Millennials’ Financial Outlook Better than Advertised—At Least for Some

Conventional wisdom holds that young adults today face a dimmer financial future than their parents and grandparents. It’s a sentiment exacerbated, certainly, by the financial crisis of 2008, the great recession that accompanied it, and the slow pace of economic recovery since then. In a recent survey by the Pew Research Center, the vast majority of older Americans said millennials—those born after 1980—face greater economic challenges than members of the three previous generations did when they were young.

In fact, the unemployment rate among millennials currently between the ages of 25 and 32 is higher, at 8.2 percent, than it was for all three previous generations when they were in that age group. But in an address at the SVIA 2015 Fall Forum, Richard Fry, senior researcher with the Pew Research Center, said the outlook for millennials may not be as bad as it looks, at least for those with a four-year college degree. And, he noted, the share of people with a four-year degree has been rising, with modest interruptions, for decades.

Still, about two-thirds of millennials don’t have a college degree, and the difference in their earnings versus those who do is dramatic. In 2012 dollars the median annual income for college-educated individuals between the ages of 25 and 31 rose to $45,500 in 2013, up from $38,833 in 1965. For those with only a high school diploma, median income fell to $28,000 from $31,384. “For the less educated, the bottom has fallen out,” Fry said.

In considering how much millennials can save and spend, and what quality of life they can enjoy, Fry said it’s important to look beyond their individual incomes and instead at household income. Here again, there’s a stark contrast between those with college degrees and those with high school diplomas. Millennial households headed by someone with a college degree have income of about $89,000 today versus $72,000 for baby boomers when they were the same age. For millennial households headed by someone with only a high school diploma, income today has fallen to about $40,000 versus $50,000 for baby boomers.

Fry said several factors, beyond individual incomes, may help to explain why household income is so much higher for households headed by a college graduate. Those factors include marital status and the presence or absence of children in the home.

While today’s young adults are delaying marriage more than their predecessors, the trend is especially true among those who didn’t graduate from college.

That means the head of a college-educated household is more likely to have a spouse contributing a second income. It’s also more likely than in the past that the spouse will be college-educated, too.

Responding to a question from the audience, Fry said it’s not clear to him that millennials are, as is so often reported, more risk-averse than previous generations, although he did concede that they are more reticent about taking on home ownership and a mortgage. They also tend to have less debt, other than student loan debt, than young adults in the late 1990s and early 2000s.

Questions about millennial finances and attitudes are important because millennials account for a large and growing share of the U.S. population. Pew estimates that sometime this year they will surpass baby boomers as the largest living generation of Americans. There are about 75 million millennials today, and thanks to immigration their numbers are expected to continue growing for some time, peaking at about 81 million sometime in the 2030s.