Youth May Triumph

John Yeigh

LET ME PLAY THE contrarian. A dominant narrative today is that—compared to earlier generations—younger workers are both economically disadvantaged and less inclined to do anything about it.

Such notions have been bandied about for at least 2,000 years. Horace wrote that “the beardless youth… does not foresee what is useful, squandering his money.” For a more modern take, check out these comments from HumbleDollar contributors and readers lamenting the financial plight of today’s younger generation:

  • Company “loyalty to employees in large measure no longer exists.”
  • “Young people are forced to contend with the twin challenges of relatively low salaries and high student loan burdens.”
  • Baby boomers are “fortunate in a way that’s nearly impossible for Americans today.”
  • “Many workers are strapped today, paying student debt, higher rents and everything else.”
  • “Each generation has been criticized by the prior generation as lazy, entitled, selfish or shallow.”
  • “I think [saving is] going to be more difficult for most people than it was even 30 years ago.”  

The supposed disadvantages faced by younger workers make for a lengthy list. Unlike previous generations, it’s said that young adults are contending with the demise of traditional pension plans, less employer loyalty to employees, higher college costs, ruinous student loans, renewed inflation, unaffordable home prices, higher mortgage rates, soaring rents, exorbitant health insurance premiums, steep medical costs, low wages, a dwindling Social Security trust fund, and new technologies that threaten jobs.

Got all that?

Yes, young workers are confronted by many challenges. But this gloomy scenario may be overdone, and there are many offsetting factors. Indeed, the young may yet outshine the baby boomers if they take advantage of everything our economy has to offer. Here are just 10 factors that tilt the odds in favor of young adults:

1. Today’s self-funded retirement savings plans, such as 401(k)s and IRAs, are completely portable. Workers can change companies to seize better opportunities, while taking their retirement savings with them.

By contrast, defined benefit pension plans typically locked workers into companies for decades, effectively handcuffing employees in place. Job changers can significantly add to their lifetime income by pursuing better opportunities. For instance, both my children changed jobs and boosted their income by 30% in their immediate post-college years, with no impact on their retirement savings.

Even with the decline of pension coverage, millennials—those born between 1981 and 1996—and the Gen Zers who followed are already on track for higher retirement savings than the baby boomers, according to Fortune and The Wall Street Journal.

2. Federal income tax rates are the lowest they’ve been in decades, meaning workers keep more of what they earn, making it easier for them to save for retirement and other financial goals.

3. Today’s workers benefit from the economic growth provided by new technology. One big advantage is the growing ability to work from anywhere. About 40% of American workers are now in remote or hybrid roles. More flexible work situations have also fueled the growth of the gig economy.

Technology has reduced wasteful commuting, improved business efficiency, made it easier to communicate, lowered the cost of financial services, provided infinite information access, made it easier to identify job opportunities and allowed us to perform tasks almost instantly—all for under $1,000 for a phone or laptop.

By comparison, many of today’s retirees started their careers pushing pencils and paper, solving math problems longhand, sending communications by snail mail, using carbon paper for copies and manipulating a slide rule for calculations.

4. Thanks to Roth accounts, young workers have the chance to earn tax-free earnings for perhaps seven decades. Roth IRAs, Roth 401k(s) and Roth conversions have only become available within the past quarter century. Despite their recent arrival, nearly a quarter of U.S. households already have a Roth account.

Our children funded their Roths from their minimal teen wages. By their early 20s, they’d accumulated balances approaching $30,000 apiece. They now proselytize the Roth’s benefits to their friends.    

5. Our children are also funding health savings accounts (HSAs), which were unavailable to their parents. HSAs began 19 years ago, with most accounts opened within the past 10 years. Roth and HSAs provide today’s workers with antidotes to the tax-bracket creep that accompanied earlier generations’ upward career earnings.

HSAs are the only savings vehicle providing the triple advantage of tax-deductible contributions, tax-deferred growth and tax-free withdrawals. Many account holders plan to postpone withdrawals until retirement, meaning a long runway of tax-favored growth lies ahead.

6. Today’s workers have the added advantage of extremely low-cost or even free investing options. No prior generation could earn compound returns without the drag of fees and taxes.

7. Widely documented trends indicate that younger generations are buying smaller homes and packing them with less stuff. While lower incomes may partially contribute to these trends, young adults also exhibit greater environmental concerns and a reduced collector mentality. They favor experiences and fast wi-fi over McMansions filled with consumer goods.

8. Despite naysayers, most long-term U.S. economic trends are in youth’s favor. The standard of living, as measured by GDP per capita, has risen over time. The prevalence of poverty and the ranks of the medically uninsured continue to decline.

At the same time, the percentage of households owning stock has doubled over the past four decades and is approaching 60%. Education attainment has increased markedly. Over the past six decades, the percentage of Americans graduating from high school has surged from 50% to 91%, and college graduates have nearly quadrupled from 10% to 38%.

9. The financial ace-in-the-hole for younger generations is the coming $70 trillion transfer of inherited wealth. While the wealth concentration held by elders is often lamented, their children and grandchildren will soon inherit these dollars.

Neither my parents nor my in-laws were wealthy, but two small inheritances from them raised our financial comfort level, allowing us to increase our retirement spending and maintain a higher stock allocation.

10. The government safety net is more robust. Obamacare alone has a record 40 million participants. Medicaid and the Children’s Health Insurance Program have enrolled 85 million. Another 23 million taxpayers took advantage of the earned income tax credit in 2023, and 41 million people received SNAP food stamp benefits.

Total entitlement spending, including Social Security, is a bit over 50% of the federal budget. This is not meant to spark a debate about whether government support is ideal, which it probably isn’t. Still, these federal programs benefit a large swath of the U.S. population, including many HumbleDollar readers.

Just as our parents often looked askance at our behavior, we baby boomers may not fully endorse the choices made by the next generation. But guess what? To succeed, they may not need to follow their parents’ financial playbook—and, indeed, they probably shouldn’t. Don’t count them out. I’m not.

John Yeigh is an author, coach and youth sports advocate. His book “Win the Youth Sports Game” was published in 2021. John retired in 2017 from the oil industry, where he negotiated financial details for multi-billion-dollar international projects. Check out his earlier articles.

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