Millennials are often accused of being lazy, entitled, and irresponsible with their finances, among other condescending stereotypes. While avocado toast is a marvel of modern culinary achievement, it’s not the root cause of the economic challenges millennials face. The sweeping generalizations about an entire generation––commonly found in Facebook comment sections (AKA, where dreams go to die) and overheard at Holiday gatherings––almost always overlook the bleak financial situation younger generations have been presented.
Try scrounging up the money for a down payment while also paying over 30% to 50% of your take home pay to rent
It’s why millennials are embracing the phrase “Ok Boomer” on social media. As in, #OkBoomer, you try building wealth in today’s economic environment. Try graduating college with an average of $35k in student loan debt and an undergraduate degree that no longer guarantees gainful employment. Try scrounging up the money for a down payment while also paying over 30% to 50% of your take home pay to rent.
To look at the situation through the lens of math and data, anyone can see that the personal traits of millennials are not causing their financial distress. The reality is that today’s young adults have to overcome financial burdens that the past few generations didn’t have to deal with.
Anyone would have trouble building wealth in today’s environment, no matter how responsible, savvy, and fiscally conservative they are.
Let’s take a look at two journeys to homeownership, comparing the average young adult in 1959 to the avocado toast loving youth of today.
Buying a home: Then and Now
- Scenario 1: 1959
Joe is 22 years old. He is a school teacher in California and graduated from a four-year state college, free of debt. Joe earns $5,200 per year, the average salary for a school teacher in the Pacific Region in 1959. This equates to about $56,100 in today’s dollars. At that time, the average home in California cost just $12,788. At the then-standard 5.7% interest rate, the mortgage would cost $59 per month, with a $2,557 down payment. Paying a monthly mortgage of $59 while earning a monthly pay of $433 before taxes would have left plenty of room for Joe to support a thriving family.
- Scenario 2: 2020
Sarah is 30 years old. She graduated from college eight years ago. Unlike Joe’s generation, most people today graduate with student debt––a lot of it. Unfortunately, deep funding cuts for higher education has contributed to significant tuition increases that pushed more of the burden of tuition on to students.
Upon graduating, Sarah got a job as a software designer and earned an annual salary of $63,200. Focused on paying down $20,000 in student debt, Sarah has been unable to set aside anything for the roughly $76,460 down payment needed to buy an average $382,300 home.
Sources: Federal Reserve Bank of St. Louis, U.S. Census Bureau
There are three major differences between Sarah’s situation in 2020 and Joe’s in 1959. 1) Sarah owes tens of thousands in student debt, which inhibits her ability to save for a downpayment. 2) The downpayment needed to buy a home for Sarah is 1.2x her annual salary, while Joe only needed 0.5x his annual salary. 3) Joe would spend a significantly lower portion of his salary in mortgage payments than Sarah. Objectively, I’d rather be Joe.
No wonder homeownership is on the decline. While previous generations had to work hard to achieve their goals, it’s much harder for young people today than it was for their parents and grandparents.
Young adults between the ages of 24 and 35 are about half as likely to own a home as young adults were in 1975, according to a Huffington Post article citing U.S. Census Bureau statistics. It’s mind blowing. That’s despite the fact that millennials are the most educated generation.
Millennials have taken on 300% more student debt than their parents
According to the National Center for Education Statistics, millennials have taken on 300% more student debt than their parents. And this is particularly striking: while Boomers had to work 306 hours (or 38.25 working days) of minimum wage to pay for four years of public college, Millennials need to work an astounding 4,459 hours (or 557.375 working days) to accomplish the same feat. How is that even a real statistic? Avocado toast isn’t that expensive. Poor financial planning isn’t the reason millennials have to work 14.57 times the amount of working hours than their parents to pay off college loan debt.
And that’s just the beginning of the list of issues millennials and other younger generations are facing. A difficult reality to confront is that, according to a study conducted by the JCHS of Harvard, over 25% of renters today are spending more than half of their net income on housing. It’s impossible to save for homeownership when half of your take-home-pay is going out the door to a single expense every month. It’s no surprise that 2.2 million of the 2.8 million new homeowners between 2010 and 2018 earned at least $200,000 per year. You read that correctly.
No rational person can look at these disparities and believe that a character flaw, somehow present in every individual in an entire generation, is the cause of these issues. Clearly there are structural issues at play, a failure of previous generations foresight, and to deny this is to defy objective fact.
They make up nearly a quarter of the U.S. population but collectively hold only about 3% of wealth
Millennials have a right to be up in arms about all this… about the fact that they make up nearly a quarter of the U.S. population but collectively hold only about 3% of wealth, according to the Huffington Post article.
While this is all quite depressing, there is a glimmer of hope.
Just as innovative technology has changed the landscape of transportation, communication, travel, and so many other industries, it is on the cusp of leading an evolution of renting, housing affordability, and homeownership. These technology-driven solutions are leading the way and emerging even in mature industries.
Rhove and other leading-edge fintech companies are working to curb the housing crisis with new products, services, and business model innovations that will put housing within reach for young people.
Rhove was founded on the belief that everyone has the right to invest in their home.
Rhove was founded on the belief that everyone has the right to invest in their home. Although renters often benefit from various amenities and flexibility, rising housing costs, inflation outpacing wage growth for decades, mounting debt, and many other factors are pushing ownership and asset accumulation out of reach. Rhove exists to expand access and opportunity for everyone to own in their community, lowering the barrier of entry to owning a home by empowering renters to earn a return from where they live. Simply put, wealth creation shouldn’t be a privilege for the few, rather it is a natural-born right that everyone should have the opportunity to participate in.
The time to embrace a new paradigm in real estate is now. Business as usual is not a viable option. Join a growing number of Rhovers who are taking action, turning renting into a vehicle for savings and investment in their future.
Check out our website to learn more about Rhove, where we believe everyone has the right to invest in their home. Our mission is to expand access and opportunity for everyone to own in their community. If you’re in the market for a new apartment, check out all of the properties offering Rhove.