The Great Generation Divide: Can We Bridge the Gap?

Have you ever had a song playing on repeat in your head? No matter what you do, you can't seem to shake the melody and lyrics from playing over and over and over. In the past year, I've found myself humming along to the 1975 funk hit by War on more than one occasion.

"Why can't we be friends? Why can't we be friends? Why can't we be friends? Why can't we be friends?"

The global pandemic, social justice protests, and the most-recent Presidential election all created an even more expansive divide here in the U.S. But we're not just talking Republican vs. Democrat or Liberal vs. Conservative anymore. There are battle lines drawn between races, genders, the haves, and the have-nots. Families are even facing dinner table disputes as divisions are forming between generations.

The latter is increasingly troubling, especially when you consider it's primarily Gen Y (Millennials) and Gen Z versus the Baby Boomers. No good can come from blaming one generation for another generation's woes. If the divide continues to widen, the fallout could be detrimental to the economy, stock market, and, most importantly, our society overall.

Now, a few factors add to the current intergenerational divide. But, as you can probably guess, the number-one grievance expressed by the younger generations is the wealth gap.

Rising home prices, ballooning student debt, and a low minimum wage have only added to Millennials and Gen Z'ers growing ire with Baby Boomers. Homeownership, in particular, was once considered the epitome of the American Dream, but many in the younger generations feel this isn't attainable for them given the aforementioned factors.

Recent data from the Federal Reserve revealed that Millennials, who are currently about 30 years old, hold only 4% of real estate. On the flip side, when Baby Boomers were the same age—about 35 years old—they held 32% of real estate here in the U.S.[1]

Part of the reason for the low homeownership by Millennials and Gen Z is the surge in home prices over the past three decades. In 1990, when many Baby Boomers were buying homes, the average house price was about $79,000, and the median household income was about $30,000.[2] Today, the average new home price is approximately $346,000,[3] while the median household income is about $68,000.[4]

Besides the broader gap between home prices and income, a mountain of student loan debt buries the younger generations—the average college student graduates with a bachelor's degree and nearly $30,000 in debt. Student loan debt now accounts for more than $1.71 trillion in the U.S., with almost 45 million Americans carrying student loan debt.[5]

So, for many Millennials and Gen Z'ers, the American Dream feels way out of reach. According to many of the younger generations, this adds to a growing resentment toward Baby Boomers, having had "everything handed to them on a silver platter." Interestingly, many of the older generation feel the same way about the Millennials and Gen Z'ers raised in a world with technological advances and trophies for all participants.

Playing the blame game, though, won't solve the issues in our economy right now.

In fact, according to a recent report by Deutsche Bank,[6] three likely scenarios could play out as a result of the growing divide between the younger generations and the older generation. The bad news is that only one of these scenarios offers a potential "Goldilocks" fix for the current intergenerational divide.

According to the Deutsche report, we could see a decline in asset prices—houses and/or stocks. This could occur as more and more Baby Boomers retire, leading them to sell stocks and/or their homes to support their retirement plans. Deutsche Bank called this a "natural resolution," but it doesn't come without risks. Falling home prices and stock prices negatively impact consumer confidence, which can, in turn, hurt the economy overall.

Second, according to the Deutsche report, our government leaders could step in and respond to calls for redistributionist policies or more socialist policies. This could manifest in several ways, from higher taxes on the wealthy to the forgiveness of student loan debt (which is hotly debated right now). But this Robinhood scenario of taking from the "rich" and giving to the "poor" could further expand the divide between generations. If folks don't need to work as hard to receive better or the same benefits, it could lead to a lazier society and a more stagnant economy.

And third, according to the Deutsche report, address society's demands head-on by finding a compromise that's beneficial to all Americans. Simply put, Deutsche Bank argues that a gradual resolution is necessary to address the societal divide. Finding a compromise that appeals to both sides of the generational gap seems like an impossible task these days.

If you've noticed an intergenerational divide forming in your own family, you may be looking for ways to bridge the gap before it's too late. Frank conversations are always a good starting point, especially if you're adding to college savings funds for children or grandchildren, setting financial goals for your family, and are planning for your retirement. Discuss how you can plan and work together to achieve these goals.

To help you get started, consider giving us a call at Nicollet Investment Management today. We'd love to discuss your financial goals and how your family can work together to set and achieve these goals. We look forward to hearing from you.

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[1] https://www.businessinsider.com/millennials-own-less-real-estate-than-boomers-statistic-2020-1

[2] https://archive.curbed.com/2018/4/10/17219786/buying-a-house-mortgage-government-gi-bill

[3] https://www.reuters.com/article/us-usa-economy-housing/u-s-new-home-sales-exceed-expectations-in-january-idUSKBN2AO1ZY?il=0

[4] https://www.census.gov/library/publications/2020/demo/p60-270.html

[5] https://studentloanhero.com/student-loan-debt-statistics/

[6] https://finance.yahoo.com/news/intergenerational-conflict-is-getting-worse-deutsche-bank-analysts-warn-200542605.html