The mechanics of wealth building are fairly simple. Save more than you spend, invest those savings to generate more money. Lather, rinse, repeat.
There’s one big problem for younger people trying to do this: The rules are rigged against them. Here are five facts showing the unfair burden millennials carry.
1. Wages are stagnant.
Today’s rising generation earns 20 percent less, on an inflation-adjusted basis, than their parents did at their age, despite being better educated and more productive. In fact, Millennials are on track to become the first generation in modern American history to make less money than their parents did.
The federal minimum wage, $7.25 an hour, is lower than the cost of living in every city in the country — and hasn’t gone up in 10 years. It’s hard to save when the money coming in doesn’t come close to covering the basics.
2. Student debt is out of control.
The cost of attaining a college degree leaps annually, with aggregate student debt now topping $1.5 trillion. Savings that could’ve gone to a down payment on a house, starting a business, or saving for retirement are eaten up by monthly student debt obligations.
This is largely the result of state governments disinvesting in public colleges and universities, shifting the costs onto families. Since student debt is the only form of debt not discharged in bankruptcy, you either pay it off or die trying.
3. Everything else costs more too.
Millennial wealth problems aren’t due to avocado toast, lattes, or any other consumer spending habits. Millennials spend less than previous generations on food, alcohol, shelter, utilities, transportation and entertainment.
A few of these things are cheaper today than a few decades ago. But these are far outpaced by the skyrocketing cost of buying a house, rent, health care, college, child care, cars and insurance — and wages aren’t keeping up at all.
4. Buying a house is out of reach.
Starter home prices have increased by nearly 60 percent over the last five years, while inventory has dropped by over 20 percent, according to Zillow. Buying a house has become a punchline for many millennials who don’t have the privilege of family members who can help with a down payment.
Homeownership has historically been the greatest generator of middle class wealth, but millennials are buying houses at a lower rate than previous generations. The top reason they cite isn’t lack of interest or lust for living in a converted van. It’s inability to save for a down payment.
5. Traditional money advice is laughably out of touch.
The standard personal finance advice doled out these days is to save at least three months of expenses, save for retirement, and spend less than a third of your income on housing.
But when you don’t have enough to cover rent, student loans, and insurance, not to mention groceries, where’s all this saving going to come from? What’s the advice for the 40 million of us earning under $15 an hour, whose jobs don’t cover the cost of living?
The good news? Last year, for the first time ever, young voters outpaced Boomers at the ballot box, with millennial turnout nearly doubling from 2014. This year, they overcame baby boomers as the biggest voting bloc.
Bold solutions to un-rig the economy are on the table, like Medicare for All, college for all, student debt forgiveness, first time home buyer programs, and a Green New Deal. Millennials are in a position to benefit the most from these programs — and to contribute the most to ensuring they become law.
Josh Hoxie is a Boston-based associate fellow at the Institute for Policy Studies.