What GAO found
Recent research indicates that, according to three key measures, economic mobility in the United States is limited. More specifically, the millennial generation (those born between 1982 and 2000) might not have the same chances as previous generations of doing better economically than their parents. According to studies reviewed by GAO, the share of people earning more money than their parents at the same age (absolute mobility) has declined over the past 40 years, and the chances of advancing in income distribution (relative mobility) have remained stable over time. . Using a third measure of economic mobility (intergenerational income elasticity), the researchers found that income in adulthood is related to the income of a person’s parents, and that between a third and two-thirds of economic status is passed on from parents to children. . This is especially true for the lowest and highest income groups. Researchers have also identified race and geography as key determinants of an individual’s economic mobility.
Members of Generation Y have a different financial situation than Generation X (born 1965-1981) and Baby Boomers (born 1946-1964), and in light of stable or declining economic mobility , there is uncertainty about their financial situation as they age. A data snapshot that allowed GAO to compare millennials aged 25 to 34 to the previous two generations at similar ages showed that millennial households were more likely than other generations to have a college education; however, incomes have remained stable over the three generations, implying that millennials have yet to benefit from the potential additional lifetime income earned by university graduates. Generation Y households had significantly lower median and average net worth than Generation X households of similar ages (see figure), especially among those with low net worth. The median net worth of the lowest quartile of Baby Boomers and Gen Xers was around zero, but it was significantly negative for Millennials, indicating that debt was greater than assets for the median low-net worth household . On the asset side, a significantly smaller percentage of Millennials owned homes compared to previous generations at similar ages, but had retirement resources at rates comparable to Gen X and Baby Boomers. Finally, millennials were more likely to have more student loan debt than their annual income. It remains to be seen how these factors will affect the financial situation of Millennials in the long run, including retirement.
Estimated median net worth of Baby Boomers, Gen Xers and Millennials in the 25-34 age group, in 2016 dollars
Why GAO did this study
The idea that individuals should have the opportunity to progress economically beyond the circumstances of their birth is a familiar part of the American Dream. In an economically mobile society, it is possible for individuals to improve their economic situation through effort, education, investment and talent. In addition to the opportunities offered by the private, public and non-profit sectors, the federal government also promotes economic mobility through many efforts, including supporting education, vocational training, incentives and business development and children’s health and well-being programs.
However, a recent survey indicates that in the past two decades or so, fewer people report being satisfied with the opportunity to get ahead by working hard. According to recent studies, the Millennials, who make up the bulk of the American workforce, report feeling overwhelmed by their financial situation and concerned about their future financial security.
The GAO was asked to examine trends in economic mobility and the economic situation of Millennials compared to previous generations. This report examines (1) what is known about intergenerational income mobility and (2) how the financial situation of Millennials compares to previous generations. To perform this work, GAO performed an extensive literature review and analyzed data from the nationally representative survey of consumer finances.
For more information, contact Charles Jeszeck at (202) 512-7215 or [email protected]