Boomers vs. Millennials: A Look at the Financial Gap Between Generations

Both generations have faced financial difficulties, but who's had it worse?
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When it comes to finances, millennials have it rough. Data shows that members of this generation (born 1981 to 1997) are saddled with student-loan debt, delaying major milestones such as homeownership and financially less secure than their parents, the baby boomers.

They might now be the largest generation, but are millennials really worse off than boomers were when they were young adults? Here's a look at the financial differences between the two generations.

Millennials Have Higher College Costs
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Millennials Have Higher College Costs

It's no secret that the cost of college has been rising. A GOBankingRates analysis found that the annual cost of a four-year public university has soared more than 3,700 percent since 1964, when the youngest boomers were born. So when those boomers entered college at age 18 in 1982, the average annual tuition at a public school in current dollars was $1,031, and the average cost of a private college was $4,639. When the oldest boomers were in college in 1964, the average annual cost of a public school was just $243, and the average annual cost of a private school was $1,088.

Flash forward to today. The youngest millennials who were born in 1997 are in college now, paying an average of $9,650 for yearly in-state tuition and fees, and $24,930 for yearly out-of-state tuition and fees at four-year public universities, according to the College Board. The average annual cost of tuition and fees at a private school is $33,480.

However, it's important to note that millennials aren't shouldering these costs on their own. During the 2015-16 academic year, for example, scholarships and grants covered 34 percent of college costs, according to Sallie Mae's "How America Pays for College 2016" study. Parent income and savings covered an additional 29 percent of the tab, and parent borrowing paid for another 7 percent. Contributions from relatives took care of 5 percent. In total, student borrowing covered 13 percent of costs, and student income and savings covered 12 percent.

Study Up: 5 Things to Know Before Refinancing Your Student Loans

Millennials Are Graduating With More Student Loan Debt
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Millennials Are Graduating With More Student Loan Debt

Many millennials who have gone to college face a bigger obstacle than boomers did when graduating: student loan debt. "Higher college costs and bigger student loan debt put millennials at a disadvantage compared with boomers," said Saul Simon, certified financial planner and founder of Simon Financial Group.

The average student loan debt per borrower in 1989 — when boomers were in their 20s and 30s — was less than $2,000, according to the Urban Institute. The average student loan debt for a young millennial in the class of 2016 was $37,172, according to Student Loan Hero.

More than 40 percent of millennials report having student loan debt compared with 13 percent of boomers, according to a study by Aon Hewitt. However, boomers are helping their millennial children pay down their debt. According to a survey by TD Ameritrade, boomers who helped their adult children make student loan payments gave them $3,758, on average, last year.

The Job Market Has Been Tough for Both Generations
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The Job Market Has Been Tough for Both Generations

One of the biggest financial challenges millennials face is a tight job market, Simon said. The 2016 unemployment rate among young millennials ages 20 to 24 was almost twice the national unemployment rate — 8.4 percent versus 4.9 percent, according to the Bureau of Labor Statistics. And there was a slightly higher percentage of unemployed older millennials ages 25 to 34 than the overall population — 5.1 percent.

However, boomers didn't have it much better when they entered the labor force. In fact, it was worse for some of them. Because of their large numbers, boomers had unemployment rates that were higher than older workers, according to the Bureau of Labor Statistics. In addition:

  • The average unemployment rate among the youngest male and female boomers in 1969 was 5.7 percent, while the national unemployment rate was 3.5 percent.
  • The unemployment rate among boomers who were in their early 20s in 1979 was 9.2 percent, compared with a 5.8 percent rate across all workers.
  • And 8.6 percent of the youngest boomers were unemployed in their early 20s in 1989, compared with 5.3 percent of all workers.

There also were four recessions during the period of time from the mid-1960s to the mid-1980s when boomers entered adulthood and the workforce. Millennials, on the other hand, have been through two recessions — one in 2001 and the Great Recession from 2007 to 2009.

Millennials Earn Less Than Boomers Did at Their Age
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Millennials Earn Less Than Boomers Did at Their Age

The stagnation in wages in America has hit millennials hard. In fact, this generation actually is worse off than their boomer parents. A 2017 report by advocacy group Young Invincibles found that millennials earn $10,000 less than their parents did when they were young adults.

Young Invincibles compared earnings of boomers ages 25 to 34 in 1989 with earnings of millennials ages 25 to 34 in 2013. Adjusted to 2013 dollars, boomers earned $50,910 annually, yet millennials earned just $40,581.

What makes matters worse is the student debt millennials have, which eats into their earnings. The Young Invincibles study found that millennials with a college degree and student debt earned about the same as a boomer with no college degree in 1989.

Find Out: How Student Loan Consolidation Works

Millennials Are Less Likely to Own Homes
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Millennials Are Less Likely to Own Homes

Homeownership is considered to be part of the American Dream, and for many millennials, it's just that — a dream. A smaller percentage of this generation owns homes than boomers did when they were in their 20s and early 30s — 43 percent versus 46 percent, according to Young Invincibles. Part of the problem is student loan debt.

"Student loan debt is a tremendous burden that holds many millennials back from purchasing a house," said Clint Haynes, certified financial planner and president of NextGen Wealth. "Also, as we have seen over the last 40 years, wages have not kept pace with inflation or home prices, which also makes it difficult."

Home prices have increased 250 percent since 1980, and millennials ages 25 and younger are spending 7.7 percent more on housing than boomers did at that age, according to Morgan Stanley's analysis. Because of high housing costs, millennials are actually more likely to live at home with their parents than live in their own home. At no other time over the past 130 years has a greater percentage of young adults ages 18 to 34 lived with their parents, according to a Pew Research Center analysis.

Millennials who do own homes are lucky, though — they don't have to contend with the high mortgage rates boomers faced in the 1980s. Throughout most of that decade, the 30-year fixed mortgage rate was above 10 percent, reaching as high as 18.45 percent in 1981, according to Freddie Mac.

Check Out: 12 Ways to Make Buying Your First Home More Affordable

Healthcare Costs Are Heftier Now
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Healthcare Costs Are Heftier Now

When boomers were in their 20s and 30s, healthcare spending was just a fraction of what it is today. According to the Centers for Medicare and Medicaid Services, annual health spending has risen from $147 per person in 1960 to $9,255 in 2013.

Plus, healthcare spending has grown at a faster rate than personal income. In 1960, health spending accounted for 4 percent of household expenditures as a share of income. By 2013, it was 6 percent.

Thanks to the Affordable Care Act, though, millennials can cut healthcare costs by taking advantage of their parents' insurance coverage. Insurers are currently required to let children stay on their parents' policies until age 26. Boomer parents, on the other hand, have to foot the bill for family coverage.

Most Millennials and Boomers Don’t Have the Benefit of Pension Plans
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Most Millennials and Boomers Don’t Have the Benefit of Pension Plans

There still are some jobs that come with a pension. But, by and large, millennials can't count on this guaranteed source of income in retirement. Most boomers can't, either.

In 1975, 88 percent of private sector workers with retirement benefits were covered by a pension plan, according to the National Institute on Retirement Security. But a change in IRS regulations started a shift in the 1980s from defined benefit — or pension — plans to employer-sponsored retirement plans, which allowed employees to make voluntary contributions. As of 2016, just 18 percent of private sector workers had access to a pension plan, according to the Bureau of Labor Statistics.

Although pension plans were more commonplace when boomers were young, only one in four boomers expects to get significant income from an employer-provided pension in retirement, according to the Insured Retirement Institute.

For millennials, though, Haynes sees the decline of the pension as a benefit rather than a disadvantage. "They're more in control of their own destiny," he said. "They're not tied to a company pension plan. They have the opportunity to have many different employers, but it's up to them to save for their own retirement."

The problem is neither millennials nor boomers are doing a good job of saving for retirement. The GOBankingRates 2017 Retirement Savings Survey found that 42 percent of millennials have $0 saved for retirement and 29 percent of boomers have nothing saved, meaning more than half of all Americans will retire broke.

Most boomers who are worried about whether they'll have enough for retirement say they would have saved more if they could go back and do things differently, according to the Insured Retirement Institute Survey. Millennials still have time on their side to save enough money to retire rich.

However, Haynes said he doesn't see retirement as millennials' end game. Instead, they want to achieve financial freedom.

"It could mean retirement, but for many, it means being able to do what it is they want to do when they want to do it," he said. "It means not being tied down to a boss, but rather creating opportunities for themselves for what it is they care about — whether it's a side hustle, creating a job they're passionate about or giving back to their community."

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