The millennial wage gap is a real problem for those ages 25 – 40. Not only do they make 20% less than Baby Boomers at their age, but they also have fewer consistent paychecks because of the Recession of 2007 and now the pandemic. With more people freelancing, regular paychecks feel like a thing of the past for most millennials.
The largest issue this causes for millennials is a delay in homeownership, aka achieving the American Dream. With lower wages, higher debt, and less consistent paychecks, only 42 percent of millennials own a home by age 30 versus 48 percent of Gen Xers and 51 percent of Baby Boomers.
What led to this downfall? Here are a few factors.
High Amounts of Student Debt
Student loans cause millennials many financial problems including being unable to secure a mortgage. The average millennial graduate has student loans of $38,877. This makes it difficult for millennials to afford a mortgage, save for retirement, or avoid other types of consumer debt in their lives.
The Inability to Save
Saving for retirement isn’t the only saving millennials aren’t doing. They also aren’t able to save for a down payment on a house. The typical first-time homebuyer needs 3% – 3.5% down on a home (at a minimum). That’s $3,000 – $3,500 for every $100,000 they borrow and that doesn’t include closing costs which can be another 2% – 5% of the loan amount.
Racking up Consumer debt
When you have a wage gap, making ends meet can feel impossible. Add to that the high amount of student debt millennials have and it’s impossible for them to stay out of debt. Consumer debt has high interest rates, unaffordable minimum payments, and increases the risk of bankruptcy or other negative financial events.
How Millennials can Survive
The good news is that there is plenty millennials can do to offset the risk the wage gap causes.
Avoid Excessive Debt
No matter how tempting it is, don’t charge what you can’t afford. If you use credit cards as an extension of your income, lock them up. If you live outside of your means, recreate your budget so you can afford your expenses.
Save Early and Often
Even when it feels like you have only pennies to save, do it. Every penny you save now will be worth more tomorrow. The longer you can keep the money put away, the more it will grow. This is the best way millennials can save for their big goals, like buying a house or retiring early.
Don’t go House Poor
Even if you have a great down payment, don’t go house poor. Only buy what you need and spend what you can afford. Constantly chasing your tail to keep up with your mortgage payment doesn’t lead to a happy or financially peaceful life.
The millennial wage gap is a real thing, but there are plenty of ways you can do deal with it. Be smart about how you spend your money, fill the income gaps by freelancing or taking on a second gig, and save as much money as you can.