Here’s Why It’s Harder For Millennials To Build Wealth

By Susan Tompor
Detroit Free Press

WWR Article Summary (tl;dr) While many people are on a stronger financial footing after the economic recovery, many young people feel very much left behind, especially if they’re juggling low paying jobs with high levels of college debt.

Detroit Free Press

Siara Sellers, 28, owes almost $13,000 in student loans, money that has become a financial roadblock ever since she dropped out of community college.

Sellers, who lives in Detroit, has been working part time for the past eight months or so at the UPS warehouse in Livonia, making about $11 an hour. She left school in 2013 after her grades plummeted when her older, now-retired husband became sick.

Now, she says she cannot afford to put any money toward paying off her college loans because of her limited income.

Her federal loans are in deferment, which means she can temporarily stop making payments.

“I can’t afford it,” she said.

While many people are on a stronger financial footing after the economic recovery, many young people feel very much left behind, especially if they’re juggling low paying jobs with high levels of college debt.

Young adults with college degrees and student debt are stuck in a financial ditch and unable to build wealth as quickly as their parents did when they were younger, a study released in April by the Young Invincibles, a young adult advocacy group, says.

The problem? Millennials are bringing home significantly smaller paychecks, tend to be less likely to own a home and aren’t saving as much for retirement as young adults did in the late 1980s. They’re burdened with debt but not acquiring assets quickly.

Young adults with college degrees and student debt, for example, find themselves looking at a median, negative net wealth of $1,900 based on research by the Young Invincibles. Simply put, they owe more than they own.

That’s a sizable drop from a median net wealth of $9,000 for that age group in 2013.

The study looked at young adults ranging in age from 25 to 34 in 1989 and in 2013 respectively, as well as baby boomers at the same age.

“A college degree is still on average a very good investment for building financial security,” said Tom Allison, deputy policy and research director for the Young Invincibles.

On average, he said, college grads make more money than those without a degree. But young adults are taking on more debt to get those better paying jobs.

“There’s no question it used to be much easier to build financial security 25 years ago with a college degree,” Allison said.

In general, consumers experienced broad-based gains in their income and net worth from 2013 to 2016, according to the most recent Federal Reserve Board Survey of Consumer Finances.

Overall, the median net worth, the difference between one’s assets and liabilities, rose 16 percent to $97,300 for all families in the survey group. Assets would include things like savings accounts, college savings plans, retirement accounts, cars, equity in a home.

For younger families under age 35, median net worth rose 4 percent to $11,100 in 2016.

But many younger adults started their careers during the recession in 2008-09 when it was tough to get a job and they ended up taking lower-paying jobs along the way.

Someone who starts on a lower rung on the ladder typically isn’t getting rapid pay raises that would make up for that lost ground, Allison said.

On average, a person starting work in 2010 is seeing much slower growth in real disposable income, money that’s available after income taxes and inflation, than someone who started working in the 1980s or 1990s, according to Paul Traub, senior business economist for the Federal Reserve Bank of Chicago, Detroit Branch.

“It is true that the standard of living is better today but overall, people are not experiencing the same opportunities as people from earlier generations,” Traub said.

Some of the blame goes to younger workers entering the market for a lower wage. But wages are stuck in a rut, too.

“The great recession pushed wage growth down as the unemployment rate reached 10 percent,” Traub said. “Since then, wage growth has been very slow.”

As the unemployment rate falls, wages should rise as employers face more competition for workers. But wages have not risen as much as one would expect in part because of structural changes in the economy, Traub said.

“Many of the higher paying production jobs have been automated away or outsourced to lower wage countries,” Traub said.

Without a good paying job, it’s far tougher to manage the burden of college debt and save money for a down payment on a home or save for retirement.

“Student debt is clearly impacting young people’s ability to build financial security,” Allison said. “Student debt doesn’t come with a tangible asset, at least not right away,” he said.

Cost of college and better jobs
About 43.3 percent of young families, where the head of the household is younger than 40, had education-related debt, according to the Federal Reserve Board’s 2016 Survey of Consumer Finances.

That’s up from 38.8 percent in the Fed’s 2013 survey.

The amount of debt also trended upward. The average amount of education debt was $33,300 in 2016, up from $30,700 in the 2013 survey.

About 72 percent of college grads carry some debt along with that diploma.

“Federal and state government grants have not been keeping pace with increases in college costs on a per-student, inflation-adjusted basis,” said Mark Kantrowitz, publisher of

The burden of paying for college has shifted to families and away from the government, he said.

Given that the income for many families has been mostly flat since 2000, he said, many families do not have more resources to pay the higher tuition bills.

“This forces them to borrow more,” Kantrowitz said.

Borrowing to go to college isn’t bad in and of itself. More education debt is held by families with higher income levels, indicating that many are able to pay off that debt, according to the Fed study.

“Even if recent college grads emerge with debt, they are still likely to be much better off over their lifetimes than those who don’t get a college degree,” said Charles Ballard, a professor of economics at Michigan State University.

“The rate of return to a college education is still very large.”

Non-grads hurt, too
Yet Ballard said many people on average, including those without college degrees, are challenged by the “Great Divergence” of income inequality starting about 1980.

A speedup in automation has replaced certain types of workers and unions have continued to be weaker, cutting into upward mobility for many people without college degrees, Ballard said.

“Our economy is bigger than it’s ever been but you can find a lot of people who aren’t better than they were 20 years ago,” Ballard said.

Everyone isn’t able to easily pay their college loans, especially if they do not have a degree.

Bobby Siporin, manager for financial stability programs for Southwest Economic Solutions in Detroit, said some homeless veterans and others ended up being burdened by student loans that they took out for community college or online college courses. Instead of completing their schooling, he said, they ended up using student loan money to make ends meet and cover every day bills during the year.

And the jobs aren’t there like they had been in the past for those without college degrees.

Sellers said her father had a good job at an auto factory in Sterling Heights and was able to provide a good life for their family.

“Ten to 15 years ago, my father worked at Chrysler and he could survive and live off that check,” she said.

She’s not as certain about how things will work out for her.

Sellers, who worked with Southwest Economic Solutions in a “Earn + Learn” program for low-income workers and veterans, was able to get training in that program and eventually get a job at UPS in August. But she’s only part-time and works three or four hours a day as a package handler unloading boxes off the trucks.

While she went to Henry Ford Community College to study in the nursing program, she realized that wasn’t really a good field for her. She’s physically strong, she says, and now thinks that she might be able to build her skills and possibly eventually work in construction where there are plenty of jobs.

“Right now, the construction thing is booming,” she said.

Susan Tompor is the personal finance columnist for the Detroit Free Press.

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