by Aaron Allen, The Seattle Medium
(About this series—This article, inspired by Deloitte research, is part of a series in which five Black-owned publications around the United States explore the key factors that contribute to racial and generational gaps in acquiring wealth.)
People under the age of 35 are at risk of falling behind their parents in achieving financial security, according to research by Deloitte. The Seattle Medium spoke to three area millennials who are fighting the odds by improving their financial profiles in the hopes of building a brighter future for themselves and their families.
While sitting on her balcony overlooking Seattle, Kaela Allen sometimes ponders the notion of purchasing a home.
But, said Allen, who works in public policy, buying a house “is not in her short-term plans” because she does not believe this traditional way of building wealth is attainable right now.
“Homeownership is definitely a dream,” Allen said. “I think I see it as something in a very far-off reality.”
Unfortunately, Allen’s plight is not unique.
According to Deloitte’s analysis of the 2019 Survey of Consumer Finances from the Federal Reserve Board, “only 36.2 percent of those under age 35 (mostly millennials) owned a residence in 2019, compared to 41.6 percent of those under 35 in 2004 (most Gen Xers) and 39.4 percent of those under 35 in 1989 (the boomers).”
The millennial generation’s real net worth is also lower than Gen Xers and baby boomers when they were a similar age, the Deloitte analysis shows, even though they make more money than previous generations did. In addition to facing high inflation, high rents, and soaring student loan payments, millennials have suffered through a number of historic catastrophes—including two global financial crises and a global pandemic.
Despite the odds, there are a number of options millennials are exploring to change their financial futures.
Because housing prices are “through the roof,” Allen, for example, is building up her savings through investments before going out to tackle the real estate market.
“Right now, in my mid-twenties, I think stocks [are the best way for me to generate wealth], that’s what I have been exercising the most because it offers me a passive income, and growing my wealth without working,” she said with a laugh.
Her focus on investing is consistent with the Deloitte research, which found that millennials are more likely to hold stocks and have retirement accounts than earlier generations did at the same age.
“I still work, but I invest monthly,” Allen said. “I have a certain amount monthly that I dedicate toward my investments and build my wealth passively while I’m making the income that I am actually working for.”
According to an estimate by JMP Securities, individual investors like Allen have aggressively jumped into the stock market, opening 10 million new brokerage accounts in 2020—and it’s believed that a significant percentage of these new investors are tech-savvy millennials.
Many of these new accounts come from using wealth-building apps, which provide a low-level entry point to the stock market. Users of these apps can quickly construct investment portfolios with a few clicks on their smartphones.
Deloitte’s research
Deloitte’s research offers insight into the innovative investment management solutions that have emerged to complement millennials’ spending habits. Examples of these include:
- Product innovations: Considering the huge debt burden on millennials, some fintech firms are experimenting with micro-investing. Investors can save and invest small sums of money from their savings or spare change from their credit card expenses.
- “Smart” experiences: Millennials are using smartphones as their personal assistants, enabling them to perform everyday activities, including maintaining shopping lists, making payments, and posting product reviews.
- Pricing innovations: Fintech firms and incumbent investment managers are competing on price to capture millennials’ assets. The launch of zero-fee funds in mid-2018, along with zero-commission platforms, was a seismic shift in the traditional investment management industry.
- Community platforms: Considering the social media and do-it-yourself preferences of millennials, a number of community-based investment solutions have been launched.
Shifting generational priorities
Kiana Clark, a graduate student in computer science, says passive income streams like these are appealing because she values flexibility.
She currently works as a medical assistant but plans to start her own tech business so she can prioritize time for herself. Plus, she sees entrepreneurship as a more viable path to success than “renting” her time out to others through employment.
“For me, the best way [to generate wealth’] is owning your own business,” Kiana Clark said.
She is also building her financial future through real estate.
“Home ownership and property ownership are the cornerstones of wealth-building, and as a homeowner, I discovered there are a lot of benefits that come with [it],” she said. “Owning your own business, building your credit up, and owning property as an investment — those types of things are more beneficial in our generation.”
“[My parents] didn’t get into homeownership as an investment tool because they didn’t have that exposure to real estate being an investment tool as I did, whereas [the way] I look at it, I can buy multiple homes and build an inheritance for my kids when I’m gone.”
Breaking the consumption cycle
While many millennials have a plan for how they would like to generate wealth in the future, the reality is that many of them, just like members of the generations before them, are consumers.
Seattle real estate developer Albert Clark (no relation to Kiana) says that consumerism can clutter the pathway to financial independence. He said he sees too many young people who are trapped by credit card debt and living paycheck-to-paycheck.
It’s easy to get caught up in the “consumerism of everything—financing this, financing that through credit cards,” he said. “If you’re just starting out, you don’t want to take on a lot of consumer debt.”
And unlike previous generations, many young people today spend money on things that they don’t own. They pay for rides instead of buying a car. They rent an apartment or room in a house, even when they can afford to buy a home. A smaller percentage of them even rent clothes or have a clothing subscription—all of which can eat away at their disposable income.
Responsibly stewarding one’s financial future has its ebbs and flows, so it takes vision, planning, and action—but more importantly, discipline.
“You can do that through real estate, life insurance policies, a 401(k) plan—all of these things—and if you’re lucky, stocks can add to it,” said Albert Clark.
Building wealth for him, he said, is about more than just achieving personal comfort and freedom, though. It’s about creating long-term prosperity that can be shared.
Unlike his parents— who saw homeownership as a form of stability to help raise their family—Albert Clark views his real estate portfolio as a family legacy.
“[My parents] didn’t get into homeownership as an investment tool because they didn’t have that exposure to real estate being an investment tool as I did, whereas [the way] I look at it, I can buy multiple homes and build an inheritance for my kids when I’m gone.
“You have wealth so you can pass it onto the next generation,” he said. “These are things you can pass on to your children, and your children’s children. So, my thought process is that building wealth is for the future, not for me today.”
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