As Americans, we’re used to thinking that we will inevitably do better than our parents’ generation. But, for now at least, this type of progress may be facing some roadblocks - and this inability to gain ground, financially, can have real implications for today’s younger people and their approach to investing.
Before we get to the investment component, though, let’s quickly review the nature of the problem. In a nutshell, younger Americans - those in their twenties and thirties - have accrued significantly less wealth than their parents did at the same age, according to a recent study by the Urban Institute. Here’s why:
• Bursting of housing “bubble” - Many younger people who bought houses shortly before the housing “bubble” began deflating in 2006 now find themselves to be “underwater” on their mortgages - that is, they owe more than their houses are worth. Consequently, they have less opportunity to build home equity - which has been an important means of building wealth for past generations.
• Student-loan debt - The median balance among all households with student loan debt is now more than $13,000, according to the Pew Research Center - and debt levels are much higher for recent graduates. It can take years to pay off these debts - and the money being used for debt payments is money that can’t go toward building wealth for long-term goals.
• Wage stagnation - For several years, the job market has been pretty bad for younger workers. And even those with jobs aren’t making much headway, because wages, adjusted for inflation, have largely stagnated for over a decade. Less income clearly equates to less opportunities for investing and creating wealth.
Still, even given these somewhat grim realities, younger people can help themselves build resources for the future and make progress toward their long-term goals. If you’re in this group, what can you do?