Solutions Economic and Market Watch

Welcome to the Economic and Market Watch podcast. This is Antony Davies.

Talking heads tell us the American Dream is dead, and point to Millennials as the first generation that's doing worse than their parents.

Housing is too expensive. Student debt is too high. Wages are too low. Even two incomes isn't enough to make ends meet.

But a recent Federal Reserve research paper cuts through the emotion to look at the numbers and ask: Is this true?

The question isn't whether young people feel squeezed. They do. Nor is it whether housing is absurdly expensive in many places. It is.

The Fed's question is narrower: Adjusted for prices, adjusted for taxes, adjusted for age, are younger generations really worse off?

The researchers look at wage investment, rental income, business income, plus cash and non-cash government benefits. Then they subtract taxes and adjust for inflation. When the dust settles, they are examining what matters: After-tax purchasing power, or what we might call "standard of living." Unsurprisingly, the researchers found that younger generations today aren't doing as well as older generations today.

But surprisingly, they found that younger generations today are doing better than older generations were doing when those older generations were the same age as the younger generations are now. Adjusting for taxes and inflation, when they were 35, the median Greatest Generation household earned $20,000.

When they were 35, the median Silent Generation household earned $25,000. The median Boomer household earned $30,000, the median Gen X $35,000, and the median Millennial $40,000. The median Gen Z household isn't 35 yet, but so far has consistently earned more than the median Millennial at the same age.

Wealth numbers tell a similar story. The median Gen Z family has a net worth of almost $40,000. Adjusted for inflation, that's more than double the net worths of Millennial, Gen X, and Boomer families at the same age.

One counterargument is that people work longer hours than in the past, but the data disagree. The average worker today works 5% fewer hours per year than did the average worker in 2000, 7% fewer than in 1970 and 11% fewer than in 1950. Another counterargument is that households now have two incomes instead of one. Except that's not true. Among households with workers, the average number of workers per household is 3% lower than it was in 2000 and 4% lower than in 1980.

It is true that more than half of women are in the labor force today versus 35% in the 1950s. But in the 1950s, women at home worked the equivalent of full-time jobs. They just weren't paid. So what explains the difference between the numbers and the vibes?

Each generation tends to spend more time in school than the previous one. That contributes to higher earnings, but also delays them. And that means younger generations must rely on their parents for longer.

When the first decade of adulthood feels delayed, people don't say, "my generational income trajectory is temporarily front-loaded with human capital investment." They say, "This stinks."

Student debt fits the same pattern. College has become more expensive, but the value of mainstream degrees has risen even faster. That doesn't make loan payments painless, but it does mean the pain is front-loaded while the benefit is spread over decades.

Housing is harder. Millennials had lower homeownership rates than earlier generations at similar ages, and that is a real source of frustration.

But even there, the story has nuance. Younger adults are less likely to own homes, but more likely to own stocks. Today, 64% of Millennials and 54% of Gen Zers own stocks. That's much higher than the fraction of Gen Xers who owned stocks at their ages. As housing has become more expensive, asset ownership hasn't disappeared. It has shifted from real estate to equities.

The useful lesson is that decline is harder to find than the national mood suggests. Intergenerational progress hasn't stopped, but it has changed. Today, progress costs more upfront while its benefits are spread over decades. That makes progress feel less secure and easier to miss.

Change, even change for the better is painful. This doesn't mean the vibe is wrong, but it doesn't mean the end of the American Dream either.

This is Antony Davies for the Economic and Market Watch podcast. Thank you for listening. Remember to download this week's Economic and Market Watch intelligence brief.

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