A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up To receive future editions delivered directly to your inbox.
The wealth gap between affluent Millennials and their peers is the widest of any generation, fueling a new wave of class tensions and resentment. A recent study.
While the vast majority of Millennials struggle with student debt, low-wage service jobs, unaffordable housing, and low savings, an elite Millennial generation is surpassing previous generations. Research shows that Millennials have, on average, 30% less wealth at age 35 than Baby Boomers did at the same age. However, the top 10% of Millennials are 20% wealthier than Baby Boomers of the same age.
“Millennials are so different from each other that it’s not particularly meaningful to talk about the ‘average’ experience among millennials,” the study’s authors Rob Gruijters, Zachary Van Winkle and Anette Eva Fasang wrote. “Some Millennials do it right. Very good — like Mark Zuckerberg and Sam Altman — while others are struggling.”
The study found that Millennials – generally defined as today’s generation aged 28 to 43 – repeatedly face financial headwinds. They came of age during the financial crisis, with lower rates of homeownership, debt exceeding assets, low and unstable wages, and lower rates of dual-income household formation.
At the same time, the top 10% of Millennials benefit from higher returns from technology jobs, the authors say. As they put it, “Returns to high-status job trajectories have increased, while returns to low-status job trajectories have stagnated or declined.”
Millennials, who “went to college, found graduate-level jobs, and started families relatively late,” ultimately “achieved higher wealth than baby boomers with similar life trajectories,” the report said.
Great transfer of wealth
There may be another factor that creates so much wealth for Millennials: legacy. In the so-called “Great Wealth Shift,” baby boomers are expected to inherit between $70 trillion and $90 trillion in wealth over the next 20 years. Much of that is expected to go to their millennial children. High-net-worth individuals worth $5 million or more will make up nearly half of the total, according to Cerulli Associates.
Wealth managers say some of that wealth is already starting to flow to the next generation.
“The huge wealth transfer we’ve been talking about for the last 10 years is underway,” said John Mathews, director at UBS Group AG. Private Wealth Management Department. “The average age of billionaires in the world right now is close to 69. So the whole transition or transfer of wealth is going to start to accelerate.”
As more wealth is transferred in the coming years, tensions among millennials are likely to escalate. Millennial “Nebo Babies” displaying their wealth on social media could exacerbate intergenerational class wars and drive less affluent Millennials to overspend or create extravagant lifestyles to keep up.
A Wells Fargo survey found that 29% of affluent Millennials (defined as having $250,000 to more than $1 million in investable assets) admitted that they “sometimes buy things they can’t afford to impress others.” The survey shows that 41% of affluent Millennials admit to using credit cards or loans to maintain their lifestyle, compared with 28% of Generation X and 6% of Baby Boomers.
The battle between wealthy Millennials and others may also influence their attitudes toward wealth. For more than four decades, the vast majority of millionaires and billionaires created in the United States were self-made, and the majority were entrepreneurs. A study by Fidelity Investments found that 88% of American millionaires are self-made.
Yet inherited wealth may become more common. Among the new billionaires born last year, heirs who inherited wealth have amassed more wealth than self-made billionaires for the first time in at least nine years, a UBS study found. And, for the first time in 15 years, all billionaires under the age of 30 on the latest Forbes Billionaires List have inherited their wealth.
‘Extreme’ wealth
The surge in wealth among millennial heirs has also created a lucrative new market for wealth managers, luxury goods companies, travel companies and real estate agents.
Clayton Orrigo is one of Manhattan’s top luxury real estate agents, building a thriving business among wealthy millennials. The founder of the Compass Hudson Consulting Group has sold over $4 billion in real estate and regularly represents over $10 million in transactions. He said the “vast majority” of his business these days comes from buyers in their 20s and 30s with inherited wealth.
“I just sold a $16 million condo to a guy in his 20s in a family trust,” he said. “The wealth behind these kids is huge.”
Inheriting wealth has become Origo’s specialty. He said he worked to build close relationships with the young money elite at family offices, trusts and membership clubs like New York’s Casa Cipriani.
This pattern is common: a wealthy family calls their son or daughter and wants to rent a house; a few years later, they want to buy a house in a new, high-security building in the city center worth 5 million or $10 million two-bedroom apartment.
“I work very quietly and very discreetly with some of the wealthiest families in the world,” Origo said.
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