A new study predicts tough economic times ahead for millennials because of COVID-19 but also other factors.
The study with the title “Inter-generational comparisons of household economic well-being” surveys the likely impacts of the COVID-19 pandemic on the economic well-being of four generations: the generation pre-1946; the baby-boom generation, including those born in the post-war period from 1946 to 1964; Generation X, including those born from 1965 to 1980; and millennials, including the children of boomers born after 1980.
While the report is a precursor to a more detailed survey, it finds that the COVID-19 pandemic threatens the economic well-being of younger households, especially if major income earners come from the millennial generation. According to the report, members of that generation face a higher risk for five related reasons.
First, they depend more on wages and salaries as income sources. While financial markets and real estate values have remained relatively stable since the beginning of 2020, the COVID-19 pandemic has had a more noticeable impact on employment, with consequences for millennials.
Second, they possess less equity in real estate or finance assets relative to the other generations as the worth of millennial households accounts for one-third of the value held by Generation X, one-fifth of boomers and one-third of the pre-1946 generation. This reality makes them more reliant on income from employment and less able to draw on equity falling on tough times.
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Third, they tend to work in industries “deeply affected by the COVID-19 pandemic” such as accommodation and food services, information, culture and recreation and retail. Employment of millennials in the accommodation and food services dropped by 45 per cent during the second quarter of 2020 compared to the same period last year.
Fourth, even if millennials are working, they accumulate more debt relative to their respective incomes. While Generation X holds the largest ratio with debt accounting for 220 per cent of income, members of Gen-X are starting to pay down their collective debt, while millennials are adding to it with the ratio now sitting at 199 per cent in 2019, up from 178 per cent in 2010.
“Along with rising debt-to-income ratios, it may become increasingly difficult for millennials to cover their debt obligations if they lose their jobs or have to reduce their work hours as a result of the pandemic,” the report warns.
Fifth, millennials face higher housing costs. While millennials earn more than Gen-Xers at the same stage in their lives, their actual purchasing power is lower. This reality has made it more difficult for them to build up equity by way of the housing market. At the same time, they face high living costs. “As costs related to housing are non-discretionary, millennial households may not have as much flexibility to adjust their spending when their income declines,” it reads.
Which is precisely what is happening right now, leading to a vicious cycle of declining incomes, higher and heavier debt-loads and home-ownership receding into the distance.
Despite the introduction of what the report calls “unprecedented income support programs,” millennials run the risk of falling other generations, with consequences into the future. “Due to uncertainty in their disposable income, some millennials may choose to postpone major life events such as buying a house, starting a family and investing in their children’s education,” the report predicts.
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