The difference between millennials and previous generations is minor. The difference is the world is currently a much tougher place financially.
I can hear boomers spitting out the coffee as they read the opening sentence. “Honey, I can’t believe what I am reading. Look what this clown is saying about those entitled, selfie taking, avocado eating, Laté drinking, slackers. He is saying they are the same as you and I were at that age. Unbelievable.”
That entitled image of millennials portrayed by the media is actually the exception, rather than the rule. Most millennials I know are ambitious, talented and hard working. Yes, there are some computer playing, free loading, all about me millennials. But every generation had these.
It is not the people that have changed, it is the world
Millennials have it tough
Education is more expensive than it has ever been.
Housing is more expensive than it has ever been.
Income is not able to keep up.
In summary, young people today are paying more for two of life’s biggest expenses, housing and education, than any other generation previously. Yet at the same time, earning relatively less to pay for these.
Let’s run some statistics to back up these claims.
Work income vs house prices
In 1975, the average national income was $99 a week after 22% tax. That is $587 adjusted for 2017. The average income in 2017 is $794 per week after tax. An increase in income of $207. That’s amazing. Rising faster than inflation. What are the millennial's complaining about?
I’m glad you asked.
The average house price in 1975 was $24,300. When compared to 1975 average income of $5,148, that means house prices were 4.7 times more expensive than after tax income.
The average house price in 2017 is $665,000. When compared to 2017’s average annual income of $41,285, we are looking at 16.1 times more expensive than annual after tax income!
Over three times more unaffordable than a 1975 home buyer.
The boomer’s next argument goes along the lines of “yea, but our interest rates were so much higher. It was very hard for us as well, I don’t know what you are complaining about.”
Let’s entertain that idea.
1975: With an average house price of $24,300 in 1975, a 20% deposit would cost $4,860. Leaving us with a 30-year mortgage of $19,440. At 9.5% interest rates at this time, our weekly repayments were $38. This is 38.4% of our after-tax income.
2017: With an average house price of $665,000 in 2017, a 20% deposit would cost $133,000. Leaving us with a 30-year mortgage of $532,000. At 5% interest rates at this time, our weekly repayments are $659. This is whopping 83% of our after-tax income.
This is severely unaffordable by any measure.
Note – these are income statistics for individuals. If you want to calculate for a two person household then just half the percentages.
I can still hear the boomers calling. What is it now?
“We actually were paying between 12% and 20% interest rates all through the 1980’s.”
For entertainment purposes let’s re-run the 1975 numbers based on 17% interest rates.
That seems to be a fair average. That means that weekly mortgage repayments would have been $64 per week. This is still just 64.6% of after tax income. Still much better than the 83% experienced today.
In fact, so much better that there was an extra 18% of pay in your pocket that was available to a 1970’s/80’s house buyer than a 2017 house buyer.
Unfortunately for millennials this is not the worst of it. We still need to look into tertiary education costs. Many millennials are starting off their working careers with a negative net worth, due to the cost of education and massive student loans.
Education
A Bachelor of arts degree at Otago University in 1975 cost approximately $1,500 per year in today’s dollars. Up until 1989, many students also received a ‘bursary’ payment from the government that went towards covering their tuition costs. A Bachelor of Arts degree today is $5,800 per year and with no government assistance for the ‘average’ New Zealander. Based on this, it is almost four times as expensive to go to University now than it was in 1975. This means that education costs are increasing at a rate of almost 4 x inflation.. The Labour government have recently introduced first year free scheme to help ease the pain somewhat, but this could easily be changed with a new government though.
Final Thoughts
With houses consuming 18% more of our income (and growing) than 40 years ago, and university fees increasing at a rate of 3.5% per year over and above inflation costing 400% more than 40 years ago, it is no wonder millennials are struggling. They are not all entitled and spoiled as you may have been led to believe. They are just like you and I were.
The difference is they are starting on the back foot due to much higher university costs than experienced ‘back in the day.’ Then, they are hit with ever increasing house prices, rising faster than incomes. No wonder it’s a struggle.
You can clearly see the drop in home ownership rates here. This is not due to a sudden generational change of millennials being lazier and entitled. It is due to out of touch prices and incomes.
Yes, we all worked hard to save up and buy our first house. Boomers had their own problems. There is no denying that. There is also no denying millennial's are doing the same.
The problem is, the statistics are not as much in millennials favour as they were other generations. Houses used to cost less, mortgages used to cost less, and education used to cost less relative to income. It is harder to save, harder to buy a house, and because everything is being pushed out to later in life, it will also be harder to retire. This will very likely be the first generation that ends up poorer than the generation that preceded it.
If a millennial can’t buy a house it is not very useful to tell them to eat out less, drink less coffee, or try harder. Times are changing, and it is harder now. Let’s not battle about who had it hardest. Show a bit more empathy and support for your fellow countrymen and women, instead of “we worked harder and smarter in my day” bullshit. Maybe, flip this around and ask yourself what can I do to help?
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here
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