The Paradox of Millennial Wealth
Despite being labeled as lazy or entitled in the past, millennials have made significant strides in accumulating wealth. According to a recent analysis by the St. Louis Federal Reserve, younger families in the US have made remarkable gains, with their collective wealth now standing at approximately $15.95 trillion, up from $3.94 trillion just five years ago.
The Illusion of Wealth
However, many millennials don’t feel wealthy, despite being rich on paper. This phenomenon has been referred to as “phantom wealth.” Gains in home values or retirement plans, for instance, can feel like phantom wealth because they are illiquid and don’t impact daily cash flow.
Homeownership: A Double-Edged Sword
Boosted by a strong jobs market and rising wages, many millennials have purchased homes, benefiting from soaring home values. Between 2019 and 2022, home prices jumped 44%, driving the median wealth of younger people to more than quadruple during this period. However, homeownership doesn’t offer the same safety cushion as other investments, and millennials haven’t been able to tap into this wealth.
The HENRY Phenomenon
As households become wealthier, inflation and instability have left more people feeling like “high earners, not rich yet” (HENRYs). This phenomenon isn’t limited to millennials or Gen Z; it’s harder for every generation to feel financially comfortable when managing risk and dealing with rapidly rising prices.
The Struggle is Real
Many millennials say it’s harder today to make it on their own than it was for their parents. They face higher student loan balances, bigger mortgages and car payments, and more expensive childcare costs, making it difficult to set aside extra money or make long-term plans.
Financial Security: It’s Not Just About the Money
Feeling financially secure is often less about how much money you have and more about the ability to spend less than you make. Experts suggest that higher prices have fostered the feeling of being overextended, and cutting back on discretionary spending can help create a sense of financial comfort.
Taking Control of Your Finances
To achieve financial security, millennials need to focus on managing their cash flow, creating a budget, and making conscious spending decisions. By doing so, they can break free from the illusion of phantom wealth and build a more stable financial future.
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