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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:
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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I’m late to comment, but I nominate this as the best HD post ever. I hope it gets reposted far and wide.
I hadn’t realized non-tax dependent kids could contribute to their own HSA and not affect my contribution limits. That is interesting.
Seems to me that makes their HSA definitely better than a regular IRA or regular 401k, though they don’t get the SS and Medicare exemption like a regular HSA. And the retirement saver credit needs to be included in the calculations. I’m not sure if it better than a Roth account, though I’d guess less likely to have tax law changes, which some people worry about Roth taxes changing at some point.
Once other avenues are maxed out, then it is definitely good.
Is it true that work is harder to get for high school students now? I remember 40-50 years ago there were a lot of job opportunities which paid fairly, both part time and regular hours around school hours. Is this true now? My kids graduated HS ten years ago and it seemed their classmates finding work was difficult.
The cost of technology impacts the savings rate of the younger generation vs. the boomers. Internet, iphone, smartwatch, video games/consoles, cable, streaming subscriptions, sports channels, apps, etc. can drive hefty monthly fees that boomers, by contrast, were able to invest. The younger generation tends to spend more on technology for entertainment/social media.
Do you see the younger generation having better critical thinking skills? Will AI have a positive or negative impact on their critical thinking skills?
These are mostly wants, not needs. The “younger generation” needs to prioritize!
On this one, where you stand depends on where you sit. A younger worker with an education, social skills and motivation can certainly do as well or better than his or her parents. He or she will have many opportunities to take advantage of. And many of the advantages listed in this thread can be his or hers. But there are many whose ability to take advantage of opportunities have been hindered or obstructed by poverty, tough family situations and/or bad school systems, and who have never learned the skills needed to compete for good jobs and wealth creation. Retiring with a good 401(k) balance is only a dream for them. Of course, the circumstances that lead to a chunk of people being penalized for life in this way occur within each generation. I have debated with myself about this issue, and still can’t convince myself either way. I just thank God I was a little lucky.
One unknown with regard to the economic future of today’s younger workers is what impact artificial intelligence will have on the global economy in general and the job market in particular.
I often read comments by some pundits that AI will destroy many white collar jobs. I don’t know to what extent this will be true, but if I was a young person today, I’d be concerned about the impact AI might have on my chosen career path.
One example: I was a computer programmer for part of my Baby Boom working life because coding skills were in demand. Recently, I’ve read that the need for coders is rapidly declining because AI programs can write computer code.
A few counterpoints:
#3 While remote roles allow working from anywhere, hybrid roles certainly do not, and in the past year most remote roles have been replaced with hybrid. So the “one big advantage” you reference mostly doesn’t exist anymore.
https://www.statista.com/statistics/1356325/hybrid-vs-remote-work-us/
#5 HSA plans require you to have terrible high deductible insurance, and no other (i.e. no better) health coverage. The ability to pay less tax on investments is not a substitute for insurance. Confusion around this fact causes many people to throw their money away on variable annuities. See also the counterpoint for#10.
https://www.irs.gov/publications/p969
#7 Home prices have tripled since the year 2000, and quadrupled since 1990. Owning a smaller home and less stuff is not an environmental choice, and saying it is was a complete non sequitur.
https://fred.stlouisfed.org/series/CSUSHPINSA
#8 Nobody should care much about GDP per capita when that increase has gone almost entirely to the wealthiest 5% of households over the past 45 years.
https://www.cbpp.org/income-gains-widely-shared-in-early-postwar-decades-but-not-since-then-3
#10 The US has the worst health outcomes of any developed nation. “The US has the highest rates of deaths from avoidable or treatable causes and the highest maternal and infant death rates.”
https://www.cnn.com/2023/01/31/health/us-health-care-spending-global-perspective/index.html
Re your number 10-a lot of the poor outcomes is directly related to individuals’ choices such as poor diet, lack or no exercise; so it’s not all due to the healthcare system, but a lack of individual responsibility
Poverty is a main cause of the US having one of the worst healthcare systems among developed countries. Poor diet is a result of poverty as well. There are a lot of obese and unhealthy folks in the middle and upper classes, and not all of it is bad choices.
My family has had HSAs and “terrible” high deductible insurance for many years, and we’ve come out ahead of the other insurance options from our employers. My son, when on our health plan and not a dependent on our tax return, started his own HSA with a year’s worth of maximum family contributions.
I don’t think that your counterpoints deserve any negatives. While I think this is a great article, I also recognize that we’ve got work to do.
Both sides of this make sense. Prosperous young people on a professional path (remote, white collar workers) enjoy the low taxes, cheap investing, et al. Low skill workers and tradespeople don’t. It’s not a political statement to observe that there are wealth / class imbalances in our society. Always have been, and – despite the Internet-for-carbon-paper change – likely always will be.
I totally agree. When I graduated high school over 50 years ago, the educational opportunities were very limited. Today in my hometown, the state community college system offers a broad range of technical education (automotive, hvac, electronics, machinist, welding, dental hygienist, RN nursing, etc) with an annual cost of $5,500 year. The state university tuition & books is $7,500 a year. Plus the local school district offers dual credit so a bunch of kids graduated high school and got their Associates degree at the same time, just for the cost of buying the books. Virtually none of that stuff was available back then. So yeah there’s some new challenges today but there’s also some better opportunities as well.
Terrific article, John. The current ability to work remotely has been an amazing thing for me to observe. Our 4 kids and their spouses do the majority of their work remotely from home, often for employers on the other side of the country. To a baby boomer like me, this is nothing short of miraculous.
Thanks Andrew.
When I was working in IT I saw a lot of younger generation workers.
They were all technically savvy and hard working. And they looked out for us older geeks in the office.
Plus I see how hard my children and nieces and nephews and their friends all work.
Sure those are somewhat select groups. But I think the take on younger generations being lazy and stupid is hogwash.
Thanks for this one John. It’s clear that each generation faces different challenges as well as opportunities. Just as in the past, some will figure it out and thrive, and others never will.
Well, I’ll be damned! It turns out to be one hell of a great country in which to live, after all. As a baby boomer, I think there is always opportunity in this great nation. Regardless of our occasional economic dislocations this is the best economic machine that mankind has been able to develop, so far. I am still in disbelief that our unemployment rate is below 4% for so long.
As a baby boomer, I am not sure I would want to trade places. I loved my youth. I remember as being more innocent and free.
William, You pose an interesting thought comparison as we definitely grew up in more innocent times.
Despite today’s many stresses, I would not want to give up the internet, safer cars, AC, cheap flights, modern health care, flat screens, tech outdoors gear, and all the other positive advances that help us enjoy life.
We sure had more freedom growing up in the 1960s and 70s..
Define freedom. Do you mean by your parents?
John, thanks for a great article. I’m a big fan of the next generation. I’m admittedly biased by my children, nieces, nephews and their spouses. They are different in many ways, but each is decidedly above average and they are making substantial contributions to society. And their friends are in the same category. Some of the “old guys” I started with at GE back in the 80s lamented the next generation, and the changes in the economy. We navigated it, and the next generations will too..
Thanks Rick.
About time someone presented this picture. Thanks.
I also point out that barely half of workers ever had a pension in the past. Also job tenure has been steady around 4 years for decades.
Regarding education I wonder if those graduation numbers mean much as all I find are pretty poor proficiency score in key areas like math and reading.