By Hillary Hoffower
Widening wealth inequality has been a feature of American life in the 21st century, but the coronavirus pandemic has amplified a growing gap within the millennial generation.
At the turn of 2020, a large part of the generation was still grappling with the fallout from the 2008 financial crisis when they were slammed with their second recession before its oldest members even hit 40 (the generation will turn ages 25 to 40 in 2021). This only intensified decadelong financial challenges including a dismal job market, sky-high levels of student debt, and soaring living costs.
Generational researcher Jason Dorsey, the president of the Center for Generational Kinetics, calls these millennials who feel behind financially and professionally “me-llennials,” and those who are financially ahead of the game “mega-llennials” — and this latter group has seen stable earnings during the pandemic that they’ve been able to save while the experience economy has been shut down.
The pandemic has ultimately exacerbated the high income inequality that existed among millennials pre-Covid, said Christine Percheski, demographer and associate professor of sociology at Northwestern University.
“This pandemic is widening economic inequalities within millennials, with some millennials relatively unscathed economically and others just completely financially devastated by unemployment losses, increased childcare costs, lost economic opportunities, and lingering health problems that they or family members are going to experience,” she said.
The result is a disparity in which the millennial rich and the millennial poor will recover at different paces. This intergenerational socioeconomic gap is a reflection of the K-shaped recovery that America has been experiencing, in which the wealthy are bouncing back and the lower-earning aren’t.
Some millennials are struggling with unemployment and childcare
The affordability crisis millennials were facing prepandemic hindered their ability to build wealth. Those born in the 1980s are at risk of becoming a “lost generation” that may never be as rich as their parents, Insider previously reported, and the generation as a whole hold a shockingly small amount of wealth compared to what boomers had at their age.
Such roadblocks have left these “me-llenials” with little to no financial resources to fall back on in the wake of a second recession. That might explain why they were most likely to say that the pandemic was having a “major” impact on their finances (39%) in a Morning Consult survey that polled 4,000-plus Americans in September, including over 1,200 millennials.
Millennials who already had lower earnings prepandemic and millennials with children are among those in the generation suffering the most right now, Percheski said. About 40% of millennial parents are seeing huge increases in hardships, she added, due to increases in food and housing insecurity and mothers cutting back employment hours or quitting work altogether to meet caregiving needs during the pandemic’s school closures.
Unpartnered mothers in particular have seen the biggest drop in unemployment during the pandemic compared to other parents, per the Pew Research Center. While Gen X are also parents to those under 18, millennials are now in their prime child-bearing years.
When unemployment peaked in April, 14.5% of Americans ages 25 to 34 were unemployed, according to the Bureau of Labor Statistics (this dropped in half to 7% by November). For comparison, at the peak of the Great Recession in 2009, unemployment rates stood at 10%. And while some millennials may have escaped job loss, not all skirted past pandemic pay cuts.
“I would imagine a lot of people are burning through whatever savings they had as they experienced unemployment,” Percheski said.
Wealthier millennials are seeing cash flow
Meanwhile, wealthier millennials — Dorsey’s “mega-llennials” — have been able to play a bit of catch-up during the pandemic.
“There’s a group of wealthier millennials that probably have spent less of their disposable income than they would in non-COVID times and may actually have built up some savings during this,” Percheski said.
Consider the millennials raking in over $100,000 annually. Two financial advisers told Insider in June that clients of this ilk were tucking away excess cash, as much as $3,000 in some cases, that normally would’ve been spent on brunches or plane tickets.
Millennials with college degrees and those who already had a sound financial backstop prepandemic are weathering the storm better than their peers, Dorsey said. There’s also the matter of luck.
Experience-focused industries, like travel and hospitality, have been hit hardest during the coronavirus recession. Millennials faring well have been fortunate to work in industries that have remained stable. “It’s a big difference between the millennial who works in cloud computing versus the one who manages a restaurant,” Dorsey said.
While some of these millennials are now allocating discretionary income toward savings, paying off debt, and investing in retirement, others have rushed to cash in on a stock market recovery. In the case of the latter, Dorsey said, these millennials could have more money on paper than they’ve ever had before.
Other millennials are finally becoming homeowners, he added, thanks to historically low interest rates. US Census Data found that homeownership rates increased by 4 percentage points from the second quarters of 2019 to 2020. Younger generations have seen the greatest the leaps — those under age 35 saw a 4.2 percentage point increase and those ages 35 to 44 saw a 4.9 percentage point increase, compared to older age groups who all hovered around an increase by 2 percentage points.
But as Percheski said, this group of wealthier millennials “is a smaller part of the story.”
The pandemic-era millennial wealth divide will likely deepen
Because the pandemic is ongoing, it’s too soon to exactly determine its long-term effects on millennials. Data is still new, compiled only during the first nine months of the pandemic, and 2020 proved that economic conditions can change overnight. Dorsey anticipates the pandemic will have a more pronounced impact on the generation over the next five years.
But less than a year in, the pandemic has ultimately inflamed a millennial divide, widening the gap between the generation’s rich and poor. Millennials are experiencing their own K-shaped recession, uniquely compounded by two recessions.
That will naturally lead to an unequal recovery between these two groups, Dorsey said, with those those who lost a job recovering longer than those who began the pandemic with a better financial backstop.”We’re going to see a growing divide between the millennials who’ve weathered the storm financially well, and those who are really struggling financially,” Dorsey said. “And I think that’s going to only grow as they come out of this with different speeds.”
But while the pandemic has been a traumatic, tragic event from a long-term financial standpoint, Dorsey said, if millennials can learn some new financial planning behaviors from it, they could ultimately recover over a period of time and use it to their advantage.
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