Millennials are experiencing a significant increase in wealth, with their collective worth soaring to approximately $15.95 trillion, up from $3.94 trillion just five years ago, according to Federal Reserve data. This dramatic rise in wealth is accompanied by complex financial challenges that are reshaping the economic landscape for this generation. Younger millennials and older Gen Zers, aged 26 to 35, have seen their median wealth exceed expectations by 39%, while older millennials, aged 36 to 45, have surpassed expectations by 37%. Despite these gains, many millennials feel financially constrained due to rising living costs and substantial financial commitments.
Michael Liersch, head of advice and planning at Wells Fargo, highlights that homeownership does not offer the same financial security as other investments. Home prices have surged by 44% between 2019 and 2022, according to a report from the St. Louis Federal Reserve. Consequently, millennials face higher mortgages, student loan balances, and increased childcare costs, adding to their financial burdens. Sophia Bera Daigle, CEO and founder of Gen Y Planning, emphasizes these pressures as key factors impacting millennials' ability to utilize their newfound wealth effectively.
Despite accumulating wealth, many millennials report feeling overextended due to higher prices and financial obligations. The "median wealth of these younger people more than quadrupled" during the three-year period, yet the tangible benefits remain elusive for many. Brett House, an economics professor at Columbia Business School, explains that gains in home or retirement plan values can seem like "phantom wealth" because they are illiquid and do not influence daily cash flow.
"Unless you are willing to downsize, you are really not going to monetize the increase in that asset." – Michael Liersch
TransUnion's report indicates that millennials are more likely than other generations to report recent income gains and anticipate further increases in earnings potential over the coming year. This optimism contrasts sharply with the challenges they face in achieving financial independence. Many millennials believe it is harder to make it on their own today than it was for their parents when they started out.
"The 'HENRY' phenomenon isn't limited to millennials or Gen Z." – Brett House
Moreover, House notes that managing risks associated with employment, healthcare, and other aspects of economic well-being has shifted to individuals during a period of rapidly rising prices. This shift contributes to the difficulty every generation faces in achieving financial comfort.
"It's harder for every generation to feel financially comfortable when the management of so much risk related to employment, healthcare, retirement pensions, insurance, and other components of economic well-being has been shifted to individuals during a period of rapidly rising prices." – Brett House
While millennials have made significant progress since being labeled as lazy or entitled in their early adult years, their journey is far from over. The challenges they face are part of a broader economic trend affecting multiple generations.
"Phantom wealth is a nonsensical term: assets either exist or they don't." – Brett House