Millennials and Gen-Z have grown concerned about their financial well-being in recent years. They want to understand why their younger generation faces unprecedented economic challenges, leaving them to wonder why they seem financially so worse off than their predecessors.
This article delves into the various factors contributing to this phenomenon, exploring the complex web of economic, social, and technological changes that have reshaped the financial landscape for these generations.
The Impact of Economic Downturns
Major economic downturns have significantly influenced the financial trajectory of Millennials and Gen-Z. Millennials, born between 1981 and 1996, entered the job market during or after the 2008 global financial crisis. This event, often called the Great Recession, led to widespread job losses, wage stagnation, and a general economic malaise that persisted for years.
The timing couldn’t have been worse for many Millennials, who struggled to secure stable employment or faced underemployment in roles that didn’t match their qualifications. This early career setback has had long-lasting effects, with many experiencing what economists call “economic scarring” – a persistent negative impact on earnings and career progression.
Gen Z, born between 1997 and 2012, has faced its own economic baptism by fire with the pandemic. As they began entering the workforce, the global economy experienced unprecedented disruption. Lockdowns, business closures, and widespread uncertainty have made it challenging for many Gen Zers to gain a foothold in their careers.
Compared to previous generations, Millennials and Gen Z have experienced higher unemployment rates and more pronounced wage stagnation in their early working years.
For instance, a study by the Federal Reserve Bank of St. Louis found that Millennials born in the 1980s had wealth levels 38% below what they would have expected based on the experience of earlier generations at the same age.
A Challenging and Evolving Job Market
The job market that Millennials and Gen-Z navigate is markedly different from that of previous generations. Traditional career paths have been disrupted, and job security has become increasingly elusive.
One significant shift is the rise of the gig economy and freelance work. While these arrangements offer flexibility, they often come at the cost of stability, benefits, and long-term financial security. Many young workers juggle multiple part-time jobs or gig work to make ends meet without the safety net of employer-provided health insurance or retirement plans.
Moreover, the disappearance of traditional entry-level jobs has made it harder for young people to gain a foothold in their chosen careers. Many roles that once served as stepping stones now require years of experience or advanced degrees, creating a catch-22 for new graduates.
The increasing demand for advanced degrees has led to another financial burden: student loan debt. As of 2021, recent college graduates’ average student loan debt was over $37,850, with many owing significantly more. This debt drags financial progress, delaying major life milestones such as homeownership or starting a family.
Underemployment is another challenge, with many young workers settling for jobs that don’t fully utilize their skills or match their career aspirations. A report by the Economic Policy Institute found that in 2018, the underemployment rate for young college graduates (ages 21–24) was 11.1%, compared to 6.9% in 2000 and 9.4% in 2007
For more current data, according to Statista, the underemployment rate for recent college graduates in the United States was approximately 40.3% as of December 2023.
This significant increase suggests that a larger proportion of recent graduates are working in jobs that do not require a bachelor’s degree, reflecting ongoing challenges in the labor market for young professionals.
Looking ahead, experts predict that the future of work will continue to evolve rapidly. Adaptability and continuous learning will be crucial for career success, placing additional pressure on younger generations to constantly upskill and reskill to remain competitive.
The Double-Edged Sword of Technology
Technology has fundamentally reshaped the economic landscape, presenting opportunities and challenges for Millennials and Gen-Z.
On one hand, the digital economy has created new industries and job categories that didn’t exist a generation ago. Tech-savvy young people have succeeded in app development and digital marketing as YouTubers, website developers, and in data science.
However, the rise of automation and artificial intelligence (AI) has also led to the displacement of many jobs, particularly those involving routine or repetitive tasks. A study by the McKinsey Global Institute estimated that by 2030, up to 375 million workers globally might need to switch occupational categories due to automation.
Industries that have traditionally employed large numbers of young workers, such as retail and manufacturing, have been particularly affected by technological disruption. For example, the rise of e-commerce has led to the closure of thousands of brick-and-mortar stores, eliminating many entry-level retail jobs.
The rapid pace of technological change also means that the skills learned in school or university can quickly become outdated. This creates constant pressure to acquire new skills and adapt to emerging technologies, often at the worker’s expense.
Globalization and International Trade Pressures
The increasingly interconnected global economy has profoundly affected job markets in developed countries, where most Millennials and Gen-Z reside. Globalization has opened up new opportunities for businesses to outsource jobs to countries with lower labor costs, putting downward pressure on wages in many sectors.
Industries such as manufacturing, customer service, and even some professional services have seen significant outsourcing over the past few decades. While this has led to lower consumer prices, it has also resulted in job losses and wage stagnation for many workers in developed countries.
A National Bureau of Economic Research study found that increased trade with China alone led to the loss of 2.4 million US jobs between 1999 and 2011, many of which were in manufacturing sectors that traditionally provided stable, middle-class employment. [1][2]
While globalization has benefits, such as increased cultural exchange and access to a wider variety of goods and services, it has also contributed to income inequality and job insecurity for many younger workers in developed economies.
The Burden of Monetary Policy and Debt
Monetary policies, particularly those related to interest rates, have significantly impacted the financial well-being of Millennials and Gen Z. In response to economic crises, central banks have maintained historically low interest rates for extended periods.
While this has made borrowing cheaper, it has also made it more difficult for young people to build wealth through traditional savings accounts or conservative investments.
The low-interest-rate environment has contributed to rising asset prices, particularly in the housing market. Homeownership has become increasingly unattainable for many young people, forcing them to continue renting and missing out on this traditional form of wealth accumulation.
Student loan debt remains a significant burden for both generations. In the US, total student loan debt has surpassed $1.74 trillion, with the average borrower owing over $37,853. This debt load makes it difficult for young people to save for other financial goals or invest in their futures.
The combination of high debt levels and difficulty accumulating assets has led to a significant wealth gap between younger and older generations. Despite making up the largest generation in the workforce, millennials control just 9.2% of US wealth. Millennials are 35% of the current workers in the US.
Rising Costs of Living and Financial Insecurity
Perhaps one of the most tangible challenges facing Millennials and Gen-Z is the rising cost of living, particularly in housing, healthcare, and education. These costs have consistently outpaced wage growth, making it increasingly difficult for young people to achieve financial stability.
Housing costs have skyrocketed in many urban areas where job opportunities are concentrated. In cities like San Francisco, New York, and Las Angeles, it’s not uncommon for young professionals to spend over 50% of their income on rent, leaving little room for savings or other expenses.
Healthcare costs have also risen dramatically, with many young people either uninsured or underinsured due to high premiums and deductibles. This creates a precarious situation where a single medical emergency could lead to financial ruin.
The rising costs, stagnant wages, and job insecurity have led to a “cost of living crisis” for many young people. Traditional financial milestones such as homeownership, starting a family, or retirement savings seem increasingly out of reach.
This financial insecurity is part of a broader trend of increasing wealth inequality. A report by the Pew Research Center found that the wealth gap between America’s most affluent and poorer families more than doubled from 1989 to 2016, with younger generations bearing the brunt of this disparity.
Conclusion
The financial challenges facing Millennials and Gen-Z are complex and multifaceted, rooted in economic, technological, and social factors. From the lingering effects of major economic downturns to the disruptions of technology and globalization, these generations are navigating a financial landscape markedly different from that of their predecessors.
Addressing these challenges will require a concerted effort from policymakers, employers, and society. Potential solutions could include reforms in education and student loan systems, policies to address housing affordability, and initiatives to promote job creation and skills development in emerging industries.
As we look to the future, it’s clear that the financial well-being of Millennials and Gen-Z will have profound implications for the broader economy and society. Finding ways to support these generations in building financial security and wealth will be crucial for ensuring long-term economic stability and growth.