- 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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As part of a new exhibition, the worlds of culture and technology collide, bringing sound to the colors of abstract art pioneer Wassily Kandinsky.
Kandinsky had synesthesia, where looking at colors and shapes causes some with the condition to hear associated sounds. With the help of machine learning, virtual visitors to the Sounds Like Kandinsky exhibition, a partnership project by Centre Pompidou in Paris and Google Arts & Culture, can have an aural experience of his art.
An eye for music
Kandinsky's synesthesia is thought to have heavily influenced his painting. Seeing yellow summoned up trumpets, evoking emotions like cheekiness; reds produced violins portraying restlessness; while organs representing heavenliness he associated with blues, according to the exhibition notes.
Virtual visitors are invited to take part in an experiment called Play a Kandinsky, which allows them to see and hear the world through the artist's eyes.
Kandinsky's synesthesia is thought to have heavily influenced his 1925 painting Yellow, Red, Blue.Image: Guillaume Piolle/Wikimedia Commons
In 1925, the artist's masterpiece, "Yellow, Red, Blue", broke new ground in the world of abstract art, guiding the viewer from left to right with shifting shapes and shades. Almost a century after it was painted, Google's interactive tool lets visitors click different parts of the artwork to journey through the artist's description of the colors, associated sounds and moods that inspired the work.
But Google's new toy is not the only tool developed to enhance the artistic experience.
Artist Neil Harbisson has developed an artificial way to emulate Kandinsky by turning colors into sounds. He has a rare form of color blindness and sees the world in greyscale. But a smart antenna attached to his head translates dominant colors into musical notes, creating a real-world soundtrack of what's in front of him. The invention could open up a new world for people who are color blind.
Reprinted with permission of the World Economic Forum. Read the original article.
The United States of America, land of the free, is home to 5 percent of the world's population but 25 percent of its prisoners. The cost of having so many people in the penal system adds up to $80 billion per year, more than three times the budget for NASA. This massive system exploded in size relatively recently, with the prison population increasing by six-fold in the last four decades.
Ten percent of these prisoners are kept in private prisons, which are owned and operated for the sake of profit by contractors. In theory, these operations cost less than public prisons and jails, and states can save money by contracting them to incarcerate people. They have a long history in the United States and are used in many other countries as well.
However, despite the pervasiveness of private contractors in the American prison system, there is not much research into how well they live up to their promise to provide similar services at a lower cost to the state. The little research that is available often encounters difficulties in trying to compare the costs and benefits of facilities with vastly different operations and occasionally produces results suggesting there are few benefits to privatization.
A new study by Dr. Anita Mukherjee and published in the American Economic Journal: Economic Policy joins the debate with a robust consideration of the costs and benefits of private prisons. Its findings suggest that some private prisons keep people incarcerated longer and save less money than advertised.
Mississippi Blues
The study focuses on prisons in Mississippi. Despite its comparatively high rate of incarceration, Mississippi's prison system is very similar to that of other states that also use private prisons. Demographically, its system is representative of the rest of the U.S. prison system, and its inmates are sentenced for similar amounts of time.
The state attempts to get the most out of its privatization efforts, as a 1994 law requires all contracts for private prisons in Mississippi to provide at least a 10 percent cost savings over public prisons while providing similar services. As a result, the state seeks to maximize its savings by sending prisoners to private institutions first if space if available.
While public and private prisons in Mississippi are quite similar, there are a few differences that allow for the possibility of cost savings by private operators — not the least of which is that the guards are paid 30 percent less and have fewer benefits than their publicly employed counterparts.
The results of privatization
The graph depicts the likelihood of release for public (dotted line) vs. private (solid line) prison inmates. At every level of time served, public prisoners were more likely to be released than private prisoners.Dr. Anita Mukherjee
The study relied on administrative records of the Mississippi prison system between 1996 and 2013. The data included information on prisoner demographics, the crimes committed, sentence lengths, time served, infractions while incarcerated, and prisoner relocation while in the system, including between public and private jails. For this study, the sample examined was limited to those serving between one and six years and those who served at least a quarter of their sentence. This created a primary sample of 26,563 bookings.
Analysis revealed that prisoners in private prisons were behind bars for four to seven percent longer than those in public prisons, which translates to roughly 85 to 90 extra days per prisoner. This is, in part, because those in private prison serve a greater portion of their sentences (73 percent) than those in public institutions (70 percent).
This in turn might be due to the much higher infraction rate in private prisons compared to public ones. While only 18 percent of prisoners in a public prison commit an infraction, such as disobeying a guard or possessing contraband, the number jumps to 46 percent in a private prison. Infractions can reduce the probability of early release or cause time to be added to a sentence.
It's unclear why there are so many more infractions in private prisons. Dr. Mukherjee suggests it could be the result of "harsher prison conditions in private prisons," better monitoring techniques, incentives to report more of them to the state before contract renewals, or even a lackadaisical attitude on the part of public prison employees.
What does all this cost Mississippi?
The extra time served eats 48 percent of the cost savings of keeping prisoners in a private facility. For example, it costs about $135,000 to house a prisoner in a private prison for three years and $150,000 in the public system. But longer stays in private prisons reduce the savings from $15,000 to only $7,800.
As Dr. Mukherjee remarks, this cost is also just the finance. Some things are a little harder to measure:
"There are, of course, other costs that are difficult to quantify — e.g., the cost of injustice to society (if private prison inmates systematically serve more time), the inmate's individual value of freedom, and impacts of the additional incarceration on future employment. Abrams and Rohlfs (2011) estimates a prisoner's value of freedom for 90 days at about $1,100 using experimental variation in bail setting. Mueller-Smith (2017) estimates that 90 days of marginal incarceration costs about $15,000 in reduced wages and increased reliance on welfare. If these social costs were to exceed $7,800 in the example stated, private prisons would no longer offer a bargain in terms of welfare-adjusted cost savings."
It is possible that the extra time in jail provides benefits that counter these costs, such as a reduced recidivism rate, but this proved difficult to determine. Though it was not statistically significant, there was some evidence that the added time actually increased the rate of recidivism. If that's true, then private prisons could be counterproductive.
