Boomers v Millennials: Listen to this before family Christmas

Sascha: [00:00:03] From Equity Mates media. This is The Dive. I'm your host, Sascha Kelly. Tom and Jerry. Jim and White Button Ernie. Boomers and millennials. Some things are just meant to be in conflict. For as long as millennials have had bank accounts, they've complained about baby boomers. So when a sudden start to the rounds in our office, it got us talking. And when we asked you on Instagram what topic we should talk about, this was the clear winner. So here's the stat out of the United States in 1989, when boomers were the age of millennials. Today they owned 21.3% of total U.S. wealth. In 2021, millennials owned just 4.6% of total U.S. wealth. In today's episode, we wanted to unpack these numbers and understand what it means. We may not be able to settle the debate, but we hope we can go a little deeper. It's Monday, the 12th of December. And today I want to know what explains the wealth disparity between millennials today and boomers in 1989? To do this, I'm joined by my colleague and the co-founder of Equity Mates and a man who's working very hard to get that 20% of the wealth. It's Alec Renehan. Alec, welcome to The Dive.

Alec: [00:01:18] Sascha, good to be here. 12th of December reminds me just how close we are to the end of the year. But you asked what explains the wealth disparity? I'll end the episode right now. Housing.

Sascha: [00:01:27] It all comes back to property, doesn't it? It all comes back to that one thing that neither of us have. But let's put a pin in that for now and start with the start. It compares millennials today to boomers in 1989. Why that comparison?

Alec: [00:01:42] So baby boomers are the post-war generation born between 1946 and 1964. So 1999 is 25 years after that window, meaning the oldest baby boomers are 43 and the youngest at 25, right in their prime working age. Millennials today are in a similar position. Millennials were born between 1981 and 1996, which means in 2021 the oldest millennials are 40 and the youngest at 25. Also right in the prime working age. So this study from the US Federal Reserve compares millennials today to baby boomers at the same time in their lives back in 1989. 

Sascha: [00:02:24] So it is a better comparison than the traditional complaint that we all have, which is millennials versus baby boomers today. 

Alec: [00:02:32] Yeah, that's right. The traditional complaint about how much more wealth baby boomers have, the millennials. But that makes sense because every generation builds wealth as they get older. And hopefully, Sascha, hopefully millennials will follow a similar trajectory. And side note, in the US, baby boomers do hold the majority of the wealth. They hold 53% of total wealth or 60 trillion U.S. dollars, twice the wealth that Gen X holds 29 trillion USD and more than ten times the wealth millennials hold about 5 trillion USD. But that's not really a great comparison. That's not showing us how we're going relative to generations that have come before us. A better comparison is to compare different generations at the same stage of life. And that's where this stat has come from. When boomers were at our stage of life, they held 21% of US wealth. When we're at our stage of life, we hold less than 5%. 

Sascha: [00:03:28] It's just such a stark percentage, but it is specific to the U.S. and there are a number of specific factors in that country that contribute to it. And my mind immediately goes to student debt, which is just such a huge conversation in the States. 

Alec: [00:03:44] It is. It's a massive factor. And you're right, these are U.S. numbers. And we're going to turn to Australia in a second because the story is a little bit different. But let's unpack this a little bit more. The conversation starts with student debt. 

Audio Clip: [00:03:56] Here in the United States. Student debt has ballooned to more than $1,000,000,000,000. So how did we get here? I mean, this does very little to address the underlying problem, which is the cost of college and that it pays off for most people. I should be clear, it is an investment that does pay off for most people, but not for everyone. They're now in their prime homebuying years, but many say the burden of student debt is preventing them from doing just that, from becoming first time homebuyers. 

Alec: [00:04:22] In 1989, 15% of households had student debt. By 2019, 41% of U.S. households.

Sascha: [00:04:29] That is massive. That is a massive number of people with debt.

Alec: [00:04:33] But sadly, the story doesn't stop there because the size of student debt has also increased. In 1989, the average was $13,000. By 2019, it was $48,000 a year, four times increase. And more generally, a study by the think tank New America found that in America, millennials and 20% less than boomers did at their age when we adjust for inflation. So more debt. Lower income. And yes, you know where this is going. It means it's harder for young Americans to buy houses in this new America think tank report. They look at home ownership and house prices in 1980. 41% of Americans aged under 35 owned homes in 2005, that was 43%, so about the same. But by 2015, the percentage of Americans under 35 that owned a home was down to 31%. 

Sascha: [00:05:31] So that's the U.S. story, Alec. Lower incomes, more debt and less home ownership. Does this trend hold in other countries? How does it look in Australia? 

Alec: [00:05:42] Well, I'm happy to say that it does look a little bit different here. And my biggest conclusion when we looked at this U.S. data and then compared it to what we could find in Australia, is that this point in time analysis boomers in 1989 compared to millennials in 2021, misses one of the big variables, which is the timing of economic booms. There's a level of path dependence here because unlike the U.S. in Australia, baby boomers were arguably worse off in the late eighties, early nineties than we millennials are today. It's just that since then, they've seen an unprecedented 30 year bull run in house prices. 

Sascha: [00:06:20] All right, Alec, I'm sure that's going to get some people fired up, which is a great place to take a break and leave them hanging. So let's unpack what you mean after a short break. 

Sascha: [00:06:46] Welcome back to The Dive. Today, we're unpacking something that I'm not sure we're going to be able to solve in 15 minutes. But, gosh, we're giving it a good try. It's the millennials versus the boomers debate who had it worse? Who has it better? If you love The Dive, then do us a favour and subscribe wherever you're listening right now. And that just means that whenever a new episode drops, it's right there in your podcast player ready to go. So Alec, let's get stuck in this week at Equity Mates headquarters. We've been shocked by a number out of the U.S., which is that in 1989, baby boomers owned more than 20% of total wealth. In 2021, millennials were at the same stage in their life as boomers were back in the late eighties. We are less than 5%. Now, before the break, Alec, you mentioned that the story is a little bit different here in Australia and that by some measures millennials are actually better off than boomers were. At the same stage.

Alec: [00:07:45] Yes. Now, I know that's going to frustrate some people, but hear us out. 

Sascha: [00:07:49] Look, it's going to make my mom very happy because she listens. 

Alec: [00:07:52] There's no argument that we're completely unbiased here, but we're going to try and control our biases as much as possible. So the Australian Bureau of Statistics published a great article titled Back in My Day, which compared Baby Boomers in 1991, Generation X in 2006, and Millennials in 2021. And if we start with the median weekly income for a person working full time, we say that in 1991, boomers were making $520 a week. Gen X were making $930 a week. And millennials are making $1,527 a week. Okay. So life is good for millennials, right, Sascha? 

Sascha: [00:08:33] It is. But of course, we've got to use the I-word. What about inflation? What does that mean in real terms? 

Alec: [00:08:38] Yes. So the value of the dollar has decreased in that 30 year period. Luckily, the Reserve Bank of Australia offer an inflation adjustment calculator. So we've done the work. Boomers $520 a week in 1991 is the equivalent of $1,048 in 2021. 

Sascha: [00:08:55] Okay.

Alec: [00:08:56] Gen-Xers $930 a week in 2006 is the equivalent of $1,293 and millennials $1,527 a week doesn't need to be adjusted for inflation, but it is higher than both Gen-Xers and Boomers were earning at the same time period. 

Sascha: [00:09:15] That's so interesting that even adjusting for inflation where earning more than boomers were at the same age, that wasn't what I expected the numbers to say. 

Alec: [00:09:23] No, neither. And there is an asterisk here. There's always an asterisk. Millennials are the only generation earning less than the general adult population. So what I mean by that, in 1991, baby boomers earned $520 a week. That was about 8% more than the median adult full time wage at the time of $480 a week. In 2006, Gen-X were earning $930 a week, which was about 6% more than the median adult full time wage of $881 a week. But we get to 2021. Millennials were earning $1,527 a week. That was about 1% less than the median adult full time wage of $1,537 a week. So we're earning more. But relative to our peers in 2021, we're not doing as well. 

Sascha: [00:10:14] That is really interesting and I think that's probably where most of our whinging comes from. So this seems like the best time to turn to house prices. 

Audio Clip: [00:10:25] Well, a boom goes on. It's up 9.3% over three months. They thought they got in just before the property boom. But first, home buyers have been left devastated and priced out of the market. 

Audio Clip: [00:10:36] The fiercest turf war playing out in Australia at present is the battle for bricks and mortar.

Sascha: [00:10:42] Because even if baby boomers were earning less in 1991 than millennials on today, we can't ignore the fact of the matter that there's a huge wealth disparity today and neither of us can afford a house. 

Alec: [00:10:54] That is truly such a wonder. The fact is, while boomers were earning less in 1991, houses were cheaper, both on an absolute and a relative basis. So on an absolute basis, just looking at the price. In 1984, the average Australian residential property was $64,000. Today that average is more than $600,000. But that doesn't really account for inflation and it doesn't really account for our changing average wage. So we can look at it this way. In 1996, the median house price was six times the average full time wage. Today it is more than 13 times. So our salaries have increased, but the multiples of our salary that we have to pay for a house has also increased. And the effect of lower. House prices show up in the data, according to the Australian Bureau of Statistics. Baby boomers, when they were aged between 25 and 39 years old, they were three times more likely than millennials today to own their home without a mortgage. 

Sascha: [00:11:54] Yes, but the challenge that you always hear from older Australians is interest rates. House prices may have been lower, but interest rates were higher. So the percentage that they were paying out of their salary was still incredibly high. 

Alec: [00:12:08] Yeah, it was. And the ABS have some data on that. So when they took the census in 1991, in 2006 and 2021, they recorded the Reserve Bank's cash rate at that time. In 1991, it was 9.5%. In 2006 it was 6% and in 2021 middle of COVID it was 0.1%. So older Australians aren't wrong. Interest rates have been on a downward trajectory from the 1970s to today. But looking at what was actually paid out of the salary, it wasn't boomers and it wasn't millennials who are hardest done by. It was actually Gen-Xers that got the worst end of the deal. 

Audio Clip: [00:12:48] Gen Xers, the generation born between 1965 and 1980. They are smaller than the millennials, smaller boomers. And so economically, they're very significant. And yet they are the least talked about generational. 

Sascha: [00:12:59] For Gen Xers. They never complain about anything. And here they are actually the stats saying that they've got the short end of the stick. 

Alec: [00:13:07] I don't know how big our Gen-X audience is, but if we see a big spike in loose ends, we'll know this episode is getting shared around. Yeah. So the ABS have looked at the proportion of median household income spent on housing costs for people aged 25 to 39 years in those three years in 1991. So for baby boomers in 2006, for Gen X and 2021, for millennials looking at rent, 17% of the median income went to rent for baby boomers in 1991, 17% for millennials today and 18% for Gen Xers in 2006. So rent was a little bit more expensive relative to your wage for Gen Xers than the other two generations. But the numbers get really stark when it comes to mortgage repayments. Baby Boomers. In 1991, 20% of their income went to mortgage repayments for millennials, 21%. But for Gen Xers in 2006, 29% of the median household income went to mortgage repayments. So mum and Dad, I'm sorry, you guys got the tough end of the stick. 

Sascha: [00:14:14] So looking at boomers and millennials for those that own a house that actually paying a similar percentage of their salary to mortgages and for those who don't own a house, they're paying a similar percentage of their salary in rent. These statistics have really surprised me, but the numbers still say that less millennials own houses than boomers did at the same age. And more of us are renting for longer. 

Alec: [00:14:37] That's right. That's right. So those numbers looked at if someone is renting or if someone has a mortgage, what percentage of their salary are paid. But you're right. The thing that those statistics don't show is just how many people owned houses and were renting. And those numbers show the millennials are well behind baby boomers. Hmm. In 1991, 30% of baby boomers rented. In 2021, 43% of millennials do. Looking at home ownership. Now, this is with or without a mortgage. In 1991, 66% of baby boomers were homeowners. In 2006, 62% of Gen Xers were homeowners, and in 2021, 55% of millennials were homeowners. So the numbers aren't stark. More than half of millennials in 2021 owned a home. Makes me feel like I'm falling a little bit behind. But we got to remember, Sascha, we were at the back end of the millennial window as well, but there's a clear trend from 66% to 62% to 55%. 

Sascha: [00:15:43] Yeah, and I've spent most of my money travelling around so I can't feel guilty about not having a house. But look, Alec, I think we might wrap it up there. All I've got to say is this is the perfect episode to release this close to Christmas, because this is going to fuel some conversations, I think, and the intergenerational debate on Christmas Day. So giving me some good arguments, some good percentages to take to the family. 

Alec: [00:16:08] Well, I hope we've given all three generations at least one data point in their corner. But I think my biggest takeaway is it's very easy to look at us numbers and think that holds, you know, culturally we've been American for maybe 20 years. More and more we say that we're financially American, that we look to the US market and we feel the pain that Americans are feeling. But fundamentally we're in different countries, different economies and the markets work differently and that number shocked us. The stat that you started with shocked us. When you look under the hood, it's not quite as bad in Australia. Not good, but not quite as bad. 

Sascha: [00:16:43] Not as black and white as I think many of us want the argument to be. If you've enjoyed this episode, if this has given you some stats that you're going to talk about at Christmas, then please tell a friend about it, because that is the best way for our podcast to bar. If you've just joined us for the first time, welcome. Go check out our back catalogue. Remember, you can follow us on Instagram. Our account is @thedivebusiness news all one word. You can contact us by email at thedive@equitymates.com And you can subscribe wherever you're listening right now and then you'll never miss an episode. Thanks so much for joining me today, Alec.

Alec: [00:17:15] Thanks, Sascha.

Sascha: [00:17:16] Until next time you.