The Great Recession almost killed them. But will millennials survive the COVID financial crash?

The Great Recession almost killed them. But will millennials survive the COVID financial crash?
Source: Hackensack Meridian Health

The coronavirus pandemic has affected the entire world, with the number of cases having passed 21 million worldwide. But in the United States, millennials – generally defined as those born between 1981 and 1996 – look likely to suffer the greatest financial repercussions.

Millennials face an increased likelihood of late retirement and lower-paying jobs and a decreased opportunity to become homeowners than they did before the pandemic.

For older millennials, this is the second financial crisis they have faced in their lifetimes and it is the scars from this that make the COVID-19 crisis particularly troubling.

Financial scarring

Typically, the word “millennial” conjures up a number of stereotypes. It is claimed, usually by older generations, that millennials are either lazy, unmotivated, coddled, bad with money, or all of the above.

What these stereotypes fail to account for, however, is that for the oldest millennials, those in their early to mid-thirties as of this year, factors and events outside of their control have condemned them to poorly paying jobs and fewer opportunities than their older counterparts.

Prior to the coronavirus pandemic, millennial earnings remained the slowest to recover since the 2008 financial crash. Older millennials entering a post-crash job market with high unemployment also faced depressed incomes as a result, averaging a 1.8% reduction in yearly earnings over 10 years after the crash.

This is, according to William Gale of the Brookings Institution, the “scarring effect” that financial crises can inflict on those just entering the job market, which can deeply impact an individual’s future earnings and restrict their growth and progression in what should otherwise be peak earning years.

According to Gale, entering a troubled market after the 2008 crash had “long-term effects on wages,” which tended to “move people down to a different wage path,” starting millennials off on lower wages which subsequently defined their future earnings. As a result of the 2008 crash, millennials ultimately lost a period of their life that should’ve otherwise seen wage growth.

Although it’s true that members of the workforce of all ages suffered as a result of the 2008 financial crisis, commonly known as the “Great Recession,” none suffered more than working millennials. Data from Kevin Rinz, a Census Bureau economist, found that the average millennial lost about 13% of their earnings between 2005 and 2017, worse than Gen X’s 9% setback and boomers’ 7% loss.

In short, while baby boomer incomes rose once again following the recession to their former levels, older millennials continued to carry the baggage of the depressed incomes they suffered as a result of the 2008 downturn.

Evidently, the poor prospects and lower earnings of millennials in recent, pre-coronavirus times has had little to do with any stereotypical attitudes toward work. Rather, older millennials simply came of working age at the wrong time and in the wrong economy, which has had a long-lasting negative impact on their financial stability.

The attitude that millennials should “sink or swim by their own efforts” ignores the fact that “the tide is much stronger now, and many millennials are swimming upstream,” according to Ana Kent, a policy analyst at the Federal Reserve Bank of St. Louis.

All of this has been exacerbated by the coronavirus crash.

The “unluckiest generation”

It is within this context of the previous financial crisis, that millennials now face a new challenge. As the Financial Times reports, “amid the economic onslaught that coronavirus has wrought, it is those under 40 who have suffered the biggest economic blow.”

More than 25% of under-25s have lost their jobs during the pandemic, compared with less than 12% of those aged 30 to 60.

This has been compounded by the fact that millennials – and “zoomers,” the lower generational bracket just entering the economy – are typically employed on short-term, temporary, or zero-hour contracts without long-term security and, crucially, without pension plans for the future.

For Ana Kent, the most recent financial crisis has posed a “double blow” for millennial earnings, which, instead of reaching their peak earning years as they enter their early and mid-thirties, “could amount to a devastating setback.”

The consequences

Just like the 2008 financial crisis, from which many millennials are still recovering, the coronavirus recession, which some have argued could be a “Greater Recession,” places young people, once again, in a precarious position.

Young American millennials were already worried about their future financial security and independence before the coronavirus pandemic. One national survey in 2019 found that 72% of American millennials are “very” or “somewhat” concerned about their ability to achieve a secure retirement.

Even without the coronavirus crash, millennials had plenty of reasons to worry. Since 2005, over US$1 trillion in student debt has been added to the current figure of US$1.5 trillion, with average millennial student debt at around US$30,000.

Alongside these financial obligations, millennials have little financial independence of their own. Millennials in 2020 accounted for just 3% of all household wealth, compared to the 57% share held by the baby boomer generation.

With the coronavirus crash, Kathryn Edwards of the Rand Corporation argues, millennials are “walking a tight rope and there are cliffs on either side. It’s hard to imagine someone making it through both of these recessions in this age group really unscathed.”

Many young Americans have already temporarily given up on attempting to achieve financial independence and homeownership. As a result of the coronavirus pandemic, 39% of younger millennials (aged 24 – 29) stated in a recent poll that they had – or planned to – move back in with their parents.

Meanwhile, 57% stated that COVID-19 had already derailed their plans for achieving financial independence.

As the retirement plans of older workers have also suffered, millennials are now posed with “a workforce that is going to continue to age” and pose challenges for “younger generations in their upward mobility,” according to Chip Espinoza of Vanguard University.

Ultimately, this may mean that millennials will have to work longer to recover lost wages, with a workforce that retires later forcing millennial job progression to a halt as higher-earning jobs remain occupied.

The coronavirus financial crisis has already left millions jobless and posed difficulties for Americans of all ages. But the problems facing millennials may take years to be fully understood, as millennials struggle to grow their wages, build for retirement, or secure homeownership. Furthermore, millennials are already being forecasted to be less prosperous and less financially secure than their parents.

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