Why Gen X and Millennials Are Not as Successful as Baby Boomers?

i“[Young people] are high-minded because they have not yet been humbled by life, nor have they experienced the force of circumstances...They think they know everything and are always quite sure about it.”-?Aristotle, Rhetoric Part 12 On Youthful Character

?“Youth is a blunder…old age a regret” -??????Benjamin Disraeli

?Introduction

Since 1980s, almost half of US wealth accumulation ($60T)[i] has been concentrated only in about 160,000 families (the 0.1% of US households) [ii]. In fact, nearly all the rise in the top 1% wealth share owes to the increase in the top 0.1% share. The middle class owns the same share of wealth today as it did 70 years ago.

While wealth is getting older on aggregate, in the top 0.1% of the distribution wealth is actually getting younger: the share of top 0.1% wealth held by elderly households is lower in 2012 (39%) than in 1962 (46%). The share of labor income earned by the top 0.1% of wealth-holders seems to have peaked in 2000 and has slightly decreased since then. In other words, the share of self-made wealth at the top might be stabilizing: the retired rich and their offspring may be starting to replace the working rich[iii].

The differences between Baby Boomers and Millennials are found in their pursuit of individual value choices (such marriage and savings rate) and education attainment (quantity of schooling). Baby Boomers received and built upon an immense wealth from their parents, with this pattern starting to be repeated for Millennials. However, both generations are constraint and affected by similar rising inequality, debt, and income.

?Baby Boomers

The term “baby boom” refers to the temporary reversal in the long-term decline of the birth rate following the conclusion of World War II[iv]. Baby Boomers work hard, have little leisure time, and feel stressed. Researchers found that one in four Baby Boomer describe themselves as “work-centric” while one in seven millennials ascribe to that value[v]. One big change Baby Boomers ushered is an increase in the level of employment at almost every age group.

In 2007, the first Baby Boomers started to withdraw their Social Security and pension assets[vi]. These monitory vehicles substantially helped boost this generation’s wealth. However, as the percentage of national share of wealth, the bottom 90% of population saw their wealth decline since the mid-1980s. This decline is due to, in part, a fall of the housing (net of mortgage debt) and fixed income (net of non-mortgage debt) components. This fall is mostly the consequence of an upsurge in debt, lower savings rate[vii], and, recently, reduced quality (but not quantity) of education[viii].

?Millennials

The Millennials, sometimes called the “Me Generation”—got their start in an era of economic prosperity and tend to focus “on the self”. Its members are more idealistic, more confrontational, and less willing to accept diverse points of view[ix]. Since 2015, they are largest group in America’s workforce, making up 37% of the total, compared with 34% for the Baby Boomers.[x] As workers, Millennials have almost twice as many jobs and organizational moves per year as the Gen Xers and almost three times as many as the Baby Boomers.[xi]

The Millennial cohort has less debt at the individual level but, at the household level, the same as prior generation[xii]. For all the bluster about generational differences in purchase choices, Millennial households are not very different from those of previous generations in their amount of spending[xiii].

Interestingly, today’s rich are younger than half a century ago and have much more labour income. The young rich also have much more income from capital, so that the share of total (labour plus capital) pre-tax income earned by top 0.1% wealth-holders has surged, from about 3% in 1960 to 8% in 2012. In the 1960s, the rich were not very likely to be working.[xiv].

?Similarities and Differences Between the Generations

Baby Boomers own far more wealth than Generation X and millennials[xv]. Nevertheless, today’s global young adults (who are more diverse than prior generations[xvi]) have a significantly higher disposable income than previous generations had at the same age. The OECD citizens who are now in their early 30s have over 40% more than Baby Boomers enjoyed. However, Americans in that age group are slightly worse off than the preceding generation was at a similar age[xvii], but the difference reverses when comparing family income of those who are married[xviii].

Despite having the highest levels of educational attainment of any previous American generations, Millennials, on average, demonstrate substantially weaker skills in all major learning categories when compared to previous generations, to their international peers (ranked last in almost all categories), and even when comparing only the top 10% of learners (See further in Appendix B)[xix].

Regardless of generations, families in 90% of wealth distribution strata have a significantly higher fraction of the national income (around 70%) than wealth (around 30%), consistent with the fact that their relative savings rates have decreased[xx]. Interestingly, all the generations have experiences similar market returns.

Researchers estimate that Baby Boomers, Generation X and Millennials have all earned average real returns of at least 5% on equities and at least 3.6% on bonds.[xxi] How long will the generations enjoy the benefits of the market returns depends very much on the wealth of the household.

Wealthy live substantially longer than the rest of the population in US (92 vs 78 years of average general life expectancy). Even within the top 10% the mortality decreases with wealth. More importantly, the mortality gradient is sharply increasing over time; the trend is especially pronounced for men[xxii].

?Conclusion

Never before in the United States had so many different age cohorts are creating and distributing wealth. Just as experienced by Baby Boomers, today there is an ongoing wealth transferred through 2045 which will total $84.4 trillion: with $72.6 trillion in assets transferred to heirs and $11.9 trillion will be donated to charities. More than $53 trillion will be transferred from Baby Boomer households, representing 63% of all transfers[xxiii]. The systemic changes across culture will test the Millennials and will define the future of the US economy.

Appendix A: Generation Z

Gen Z—loosely, people born from 1995 are known as “True Gen”. There are more than 2 billion people in the Generation Z age range globally. These individuals represent about 30% of the total global population—and it’s predicted that by 2025, Gen Z will make up about 27% of the workforce[xxiv].

The Generation Z is expected to have much lower returns on investment for their retirement. The researchers predict annualised returns for Gen Z of a mere 2% on a 70:30 portfolio of stocks and bonds—not even a third of the historical return of the baby boomers and Millennials. To have any hope of retiring as comfortably as their parents, they will have to save more. It is likely they will adopt the time-honoured principles of long-term investment, including starting early, diversifying risk and avoiding high management fees[xxv]. The digital age has given rise to a generation who display greater impatience and dependency[xxvi] as well lower savings rate[xxvii].

The youngest adults (ages 18 to 24) accounted for most of the growth in the number of 18- to 29-year-olds living with their parents– 2.1 million of the 2.6 million increase was attributable to them. Most in this youngest age group already lived with their parents, but the share grew to 71% in July from 63% in February[xxviii].

?Appendix B: More on Millennials

Family Oriented: In US, 90% of fathers attended the birth of their Millennials children. The Federal Forum on Family Statistics reported that national attention to children was at an all-time high (The earlier peak was in the 1960s when the Boomers were kids.). Older parents—the average age for moms was now 27—brought more maturity to their roles as caregivers, teachers, and coaches.[xxix] Today, close to 52% of young adults live at home, the same percentage as in the 1930s[xxx].

Much More Educated, Less Learned Generation: In both comparative and absolute terms, there is clear cause for concern. Young adults attained higher levels of education since 2003 but the numeracy scores have declined across all levels of education attainment. A National Assessment of Educational Progress (NAEP) reported that 74% of the nation’s twelfth graders were below proficient in mathematics and 62% were below proficient in reading. Over 1/3 high school graduates taking ACT and over 50% of takers of the College Board examination were unable to meet four-year college readiness benchmark in all core subjects. Although the higher education has a history of raising proficiencies of young adult, that advantage has diminished for the Millennials. The U.S. millennials with a four-year bachelor’s degree or higher scored higher in numeracy than their counterparts in only three countries: Ireland, Poland and Spain (out of 22 nations). Unfortunately, even the top scoring U.S. millennials (those at the 90th percentile) scored lower than top-scoring millennials in 15 of the 22 participating countries. Skills are also strongly associated with access to labour participation and training opportunities. Other research suggests that the distribution of skills of a country’s population is inextricably—albeit complicatedly—linked to the distribution of its income and wealth[xxxi].

?High Self-Esteem, Low Competence: Researchers found that high school students in 2006 reported higher levels of self-esteem and were more satisfied with themselves, although they also reported lower self-competence than students from the 1970s[xxxii] (follow up studies found rising levels of neuroticism, narcissism, self-confidence, and self-assuredness whole having lower altruistic values as Millennials entering the workforce[xxxiii]).

?Well-Travelled but Less Car Centric: Automobile travel as both driver and passenger declines across all age groups from 1995, but the decreases are largest for 19- to 36-year-olds. Millennials have a decreased auto mileage that resulted from making fewer trips rather than traveling shorter distances on each trip. Average auto trip lengths are steady or even modestly increasing from 1995. There is a modest increase in reported walking and bicycling for young adults as well as older Americans. However, increases in walking likely reflect changes to the survey methodology between 1995 and 2001 designed to elicit reports of more pedestrian trips (which had been overlooked or forgotten previously) rather than a behaviourally significant change [xxxiv].

?Not a Monolith Group: Like all cohorts, the difference intra-cohorts is smaller than the different inter-cohort[xxxv]. The Great Recession created a split between Young Millennials (YM) and Old Millennials (OM) with significant different values and behaviour. Life stage variables do not appear to be accounting for the differences in the values and behaviours of YM and OM. The values most strongly differentiating the younger and older Millennials were “piety” and “thrift.” The YM also are less likely to advocate living simply, not extravagantly, and saving instead of spending (items representing the “thrift” dimension). “Saving” was not as much a priority for YM as it was for OM. More surprisingly, YM tended to be less interested in current politics and do not appear to support greening/sustainability as much as OM. Finally, YM worried less than OM about making mistakes in their lives and not performing as they would hope[xxxvi].

?Suggestions on managing this age cohort:

-??????You be the leader. This generation has grown up with structure and supervision, with parents who were role models. The “You be the parent” TV commercials are right on. Millennials are looking for leaders with honesty and integrity. It’s not that they don’t want to be leaders themselves, they’d just like some great role models first.

-??????Challenge me. Millennials want learning opportunities because their prior education did not prepare them as well as prior generations. They’re looking for growth, development, a career path. They want to be assigned to projects they can learn from and upgrade their skillset. A Randstad employee survey found that “trying new things” was the most popular item.

-??????Let me work with friends. Millennials say they want to work with people they click with. They like being friends with co-workers. Employers who provide for the social aspects of work will find those efforts well rewarded by this newest cohort. Some companies are even interviewing and hiring groups of friends.

-??????Respect me: “Treat our ideas respectfully,” they ask, “even though we haven’t been around a long time.”

-??????Be flexible: The busiest generation ever isn’t going to give up its activities just because of jobs. A rigid schedule is a sure-fire way to lose your Millennial employees[xxxvii].

End Notes

[i] Distribution of Household Wealth in the U.S. since 1989, Board of Governors of the Federal Reserve System, https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/

[ii] Almost half of US wealth accumulation has been due to the top 0.1% alone.

Alvaredo, F,?2018, “World Inequality Report”.

[iii] Saes, E and Zucman, G, 2016, “Wealth Inequality in The United States Since 1913: Evidence From Capitalized Income Tax Data”, The Quarterly Journal of Economics, 141: 2

[iv] It is the combination of an unusually small number of births during the 1930s, an unusually large number in the 1950s, followed by a small number again in the 1970s that gives the baby boom its name.

Carter, S, 2006, “Chapter on Cohorts”, Historical Statistics of the United States, Cambridge University Press

[v] Sandeen, C et al, 2008

Another change is the disappearance of a dip in female labor force participation during the key child-rearing years in a woman’s mid-twenties through her mid-forties. The work productivity and increased labor participation of both sexes helped baby boomer asset accumulation outpaced that of the previous generation. Carter, S, 2006, “Chapter on Cohorts”, Historical Statistics of the United States, Cambridge University Press

[vi] Pensions were almost non-existent at the beginning of the twentieth century. They first developed in the form of defined benefits plans, then from the 1980s in the form of defined contribution plans. Sandeen, C, 2008, “Boomers, Xers, and Millennials: Who are They and What Do They Really Want from Continuing Higher Education?”, Continuing Higher Education Review

[vii] Saes, E and Zucman, G, 2016

[viii] Goodman, M et al, 2015, “America’s Skills Challenge: Millennials and the Future”, ETS Center for Research on Human Capital and Education

[ix] McKInsey & Co, 2018, “True Gen: Generation Z and it implications for companies”,

[x] The Economist, 2015, “Myths about millennials”

[xi] Lyons et al., 2015

[xii] Kurz, C et al, 2018

[xiii] Kurz, C et, 2018

[xiv] Saes, E and Zucman, G, 2016

[xv] The Economist, 2017, “Millennials are doing better than the baby-boomers did at their age”

[xvi] While it is apparent that millennials are the cohort that is the most diverse, most educated, and have the lowest marriage rates, it is also the case that these superlatives could have been said at some point in time about each of the earlier generations vis-a-vis its predecessors.

[xvii] Kurz, C, et al, 2018, “Are Millennials Different?”, Board of Governors of the Federal Reserve System

[xviii] The Millennial male head of household income decreased substantially between the two generations; the Millennial female head of household increased but by ? of the rate of the household headed by male income. Although Millennial married couples’ family income is almost unchanged from prior cohorts the flow of the income to the top 1% has gone up by over 30% and household ownership rate is 15% lower than prior generations.

Source: Kurz, C, et,?2018

?

The Millennials do not choose marriage (hitting the lowest level in history https://www.jec.senate.gov/public/index.cfm/republicans/2020/4/marriage-rate-blog-test)?and have kids at the rate of prior generations, which will likely reduce their wealth creation.

[xix] Literacy (at the near bottom of the list), numeracy (where US is dead last among OECD countries), and problem solving (second to last among OECD). Goodman, M et al, 2015, “America’s Skills Challenge: Millennials and the Future”, ETS Center for Research on Human Capital and Education

[xx] Saes, E and Zucman, G, 2016

Although the quality and quantity of education increase the wealth concentration (Sylvester, K, 2001, “Can Education Expenditures Reduce Income Inequality?”, Economics of Education Review; Lemieux, T, 2006, “Post-Secondary Education and Increasing Wage Inequality”, National Bureau of Economic Research), other research show that US inequality is more driven by immense specialization of labour?and preferential economic group (i.e., rent seeking) government policies (Easterly, W, 2007, The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good, Penguin Books; Barro, RJ, 1991, “Economic Growth In A Cross Section Of Countries,” The quarterly journal of economics; Barro, RJ, 1996, “Determinants of economic growth: A cross-country empirical study,” National Bureau of Economic Research)

[xxi] Researchers forecasted what Generation Z might expect to earn in the coming decades. To do this, they assumed that the real return on equities would be equal to the inflation-adjusted return on a risk-free asset (represented by Treasury bills), which they estimated at -0.5%, plus a “risk premium” for buying equities of about 3.5%, for a real return of just 3%. For bonds, the authors assumed the current, negative real yields on the index-linked variety.

Source: Credit Suisse, 2021, “Global Investment Returns Yearbook 2021”

[xxii] For age group 30-49, males in the top 1% wealth mortality rate is only 2/5 of males aged 30-49 population wide; for female top 1% wealth holders aged 30-49 mortality rate is ? of females the same age population wide. The biggest mortality difference is in the 65-79 age group where the difference between males in top 1% wealth and top 10% wealth is 20% relative to full population. A clear mortality gradient within the top 10%: the top 10% live less long than the top 1%, who in turn live less long than the top 0.1%. Saes, E and Zucman, G, 2016

[xxiii]?Godbout, T, 2022, “Wealth Transfers to Hit $84 Trillion Through 2045”, National Association of Plan Advisors

[xxiv] World Economic Forum, 2021

[xxv] Credit Suisse, 2021, “Global Investment Returns Yearbook 2021”

[xxvi] Leung, 2004; Parker-Pope, 2010

[xxvii] Debevec, K et al, 2013, “Are today’s Millennials splintering into a new generational cohort? Maybe!”, Journal of Consumer Behaviour

[xxviii] Fry, R et al, 2020, “A Majority of Young Adults in The U.S. Live with Their Parents for the First Time Since the Great Depression”, Pew Research Center

[xxix] Alvarado, R, 2012, “Managing Millennials”

[xxx] Fry, R et al, 2020

[xxxi] Goodman, M et al, 2015, “America’s Skills Challenge: Millennials and the Future”, ETS Center for Research on Human Capital and Education

[xxxii] Twenge, J and Campbell, W, 2008, “Increases in positive self-views among high school students: Birth-cohort changes in anticipated performance, self-satisfaction, self-liking, and self-competence.” Psychological Science, 19(11)

Twenge, J., and Campbell, S, 2008, “Generational differences in psychological traits and their impact on the workplace”, Journal of Managerial Psychology, 23(8), 862–877

[xxxiii] Lyons, S., and Kuron, L., 2014, “Generational differences in the workplace: A review of the evidence and directions for future research”. Journal of Organizational Behavior, 35(S1), S139–S157.

[xxxiv] McDonald, N, 2015,“Are Millennials Really the “Go-Nowhere” Generation?” Journal of the American Planning Association, 81:2, 90-103

[xxxv] Mannheim, 1928; Ryder, 1959

Rapidly changing economy, the synthetic cohort approach based on cross-sectional data can be misleading. Synthetic cohorts give an accurate picture of life course only if cohorts do not differ radically from one another in their behavior. Where cohort effects are strong – that is, where the

behavior of one cohort differs substantially from that of earlier and later ones – they can confound true life-cycle patterns.

Carter, S, 2006, “Chapter on Cohorts”, Historical Statistics of the United States, Cambridge University Press

[xxxvi] Debevec, K et al, 2013, “Are today’s Millennials splintering into a new generational cohort? Maybe!”, Journal of Consumer Behaviour

[xxxvii] Alvarado, R, 2012, “Managing Millennials”