The income gap is growing wider even as major cities become more and more unaffordable for millennials who struggle to earn “what they’re worth” and worry about their financial futures, including retirement. Can a millennial ever hope to retire a millionaire — or even financially secure — despite these setbacks?
“Not if they keep putting off saving,” says Chris Carosa, MBA, CTFA, author of Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort. “While millennials are dealing with unique challenges, sacrificing their most profitable savings years would be devastating for the entire generation.”
OK, so the odds don’t look good if they spend the prime earning years of their twenties and early thirties in expensive larger cities, where owning a home and/or building up their savings is out of reach. But we know that millennials are seeking out jobs in smaller, more affordable cities, and experts now say that they should just shun moving to the major cities of the West Coast entirely — at least until they’re a bit more secure both financially and in their careers.
The typical millennial doesn't earn enough to buy a home in 13 of the top metro areas — including all of the major cities on the West Coast:
- Seattle
- Portland
- San Francisco
- Silicon Valley
- Los Angeles
- San Diego
These “affordability gaps,” calculated recently by Bloomberg (using census data), show the difference between the median income for millennials in each city and the minimum income required in each of those cities in order to buy a home. The staggering numbers conclude that the average millennial would need to earn an additional $60,000 to $80,000 per year in order to afford to buy a home in the Bay Area or Silicon Valley at the high end, and at the low end, even hipster-friendly Portland is now out of reach for millennials, who would need to earn an additional $1,500 per year to become a homeowner.
Bloomberg’s calculations assume that millennials have already saved up the 20 percent they’d need for a down payment, and we know that saving has been difficult for millennials — while also a priority. Families where the head of household was under 35 years old had a median net worth of just $10,400 in 2013, according to the Federal Reserve’s Survey of Consumer Finances. Many millennials “don’t have the money for a down payment or can’t afford to buy where they want to buy,” said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “It’s tougher to buy a home in the city.”
What else are millennials doing to solve this massive problem? For one, as we saw last week at (majority millennial) media giant Gawker in NYC, some younger workers are unionizing, according to the New York Times. “To make a real difference in today’s economy, unions need to meet the needs of young, college-educated workers like those at Gawker, as well as workers struggling at the bottom of the labor market, in industries like fast food and retail. As inequality between the haves and have-nots continues to widen, organized labor is the one surviving institution that systematically pushes in the other direction.”
Also, further proving that boomers and millennials are more alike than they may think, a new snapshot from TD Ameritrade this month shows that when it comes to investing, the number two favorite stock of those aged 34 or younger — behind only Apple — is Warren Buffett’s Berkshire Hathaway, says TIME Money.
Lastly, in another new survey by Bank of America and Merrill Edge, more than 1,000 millennials and their Gen X counterparts showed that an overwhelming majority were increasingly focused on securing themselves financially for retirement.
As reported by the Detroit Free Press, 74 percent of Gen Xers were most likely to believe they’ll be financially stressed in retirement, based on how they are currently putting money away, and 67 percent of millennials also had the same fear, in contrast to only 41 percent of current retirees who say they are worried about money because of how they saved. “A big source of the stress for younger generations is that they are juggling many situations, from aging parents to student loans,” says Aron Levine, head of Merrill Edge at Bank of America.
April Lane is a freelance writer.