Millennials take a lot of heat for our consumer preferences — preferences that, thanks to our sheer numbers, have the power to either tank or reinvent entire industries. Declining and shifting interests in things like golf, dinner dates, movie theaters, cruises, and homeownership have all seen a millennial realignment. Since the economy has been good, millennials have been able to dictate their preferences and choices through spending.
But what will happen when the economy sours? When a recession does come, it’s likely that millennials will have a heavy impact on the economy itself — and it won’t be a good one.
Recessions are a natural phenomenon in the economic cycle, and, a decade after the 2008 financial crisis, all signs indicate the economy is due for another one. Under a deregulating Trump administration, there will eventually be a crash after a two-year bull market. Global trade and economic growth worldwide have also slowed, and, in the past month, many economists have predicted a 2019 recession.
Thanks to Dodd-Frank’s demand for greater capital requirements, increased transparency among investors, and greater leverage limits, banks and investment institutions are better positioned to handle a downturn than they were in 2008. But the risk of a prolonged downturn remains because of millennials’ sorry economic state.
Recovering from a recession relies on a variety of factors. But the three vital components for recovery are home-buying, lowered interest rates for marketplace lending, and the kind of confidence from investors and consumers that drives spending.
Millennials complicate two of these three factors.
My generation isn’t financially prepared for a downturn. A 2017 survey conducted by GoBankingRates found 80 percent of older millennials (25 to 34) and 87 percent of younger millennials (18 to 24) have less than $10,000 in savings. The barren nature of millennial savings accounts seems to be due to both our spending habits and our larger economic environment. A LendEDU survey reported 49 percent of millennials spend more on eating out than we put in retirement savings and 27 percent spend more on coffee alone. We spend 60 percent more than previous generations on entertainment, 52 percent of us engage in expensive credit card behaviors — meaning drawing cash advance fees, late fees, and carrying overly large credit card balances.
On the other hand, larger marketplace phenomena are also to blame: Millennials suffer tremendously from stagnant wages, high debt, and high rent.
Wage increases aren’t outpacing the growing cost of living. Pew Research Center notes that paycheck growth since the 2008 financial crisis has remained near 4 percent year after year. Only 30 years prior, growth was often above 6 percent year after year. Most importantly, the purchasing power of these wages hasn’t really increased since the late 1970s. The dollar is not going any further than it did in 1978.
Since the dollar isn’t going further, debt adds a crippling burden to entry-level workers, often millennials. Student debt has doubled since the 2008 financial crisis, reaching $1.465 trillion in outstanding loans. Nearly 40 percent of these borrowers are likely to default on their debt by 2023. Millennials between the ages of 25 to 34 are buckling underneath an average of $42,000 in debt. With that sort of debt hanging over our heads, millennials won’t likely be racing to buy houses.
But renting a home today is no easy feat, either. In large cities where millennials flock for work, we spend nearly 40 percent of income on rent. This is troubling since government-housing authorities consider spending above 30 percent of income as “unaffordable.” It’s no wonder, then, that millennial homeownership is down by over 8 percent more than it is with baby boomers and Generation X. Many millennials choose to move back in with their parents rather than pay unaffordable rent prices, too. But there is little to suggest rent prices will see a marked decrease or that the job market will ever look favorably upon rural areas, where rent comes cheaper.
Fortunately for millennials and the economy overall, investment firms and lenders have diversified their portfolios across many asset classes since the 2008 financial crisis, securitizing everything from airplanes to railcars to commercial homes. Essentially, they’ve spread the risk across many different baskets, rather than an all-in bet on a stable housing market.
Our economic issues aren’t going to disappear, and they won’t be remedied by another turn of the economic cycle. Millennials’ crippling debt, high rents, low savings, low homeownership, and stagnant wages require further long-term remedies and examination — lest our economic downturns become devastating crises.
Tyler Grant (@The_Tyler_Grant) is a lawyer in Washington, D.C.
