Young American adults top US$10t in assets for first time

[WASHINGTON] Despite the pandemic-induced recession of 2020, America's young adults doubled their assets over the past four years, new data from the Federal Reserve show.

This marks the first time the assets for so-called millennials have exceeded US$10 trillion. But, this generation, the oldest of whom turn 40 this year, has a massive debt burden as well, according to the report which tracks American wealth through the third quarter of 2020.

"Younger generations have been hit particularly hard while older folk have reaped the benefits," Deutsche Bank's Jim Reid and Luke Templeman wrote in the report "To Save Capitalism, We Must Help the Young".

They note that older adults who own hard assets such a real estate might be "at an unfair advantage" compared with younger people who could continue to struggle to make similar purchases.

Millennials, born between 1981 and 1996, hold US$4.3 trillion in debt compared to US$10.3 trillion in assets. And, much of this debt is held in higher-interest consumer loans as opposed to asset-secured obligations such as mortgages.

On the plus side, millennials are enjoying rapid gains in net worth. Between 2019 and the third quarter of 2020, the aggregate net worth of those Americans increased by 21 per cent, while the net worth of Generation X (between ages 40 and 55) rose 8.5 per cent and baby boomers - born between 1946 and 1964 - saw a 4.3 per cent wealth gain.

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Members of Generation X hold about US$6 trillion in liabilities against US$37 trillion in assets, while baby boomers have US$4.7 trillion in debts and US$66.6 trillion in assets. Moreover, baby boomers hold just US$958 billion in consumer debt compared with the US$1.6 trillion held by millennials.

"The ultra-low interest rates seen in recent years are the product of the authorities' attempt to prop up capitalism when it has overreached rather than allowing creative destruction," wrote Mr Reid and Mr Templeman. Without such aid, free markets would likely have now seen higher interest rates, less debt and lower asset prices.

Stock market gains pushed millennial wealth to the highest share of their overall assets in six years, surpassing US$5.4 trillion. Real estate and consumer durables in the third quarter also reached record levels.

Over the last five years, millennial holdings of corporate equities rose by US$394 billion. Meanwhile, private-business equity doubled in the last three years to US$800 billion, reflecting an entrepreneurial surge among younger Americans.

HOARDING CASH

Perhaps in a defensive move to buffer against continuing pandemic-related economic uncertainty, cash and bank-deposit holdings rose last year by more than 80 per cent for millennials, Generation X and baby boomers.

Cash and checkable deposits are up about US$100 billion since the end of 2019 to US$216 billion for millennials. The Gen-X cohort holds US$467 billion liquid while baby boomers had US$886 billion available in the third quarter.

Overall, the percentage gains seen by millennials in 2020 far exceed advances by Gen X and the baby boomers, but younger Americans still hold a small fraction of the wealth of older adults.

Economic events such as the Great Recession and the more-recent pandemic have interrupted career trajectories during peak growth years for younger workers.

Further, the wealth of many younger Americans is somewhat precarious. A November New York Fed survey found that people 40 and younger saw the lowest likelihood of finding a job in the next three months than at any time since the survey was started in 2013.

As with many other financial metrics, there is a wide ethnic disparity when it comes to affluence.

Black millennials have very low levels of accumulated wealth, owning just US$3,000 at the median. Hispanic millennials fared somewhat better, with US$15,000, though not as well as White Americans of this generation, who had median wealth of US$53,000, according to 2019 data from the St Louis Federal Reserve.

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