Growing wealth by growing up
07 August, 2015
Living with teenage daughters and working with millennials keeps me on my toes. If I am to be involved in their lives, I need to be aware of their interests and at least broadly up with 'the goss' and 'the happs'.
Understanding the younger generation is not always straightforward. The lifestyles, interests and attitudes of those in their teens, 20s and even 30s are so different from my day.
My early adulthood was fairly formulaic — university, work, marriage, work. The only real difference between my peer group and me was that I eschewed travel and delayed starting a family so I could get stuck into my career.
These days there is no typical life journey and, according to one US study, progression from youth to adulthood is taking longer, with a significant impact on the wealth of the younger generation. There is a growing generational wealth gap between the old and the young — a function of financial, cultural and even emotional factors.
According to a CNBC report, sociologists have boiled down the basic milestones in the journey from youth to adulthood into five events: graduating from high school or university, leaving your parents' home, paying your own way, marrying, and having a child.
These milestones are taking longer to achieve, if they're achieved at all, and it is not just affordability causing the delay.
The US Census Bureau says in 1960, 77 per cent of women and 65 per cent of men had passed all five milestones by the time they were 30. By 2000, fewer than half of all 30-plus women and less than a third of men that age had passed all five.
It has become more culturally acceptable to keep on studying or go back to study while you 'find yourself'. Increasingly young adults are coming back home to live with their parents and the median age for marrying and having children has increased.
The notion of 'paying your own way' seems relatively less important to the young people of today and, interestingly, often parents will exacerbate the situation, letting their offspring live at home without any financial or practical contribution to the household.
In the US, 40 per cent of people in their 20s move back home with their parents at least once. Two-thirds spend at least some time living with a romantic partner before marrying, and couples today generally don't expect to marry until their late 20s or start a family until their 30s.
Some of this 'deferment of adulthood' will be for financial reasons. But, in a lot of cases, it is a lifestyle choice rather than a financial one. Unfortunately, deferring adulthood because you can't (or don't want to) afford it, makes it harder to build wealth when you eventually reach adulthood.
Young people today say "it was easier for your generation to build assets than it is for ours". There may be an element of truth to this but the main reason older people are wealthier than younger people is they have been working longer. The longer you work, the more money you're likely to have. The longer you defer working, the harder it will be to accumulate wealth.
Given the trend of delayed adulthood seems entrenched, what can be done to close the generational wealth gap? For my part, I will be encouraging my children and other young people to plan for their own financial success. A deliberate plan and set of expectations around life's journey should ensure greater likelihood of reaching the milestones of adulthood.
If my daughters choose to live at home, they will do so as young adults taking responsibility for their financial and practical contribution to the household. If they choose to delay adulthood, that's cool too. But I won't accept any complaints they are hard done by and can't afford what others have.
Their choice is simple — grow wealth by growing up.