Rather than wealth, Millennials are accumulating debt. Not only does the typical millennial have higher debt relative to both their income and their assets than any other previous generation at the same age, but their debt profile is distinct. In previous generations, starting families and forming households was associated with buying homes and taking out a mortgage. For millennials, other forms of debt have replaced mortgage debt, including student loans, car loans, and credit card debt. These types of consumer debt cannot be used to finance the purchase of assets, like homes that can appreciate.
While there are advantages to investing in human capital development, student loans cannot be leveraged directly to boost wealth on the balance sheet. They are better educated and credentialed than earlier generations. However, this debt and delayed earnings have created a weak generational balance sheet and prevented more of them from the experience of homeownership, which is one of the most significant predictors of future wealth building.
The declines in homeownership may be especially consequential in that they could pose an enduring challenge for millennials’ wealth building. This is because for those families that do accumulate significant wealth holding, owning a home is often the largest asset on the family balance sheet- so much so that it is relatively uncommon for renters to accumulate even average amounts of wealth.
The traditional paths to wealth-building -land, higher education, access to credit, and homeownership- have been systematically denied to African Americans and other non-white persons throughout the country’s past.
The contemporary financial profile of the millennial generation is out of step with social policy expectations that families amass a pool of economic resources that can be used to invest in their children, support their retirement, and manage risks.