Wait, millennials are suddenly the richest generation?

You’ve probably seen the memes: “me in my 30s” versus “my parents in their 30s.”

The parents appear as a young couple debating whether to have their third child or buy a “lovely second home for our family to spend the winter in” and hope the garage can fit both their cars and their snowmobiles . Fast forward to one of those broods, now also in her 30s, wondering if she’ll ever recover financially from buying both milk and bread at the same time.

This is not the fact-checking Department of Memes; frankly, we’re not sure FDR himself could find the budget to fund this agency. But is this true? Or at least the truth? Are Zoomers and Millennials somehow being denied access to the American engine of upward mobility that made Boomers the most prosperous generation ever?

Well, maybe not.

At least that was our first answer when we turned to our beloved Survey of Consumer Finances. The Federal Reserve survey is a perfect resource for this meme-checking mission. For decades, dating back to when the boomers themselves were hard-nosed, cash-strapped rebels, the Fed, with the help of the University of Chicago’s NORC, has asked Americans about their balance sheets, looking at anything from antique collections to gambling activities. , from life insurance policies to home equity.

In the past, this once-every-three-year survey contained disheartening news for millennials. After adjusting for inflation, their wealth lagged where their Gen X and Boomer parents had been at the same age. But when we pulled in the latest survey, conducted in 2022, we were surprised to see that millennials had taken the lead.

And home equity seems to have emerged as the hero of wealth creation. Older millennials, now in their early 40s, old enough to sue for age discrimination, have roughly twice the median home value of Gen Xers at that age. They also enjoy a substantial advantage over the boomers.

For once, the most unlucky generation seems to have benefited from an exceptionally lucky moment. From 2019 to 2022, home prices catapulted 41 percent, making it the best three-year period on record, according to the Federal Finance Agency’s Home Price Wonders ‘Housing.

And millennials were perfectly positioned to maximize their benefit. Many had recently entered the housing market; suddenly the biggest financial gamble of their lives had paid off with unprecedented speed. They had leveraged their 5 or 15 percent down payment into a claim on the record appreciation in the total value of their home.

But not all asset flavors are created equal. The wealth created by rising house prices exists mostly on paper and is very difficult to tap into, meaning it may not translate into a higher standard of living, said Jeremy Horpedahl, an economist at the University of Central Arkansas that closely follows the fortunes of millennials.

“Wealth may have increased, but if that’s primarily housing wealth, that doesn’t make people better off,” Horpedahl told us. “They might sell their house, but they’ll just buy another one, which has also gone up in price.”

Then there’s the harsh reality, as we’ve established above, that many millennials have been left out of the housing market entirely. This often leaves them stranded. And the net worth of the typical American renter is just $10,400, a number that more or less pales when calculated alongside the $396,500 in net worth claimed by the typical American homeowner.

“Housing is a crucial component of the accumulation of wealth,” said New York University economist Edward Wolff, the historian of wealth in the United States. “If you don’t own a home, you won’t benefit from home appreciation, which means most of these families won’t show any gains in their overall net worth over time.”

Wolff said this becomes an especially difficult problem “when you reach retirement age, because you won’t have the resources to support your retirement and pay for your care when you’re older.”

About two-thirds of Americans own their homes, which provides them with the ultimate hedge against inflation. While tenants are subject to the whims of rental landlords, payments on a fixed-rate mortgage won’t move for 15 or 30 years.

Sure, property taxes or insurance could go up. But the basic monthly mortgage payment usually won’t. This means that while owners are getting an excessive return on investment, they are also saving more and more money as wages rise. With their biggest expense locked in, they also have an easier time budgeting for the future.

Tenants, of course, have no claim to the same financial security, which leaves them ill-placed for wealth accumulation. Over the past 33 years, the average wealth gap between homeowners and renters has grown by 70 percent, according to the Urban Institute.

As long as we don’t have enough housing to go around, Horpedahl told us, inequality will continue to grow. Those lucky enough to still be able to afford to buy a seat at the table will see their wealth increase from rising house prices. But the same force that is increasing their net worth will lift the housing ladder out of reach for more of their peers.

So how do millennials fit into this great and growing divide between the haves and the have-nots? Do they seem to be generally thriving simply because the haves are doing particularly well?

Not so fast.

Homes, and their investment returns, can generate wealth, but you know what usually doesn’t?

Living with the aforementioned parents.

Many young people, caught on the wrong side of this record rise in house prices, are doing just that. In 1989, when our Fed data begin, only 11.5 percent of young adults aged 25 to 34 lived with their parents. By 2022, that rose to 17 percent, according to the Current Population Survey.

And people who live with their parents or roommates are not counted in this data, at least not in the same way as those who have moved out on their own.

Because of the difficulties in disentangling a family’s holdings, the Fed combines the wealth of “financially interdependent” household units and effectively assigns it the demographics of the head of household (or more accurately, what the Fed calls an “individual or economically dominant couple) ” in the “primary economic unit” of the home).

So when we say that millennials have record wealth for their age, we’re really saying that millennials who have become financially independent are doing well for their age.

If we could fix that, millennials wouldn’t look so hot after all, at least financially.

The Fed survey could be America’s most valuable source, pound for pound. It is one of the only tools we have to measure the wealth disparities that define so much of our economic and political life. But we cannot forget their blind spots.

By focusing heavily on winners who have left behind their family’s financial support, we really only get one picture of the most successful young Americans.

It looks a lot like survivorship bias, a phenomenon illustrated by World War II Austro-Hungarian-born Abraham Wald when he was at Columbia University, part of a group of statisticians helping the Allied Powers. U.S. military brass handed Wald’s group figures on where American warplanes had picked up the most bullet holes—many in the fuselage, few in the engines—and asked where improvements needed to be made. aircraft armor.

Most of us, including these officers, would assume that the armor should go where all the bullets hit. But Wald had the brains to suggest the opposite: reinforce points with fewer bullet holes.

His idea, of course, was that the military was collecting data only on planes that came home. Aircraft that were shot in really vulnerable places, such as engines, tend to fall out of the sky and out of the data set.

Because they could only measure survivors, the military brass, such as the Fed, were getting an incomplete—and likely inaccurate—picture of the entire population.

This brings us back to the “my parents in their 30s” meme. We thought we were poking holes in it, but while it may not be true across the board, it certainly applies to a substantial subset of 20-somethings and 30-somethings.

Instead, we managed, once again, to prove the truth of a much nerdier meme: the tribute to Wald that shows a plane full of red dots on the wings and fuselage, but not the engines or the cockpit.

—

Graphics:

https://washingtonpost.com/documents/36a3c0a7-450e-44c8-96ba-b4148c9bd797.pdf

https://washingtonpost.com/documents/70a8ac4d-f3f5-4760-a486-6c906633066f.pdf

https://washingtonpost.com/documents/51343666-3c5f-431b-95b2-44f5d99c481b.pdf

https://washingtonpost.com/documents/9abbf317-961c-4713-a12a-7a0fd011eacd.pdf

https://washingtonpost.com/documents/d5d0d2b2-44b9-455c-9b09-0e6ba04e6c54.pdf

https://washingtonpost.com/documents/d1e37940-57ac-47b9-a416-d335fc1f6819.pdf