To Extinguish Generational Inequality, Start by Understanding Diversity

Through no fault of their own, Millennials are coming of age in a time of uncertainty—and inheriting an economic mess. The precariousness unleashed by the Great Recession of 2008 has made navigating the road to adulthood more arduous, reordering aspirations and complicating life decisions. The combination of stagnant incomes, rising debts, and eroded assets is dramatically altering the prospects for an entire cohort of Americans, and setting up a generational reckoning that may trigger a revisiting of the terms of the social contract.

Crucially, Millennials’ issues are everyone’s issues. They’re not just the future—they’re already here, the largest generational cohort (or they soon will be, depending on which cut-off date you use). They’re the young adults powering our workforce. They’re the people deciding if, when, and how to start families, and assuming responsibility for raising the country’s most prized resource: the children of the next generation.

Despite this outsized role, though, there’s a growing disconnect between the conditions facing this cohort on the one hand, and prevailing public policy on the other. Individuals are increasingly saddled with risks that had previously been collectivized, and the economy is seemingly erecting roadblocks to financial security rather than opportunities to build wealth. This misalignment between social policy and generational experience, which threatens to undermine the potential of an entire generation, becomes even more critical when you consider the defining feature of Millennials: diversity. As society attempts to grapple with the present and future of this generation, it must bring any social policy ambitions in line with the reality of unprecedented diversity.

The Flip Side of Diversity’s Promises

While Millennials share cultural touchstones and experiences that make them distinct from older generations, broad generalizations about their preferences and behavior will likely miss their diverse experiences. In fact, the Millennial generation is more ethnically diverse than any previous generation in U.S. history. Forty-four percent of Millennials identify as something other than non-Hispanic white, greatly exceeding the minority share of previous generations. Millennials are serving as the bridge to a more diverse America. While older Americans—those over 55—are 75 percent white, this percentage drops to half for children under the age of 5. In the near term, the working population will increasingly be made up of people of color, while the nonworking population will be overwhelmingly white Baby Boomers. In the long term, this new demography will undermine generalization and remake institutions.

Unfortunately, this diversity has become a foundation for an experience of rising generational inequality, with the reality of an older, whiter America contrasted with more diverse rising generations. To acknowledge this diversity is to acknowledge that the experiences of Millennials of color are particularly distinct—and perilous. According to the Black Youth Project, led by the political scientist Cathy Cohen at the University of Chicago, unemployment rates are substantially higher, living in poverty is more prevalent, and experiencing violent crime is more likely for black American and Latino youth than for their white counterparts. In this light, examining differences among demographic groups ought to be an essential component of any generational analysis hoping to point the way to a coherent, effective policy response.

Indeed, a deeper dive into the dynamics of being both young and a member of a traditional minority group reveals a uniquely pervasive disparity in a range of socio-economic indicators.

Let’s take a closer look at wealth, for instance. After years of decline, in 2016, the median household net worth for all families—the difference between families’ gross assets and their liabilities—rose to $97,300, which is 16 percent higher than the 2013 figure of $83,600, after adjusting for inflation. Median net worth is still 30 percent below the 2007 peak. Young families didn’t fare as well: The median net worth for families headed by a person under the age of 35 is $10,900, which is $8,000 less than it was in 1995, a 41 percent decline in 2016 dollars. The plight of young families should be especially concerning: Even though we expect wealth to rise with age before plateauing as people leave the workforce, the impact of sustained low wealth holdings can be severe for young adults since it corrodes their ability to manage debt and build assets.

This picture gets even bleaker when you look at how young people of color have fared in the economy. The enduring racial wealth gap has widened significantly over the last decade. The median net worth of non-Hispanic white households was approximately 9 times the net worth of black and Latino households in 2016–$171,000 versus $19,000, according to the Federal Reserve Board’s Survey of Consumer Finances. This makes the racial wealth gap larger today than it was in the early 2000s, when the average non-Hispanic white household had “only” 6 to 7 times the wealth of the average Black household.

This isn’t to suggest that entering the workforce during a time of stagnant wages is a recipe for widely shared financial success. However, the obstacles are especially daunting for young people of color. When looking across all Millennials, aged 18 to 34, they earn 20 percent less than Baby Boomers did at the same stage of life. Yet black and Latino households earn 74 percent of the median income, creating additional barriers to long-term financial security.

Securing the Future of a Diverse America

So, how even to begin extinguishing the growing inequality beleaguering Millennials? One place to start: homeownership. The generational gulf is driven in large part by disparities in homeownership, for both young adults and people of color. For decades, this was how the majority of (white) American families traditionally built their wealth. Discrimination by banks and early federal homeownership was made illegal by the Fair Housing Act of 1968, which was passed 50 years ago in the days following the assassination of Martin Luther King, Jr.

Modest gains in minority homeownership followed, and gained stream along with rising housing prices and ownership rates. Unfortunately, less attention was paid to policing the financial services marketplace, which allowed predatory lending practices and poor mortgage underwriting to spread without oversight. The housing boom burst with the advent of the Great Recession, wiping out significant assets on the family balance sheet.

Unsurprisingly, these losses weren’t distributed evenly. Two demographic groups were hit hardest: the youngest adults, and families of color. As the housing market collapsed, black homeownership rates fell more than non-Hispanic whites, and black homeowners saw their houses lose more value. Last year, the homeownership for black American households was 28 percent lower than it was for non-Hispanic whites. Many of the gains in black homeownership since the Fair Housing Act was passed have been erased, leaving a pernicious racial wealth gap. Additionally, declines in homeownership have been most pronounced for younger black American households. According to the Urban Institute, the homeownership rate for black 35- to 44-year-olds fell from 45 percent in 1990 to 33 in 2015, lower than the black homeownership rate in 1960. On top of that, in recent years, only 22 percent of older black American Millennials, aged 24 to 34, were homeowners.

Reversing these declines will require concerted policy efforts and a multi-pronged approach. For instance, policymakers will need to balance the objectives of making sure mortgage credit is available to borrowers who are ready to become homeowners and can stay current repaying a loan.

In addition, regulatory oversight of the mortgage marketplace will need to be strengthened so that families are protected from predatory products. This was the mandate of the Consumer Financial Protection Bureau (CFPB), created in the aftermath of the financial crisis, but it’s since come under political attack largely by conservatives in the legislative and executive branches of government, when the CFPB ought to be protected.

Another challenge to address is ensuring that there’s a sufficient supply of affordable homes accessible to first-time buyers with modest resources. In some cases, it may require expanding the models of housing ownership, to include cooperatives and shared-equity projects. These arrangements, along with protections for renters, can offer some of the benefits of ownership while also expanding choices in tenure in ways that might match the preferences of a larger number of Millennials.

The young and diverse families that make up the Millennial generation won’t be able to advance down a wealth-building path without stable and rising incomes, which is a first step to building credit, reducing debt, and saving for a downpayment. If the rising cohort of young adults, especially those from historically disadvantaged groups, can’t improve their balance sheets by increasing their savings and lowering their liabilities, they won’t be able to move up the proverbial economic ladder.

Absent a concerted policy response, the current trends in homeownership and wealth-holding will deepen the Millennial racial wealth gap for years to come. If we don’t respond to the particular economic needs of young Millennials of color, inequality in America will only get significantly worse.

We invite you to take part in New America’s Millennial Public Policy Symposium on April 26, which will elevate new perspectives on some of the most pressing public policy issues of our time.