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A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for the high-net-worth investor and consumer. Sign up to receive future issues, straight to your inbox.
The wealth gap between affluent Millennials and the rest of their age group is the largest of any generation, creating a new wave of class tension and discontent, a recent study shows.
Even as the vast majority of millennials struggle with student debt, low-paying service jobs, unaffordable housing, and low savings, the millennial elite is outpacing previous generations. According to the study, the average wealth of millennials at age 35 is 30% less than that of baby boomers at the same age. However, the richest 10% of millennials own 20% more wealth than baby boomers at the same age.
“Millennials are so different from each other that it is not particularly helpful to talk about the 'average' millennial experience,” wrote study authors Rob Gruijters, Zachary Van Winkle, and Annette Eva Vassang. “There are some Millennials who are doing well.” “Extremely so – like Mark Zuckerberg and Sam Altman – while others suffer.”
The study found that millennials — who are between the ages of 28 and 43 today — have faced frequent financial headwinds. As they come of age during the financial crisis, they have lower levels of home ownership, greater debt than assets, lower-paying and unstable jobs, and lower rates of dual-income household formation.
Meanwhile, the top 10% of millennials benefited from greater rewards for skilled jobs, the authors say. As they put it, “returns to high-status courses of action have increased, while returns to low-status courses of action have remained stagnant or declined.”
Millennials who “went to college, found graduate-level jobs, and started families relatively late” ended up with “higher levels of wealth than baby boomers with similar life trajectories,” according to the report.
Transfer of great wealth
There may be another factor creating a lot of wealth among millennials: inheritance. In what is known as the “Great Wealth Transfer,” baby boomers are expected to transfer 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 with net worth of $5 million or more will make up nearly half of that total, according to Cerulli Associates.
Wealth management companies say some of this wealth is already beginning to flow to the next generation.
“The big wealth transfer that we've all been talking about for the last 10 years is underway,” said John Matthews, head of private wealth management at UBS. “The average age of the world's billionaires is about 69 right now. So this whole shift or handover of wealth is going to start to accelerate.”
Tensions between millennials are likely to rise as more wealth is transferred in the coming years. The display of wealth on social media by millennial “nebo kids” can increase class warfare between generations and push non-wealthy millennials to overspend or create the appearance of lavish lifestyles to keep up.
A Wells Fargo survey found that 29% of wealthy millennials (those with between $250,000 to more than $1 million in investable assets) admit that they “sometimes buy items they can't afford to impress others.” According to the survey, 41% of affluent millennials admit to financing their lifestyles with credit cards or loans, compared to 28% of Generation X and 6% of baby boomers.
The battle between wealthy millennials and the rest could shape their attitudes toward wealth. For more than four decades, the vast majority of millionaires and billionaires created in America have been self-made, most of them entrepreneurs. A study by Fidelity Investments found that 88% of American millionaires are self-made.
However, inherited wealth could become more common. A UBS study found that among new billionaires last year, heirs created more wealth than self-made billionaires for the first time in at least nine years. All the billionaires under the age of 30 on the latest Forbes billionaires list inherited their fortunes, for the first time in 15 years.
“Extreme” wealth.
The surge in wealth among millennial heirs is also creating a lucrative new market for wealth management firms, luxury companies, travel companies, and real estate brokers.
Clayton Origo, one of Manhattan's top luxury real estate brokers, has built a thriving business on wealthy millennials. The founder of Compass' Hudson Advisory Team has sold over $4 billion in real estate and regularly handles deals worth over $10 million. He says the “vast majority” of his recent business comes from buyers in their 20s and 30s with inherited wealth.
“I just sold a $16 million condo to someone in his mid-20s, and the buyer had access to the family fund,” he said. “The wealth behind these kids is extreme.”
Inherited wealth became Origo's specialty. He says he is working to forge close relationships with family offices, trusts and the young financial elite who mingle at New York membership clubs like Casa Cipriani.
The pattern is familiar: a wealthy family calls with a rental request for their son or daughter; A few years later, they want to buy a two-bedroom apartment worth $5 million or $10 million in a new high-security building downtown.
“My business works very quietly and confidentially with the richest families in the world,” Orrego said.
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