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Millennials' Net Worth Problem

A few weeks ago I responded to Robin Marantz Henig's article about twenty-somethings. Lately I've seen a number of articles on this theme. They all seek the answer to a fundamental question: why are Millennials acting so out of the ordinary? What's different for them than previous generations?

There isn't a single answer, but personal finance undoubtedly plays a huge role. There are two trends that have converged to make life less than rosy for Millennials.

Trend #1: Real average student loan debt is high and continuing to grow.
Trend #2: Real average income for bachelor's degree holders has peaked and is on a downward trajectory.

Data on student debt is admittedly hard to find, especially data that goes back more than two decades. Nevertheless, The Project on Student Debt has data-points for a few cross-sections of time. I used the CPI to deflate everything into 2008 dollars. It looks like this:

(click to enlarge)

Then there's income. Real income for bachelor's degree holders peaked in 2000 and is declining. Data here comes from the Census Bureau:

(click to enlarge)

When I combine the two figures to calculate a simple Real Net Worth value, the situation looks worse still.

(click to enlarge)

This is admittedly an over-simplified calculation that ignores other non-student loan type debt. But the impact would likely be magnified, with other types of debt being higher today than in previous time periods. This also fails to take into account declining principal (or rising principal, depending on the situation) over time. But again, the point is to identify trends, not calculate exact figures.

At the end of the day, this simple net-worth stat is really what matters. It depicts the purchasing power that Millennials have. It describes our real quality-of-life. So if you really want to know what's up with Millennials, the first step in that process is to look at how our average net-worth is changing, and it's not for the better.

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