When it comes to finances, millennials have it rough. Data shows that members of this generation — people born in 1981 to 1997 — are saddled with student loan debt, delaying major milestones such as homeownership and less financially secure than their parents, the baby boomers.
They might now be on the verge of becoming 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.
Click through to see the real reason your millennial child is making you broke.
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 between 1964, when the youngest boomers were born, and 2015. 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 $9,970 for yearly in-state tuition and fees, and $25,620 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 $34,740.
But millennials aren’t shouldering these costs on their own. During the 2016-17 academic year, for example, scholarships and grants covered 35 percent of college costs, according to Sallie Mae’s 2017 “How America Pays for College” study. Parent income and savings covered an additional 23 percent of the tab, and parent borrowing paid for another 8 percent. Contributions from relatives and friends took care of 4 percent. In total, student borrowing covered 19 percent of costs — up almost 50 percent from the 2016 study — and student income and savings covered 11 percent.
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, a certified financial planner and president 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. In 2015-16, bachelor’s degree recipients who borrowed money graduated with an average of $28,400 in student loan debt, according to the College Board.
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.
... And Getting Less for Their Debt
Taking on student loans might be pricey, but student loans are likely still worth it in the long run. A 2015 study conducted by Georgetown University’s Center on Education and the Workforce concluded that the lifetime wage difference between high school and college graduates was $1 million.
But today’s economy might also make it less of a luxury and more of a necessity as the sort of work that people without a college degree can find appears to be dropping in quality and the earnings gap continues to trend upwards. A college graduate earned 56 percent more than someone without a college degree in 2015, according to the Economic Policy Institute, up from 51 percent in 1999 and the highest level it’s been since 1973.
What’s more, the Young Invincibles study found that millennials with a college degree and student debt earned about the same amount as a boomer with no college degree in 1989.
The Job Market Has Been Tough for Both Generations, but Worse for Millennials
One of the biggest financial challenges millennials face is a tight job market, Simon said. The 2017 unemployment rate among young millennials ages 20 to 24 was nearly 70 percent higher than the national unemployment rate — 7.4 percent versus 4.4 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 — 4.6 percent.
But 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 for 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, whereas 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.
Economic Conditions Favor Boomers, but Not by Much
Neither boomers nor millennials have experienced a lot of luck with the economy. There 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 — but in a much shorter period of time.
What’s more, the Great Recession was, in many ways, much worse than anything the boomers had to experience in the early years of their careers. The recession in the early 1980s, for instance, did produce similar levels of unemployment to the Great Recession, but it didn’t last nearly as long. That recession produced two full years plus another two months of unemployment rates over 8 percent — from November 1981 to January 1984. Compare that with the three and a half years of 8 percent-plus unemployment that millennial job-seekers experienced from February 2009 to August 2012.
Learn These: 15 Survival Tips for the Next Recession
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 its 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.
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, and another would be that home prices have increased 250 percent since 1980.
“Student loan debt is a tremendous burden that holds many millennials back from purchasing a house,” said Clint Haynes, a 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.”
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 October 1981, according to Freddie Mac.
Millennials Now More Likely to Live at Home
Today, 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.
But there’s plenty of reason to believe that the explanation for this is tied to the fact that the entire housing market — purchases and rentals alike — are combining to make it harder for young adults to leave the nest. Millennials under the age of 25 are spending 7.7 percent more on housing than boomers were at the same age, indicating that even getting that first apartment could be significantly harder for this generation than for the previous ones.
Healthcare Costs Are Heftier Now
When boomers were in their 20s and 30s, healthcare spending was just a fraction of what it is today. Annual health spending has risen from $147 per person in 1960 to $9,255 in 2013, according to the Centers for Medicare and Medicaid Services.
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
You can still find 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, nearly 90 percent of private sector workers with retirement benefits were covered by a pension plan, according to the Investment Company Institute. 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.
Neither Millennials nor Boomers Are Saving Enough for Retirement
A pension is hardly necessary to a happy retirement, though, as long as you are making regular contributions to your retirement plan and especially if they’re being matched by your employer. For millennials, 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 2018 Retirement Savings survey found that 39.2 percent of millennials have less than $10,000 saved for retirement compared with about a quarter of boomers, meaning more than 40 percent 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’ endgame. 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.”
Click through to learn 11 signs millennials are better with their money than you are.
Joel Anderson contributed to the reporting for this article.
More on Savings Advice