It’s no secret that Millennials are in a precarious financial position. Almost more than any generation in living memory, this cohort has limited access to funds and assets to make life more stable. While they’re on the whole a more progressive group dedicated to social change, they also have to overcome significant hurdles.
The reason Millennials don’t have money is not, as many Boomers would have us believe, the result of too many expensive coffees and a penchant for avocado toast. There are various contributing factors, not the least of which has involved coming of age during the middle of a global financial crisis. But the issues stem back further, linked to a widening financial gap caused and exacerbated to some degree by generational wealth.
Let’s take a closer look at how generational wealth is impacting Millennials.
The Lack of Asset Access
One of the clear issues surrounding Millennials’ relationship to generational wealth is the impact on their access to assets. Wealth isn’t just about the liquid finances people have. It’s also about the items and resources they need to provide them with a solid lifestyle in the present and stability for the future.
Unfortunately, we find a situation in which general wealth sees many of these assets passed on through inheritance. This creates a situation where the upper-middle classes and above continue to have control over a greater number of the assets while exacerbating a system where Millennials can’t hope to engage.
Perhaps the best example of this is Millennials’ struggles with homeownership. This is a generation of renters and not through choice. Once considered a basic in contemporary life and a key milestone, homeownership eludes the majority of the generation. Millennials are often only able to buy homes much later in life than in previous generations, with one study finding the median age of Millennial first-time homebuyers is 29. Indeed, they often resort to finding ways around the issue, finding fixer-upper opportunities in their price range.
While there are contributory institutional issues, like rising student loan debt and costs of living, these are exacerbated by generation wealth inequalities. Those who have assets that are inherited or funded by rich families have greater resources at their disposal to invest in these elements. This isn’t helped by the asset hoarding of older generations, with Boomers possessing 44% of all real-estate-related wealth. With inventory shortages still very much in place, there are few signs this gap will narrow any time soon.
The Tax Imbalance
Generational wealth isn’t a problem existing in a vacuum. There are various elements at play. One of the key aspects perpetuating the stranglehold of generational wealth is our tax system. Currently, this system provides the wealthy with distinct advantages. On the whole, Millennials aren’t at the receiving end of these, as the generation only possesses around 5% of total U.S. wealth. This is a problem put in place by prior generations that is in many ways punishing the current cohort.
Some of the inequalities in the tax system are obvious. For instance, only 17 states have any kind of inheritance tax, meaning wealth can be passed on and grown freely without a proportion being fairly back into the system. Others revolve around the wealthy exploiting certain loopholes, such as those governing yearly tax-free gift amounts that can be passed on to family members in the years before death. From here the regulations and strategies to avoid tax get more complex.
Millennials don’t always have the knowledge to approach their taxes and accounts in the same way as experienced or more wealthy citizens. This is suggested to some extent by the high growth in demand for accountants who have the expertise to help individuals and small businesses navigate the complexities of the tax system. Having equal access to this expert knowledge can certainly help level the playing field. But a more sustainable and ethical approach is a reform in tax laws to help redistribute wealth and disrupt generational practices.
The primary issue with generational wealth is it perpetuates toxic cycles in the financial system. Let’s face it, the current super-wealthy largely didn’t get this way working from the ground up. Many are the result of “old money” and received a significant amount of their income in the form of inheritances and trust funds. This then provides them with a greater amount of disposable income to invest in businesses and other passive revenue streams like property and stocks. This in turn generates greater wealth, which they eventually pass on to their children. The cycle then continues.
One of the ways this has impacted Millennials is through their experience of education debt. Currently, Millennials are among those with the highest total student loans debt amounts. They are in effect victims of skyrocketing tuition and living expenses not experienced by previous generations. As such, this generation has left college with huge amounts of debt to find their repayments eat into their living expenses, preventing them from making investments, starting businesses, and even beginning families.
This is not a challenge experienced by those in receipt of generational wealth who can gain an education without the financial stresses involved. These generationally wealthy leave school without debt and are often able to get higher-paid positions through family connections. While these trust fund recipients get to continue a cycle of wealth, poorer Millennials are continually trapped in a cycle of poverty.
Any improvement here requires serious social change. Student debt abolition would be a good start to ensure some chance of upward social mobility. But this also has to be supported by a reformed inheritance system to prevent funds from being closeted and free to contribute to the cycles. Perhaps the latter could help to fund the former.
Various financial injustices are impacting our communities. Generational wealth is one of those particularly affecting Millennials. This cyclical hoarding and redistribution of assets keep those without wealth from gaining property and moving in a socially upward direction. We must address the inequities of tax systems that prioritize the wealthy. We must also improve access to education before this issue is exacerbated for future generations.