collected the latest, best dating for 89 known geologic events over the last 260 million years:
- 29 sea level fluctuations
- 12 marine extinctions
- 9 land-based extinctions
- 10 periods of low ocean oxygenation
- 13 gigantic flood basalt volcanic eruptions
- 8 changes in the rate of seafloor spread
- 8 times there were global pulsations in interplate magmatism
The dates provided the scientists a new timetable of Earth's geologic history.
Tick, tick, boom
Credit: New York University
Putting all the events together, the scientists performed a series of statistical analyses that revealed that events tend to cluster around 10 different dates, with peak activity occurring every 27.5 million years. Between the ten busy periods, the number of events dropped sharply, approaching zero.
Perhaps the most fascinating question that remains unanswered for now is exactly why this is happening. The authors of the study suggest two possibilities:
"The correlations and cyclicity seen in the geologic episodes may be entirely a function of global internal Earth dynamics affecting global tectonics and climate, but similar cycles in the Earth's orbit in the Solar System and in the Galaxy might be pacing these events. Whatever the origins of these cyclical episodes, their occurrences support the case for a largely periodic, coordinated, and intermittently catastrophic geologic record, which is quite different from the views held by most geologists."
Assuming the researchers' calculations are at least roughly correct — the authors note that different statistical formulas may result in further refinement of their conclusions — there's no need to worry that we're about to be thumped by another planetary heartbeat. The last occurred some seven million years ago, meaning the next won't happen for about another 20 million years.
When I was a junior in college, my electromagnetism professor had an awesome idea. Apart from the usual homework and exams, we were to give a seminar to the class on a topic of our choosing. The idea was to gauge which area of physics we would be interested in following professionally.
Professor Gilson Carneiro knew I was interested in cosmology and suggested a book by Nobel Prize Laureate Steven Weinberg: The First Three Minutes: A Modern View of the Origin of the Universe. I still have my original copy in Portuguese, from 1979, that emanates a musty tropical smell, sitting on my bookshelf side-by-side with the American version, a Bantam edition from 1979.
Inspired by Steven Weinberg
Books can change lives. They can illuminate the path ahead. In my case, there is no question that Weinberg's book blew my teenage mind. I decided, then and there, that I would become a cosmologist working on the physics of the early universe. The first three minutes of cosmic existence — what could be more exciting for a young physicist than trying to uncover the mystery of creation itself and the origin of the universe, matter, and stars? Weinberg quickly became my modern physics hero, the one I wanted to emulate professionally. Sadly, he passed away July 23rd, leaving a huge void for a generation of physicists.
What excited my young imagination was that science could actually make sense of the very early universe, meaning that theories could be validated and ideas could be tested against real data. Cosmology, as a science, only really took off after Einstein published his paper on the shape of the universe in 1917, two years after his groundbreaking paper on the theory of general relativity, the one explaining how we can interpret gravity as the curvature of spacetime. Matter doesn't "bend" time, but it affects how quickly it flows. (See last week's essay on what happens when you fall into a black hole).
The Big Bang Theory
For most of the 20th century, cosmology lived in the realm of theoretical speculation. One model proposed that the universe started from a small, hot, dense plasma billions of years ago and has been expanding ever since — the Big Bang model; another suggested that the cosmos stands still and that the changes astronomers see are mostly local — the steady state model.
Competing models are essential to science but so is data to help us discriminate among them. In the mid 1960s, a decisive discovery changed the game forever. Arno Penzias and Robert Wilson accidentally discovered the cosmic microwave background radiation (CMB), a fossil from the early universe predicted to exist by George Gamow, Ralph Alpher, and Robert Herman in their Big Bang model. (Alpher and Herman published a lovely account of the history here.) The CMB is a bath of microwave photons that permeates the whole of space, a remnant from the epoch when the first hydrogen atoms were forged, some 400,000 years after the bang.
The existence of the CMB was the smoking gun confirming the Big Bang model. From that moment on, a series of spectacular observatories and detectors, both on land and in space, have extracted huge amounts of information from the properties of the CMB, a bit like paleontologists that excavate the remains of dinosaurs and dig for more bones to get details of a past long gone.
How far back can we go?
Confirming the general outline of the Big Bang model changed our cosmic view. The universe, like you and me, has a history, a past waiting to be explored. How far back in time could we dig? Was there some ultimate wall we cannot pass?
Because matter gets hot as it gets squeezed, going back in time meant looking at matter and radiation at higher and higher temperatures. There is a simple relation that connects the age of the universe and its temperature, measured in terms of the temperature of photons (the particles of visible light and other forms of invisible radiation). The fun thing is that matter breaks down as the temperature increases. So, going back in time means looking at matter at more and more primitive states of organization. After the CMB formed 400,000 years after the bang, there were hydrogen atoms. Before, there weren't. The universe was filled with a primordial soup of particles: protons, neutrons, electrons, photons, and neutrinos, the ghostly particles that cross planets and people unscathed. Also, there were very light atomic nuclei, such as deuterium and tritium (both heavier cousins of hydrogen), helium, and lithium.
Cosmic alchemy
So, to study the universe after 400,000 years, we need to use atomic physics, at least until large clumps of matter aggregate due to gravity and start to collapse to form the first stars, a few millions of years after. What about earlier on? The cosmic history is broken down into chunks of time, each the realm of different kinds of physics. Before atoms form, all the way to about a second after the Big Bang, it's nuclear physics time. That's why Weinberg brilliantly titled his book The First Three Minutes. It is during the interval between one-hundredth of a second and three minutes that the light atomic nuclei (made of protons and neutrons) formed, a process called, with poetic flair, primordial nucleosynthesis. Protons collided with neutrons and, sometimes, stuck together due to the attractive strong nuclear force. Why did only a few light nuclei form then? Because the expansion of the universe made it hard for the particles to find each other.
What about the nuclei of heavier elements, like carbon, oxygen, calcium, gold? The answer is beautiful: all the elements of the periodic table after lithium were made and continue to be made in stars, the true cosmic alchemists. Hydrogen eventually becomes people if you wait long enough. At least in this universe.
In this article, we got all the way up to nucleosynthesis, the forging of the first atomic nuclei when the universe was a minute old. What about earlier on? How close to the beginning, to t = 0, can science get? Stay tuned, and we will continue next week.
To Steven Weinberg, with gratitude, for all that you taught us about the universe.
