Generations of Americans have lived by the principle that if you work hard and educate your children, the future will be better than today. It’s the foundation of the American Dream. But is that dream slipping out of reach?
The future isn’t looking bright for America’s most educated generation. Using Federal Reserve data to compare 25- to 34-year-olds in 2013 with their counterparts from 1989, the advocacy group Young Invincibles found that, after adjusting for inflation, Millennials earn 20 percent less than baby boomers did at the same stage in life. They are also hampered by far higher rates of student debt and are less likely to own homes than previous generations were at their age.
Put simply, the old formula of hard work and education doesn’t seem to be working as consistently as it once did. In part, that may be because far more young people are expected to attend college and end up competing for the same jobs – and the cost of that education has gone up dramatically. At the same time, companies and governments have prioritized services for the elderly, often at the expense of younger people.
“I think the opportunities are just slipping away,” Cheryl Romanowski told the Associated Press. In her 20s, Ms. Romanowski, who did not have a college education, got a job at a bank that paid $19,500 in today’s dollars. Her college-educated daughter Andrea Ledesma makes just $18,000 working at a pizza restaurant in Milwaukee.
And Ms. Ledesma’s situation is far from unusual. Indeed, the report found that the median Millennial with a college education is only earning slightly more than a baby boomer did without a degree at the same age. At the same time, many Millennials have to pay off student debt, leaving them with even less disposable income.
In part, the new trend is a conscious choice by companies and governments. In Britain, for instance, companies are curbing younger workers’ pay to finance pension schemes, said Laura Gardiner, who authored the Resolution Foundation report “Stagnation Generation,” to CNNMoney in July.
Not only that, but younger workers don’t have access to these pension schemes, as companies increasingly phase out pension benefits in favor of 401(k) plans. As such, they will be responsible for saving for their own retirement, even on salaries that will likely never approach those of previous generations.
"No one knows what the future will bring, but even [in] optimistic scenarios it looks likely that the millennials will record much lower generational pay progress than their predecessor generations did," the report found.
Governments, too, have been reducing Millennials’ income to finance services for retirees. In Britain, it amounts to an intergenerational transfer of more than $1 billion, the Resolution Foundation reported. And in the US, Millennials’ payroll taxes support services like Social Security and Medicare, funds that are looking increasingly likely to have dried up by the time they reach retirement. If salaries stay low, it could cause problems for the incoming Trump administration, which has promised not to cut these services.
"The challenges that young adults face today could forecast the challenges that we see down the road," Tom Allison, deputy policy and research director at Young Invincibles, told the Associated Press.
But for some Americans, the American Dream lives on. Black and Hispanic Millennials, who continue to overcome generations-long discrimination in employment, education, and housing, have been less affected. Black Millennials are earning just 1.4 percent less, on average, than boomers, while Latinos make almost 29 percent more, the Young Invincibles report found.