The Rich Shall Inherit the…Wealth (Wait, Is That How It Goes?)
This is the second of a twelve-part blog series that tackles the obstacles to wealth building that Millennial women face over their lifetimes. The goal is to unpack the forces that create the wealth gap for Millennial women and point to both practical advice and policy suggestions that can help create a more stable economic future.
A recent edition of Refinery29’s Money Diaries featured an anonymous 21-year-old marketing intern who makes $25 an hour and lives in New York City. At first, it seems like her story will be that of a struggling Millennial trying to get by on $747.50 weekly paychecks in one of the most expensive cities in the country.
But, she quickly discloses that her parents not only pay her rent, cell phone bill, educational costs, health insurance premiums, and monthly Netflix subscription, but they also give her a monthly allowance of $800 on top of the $300 check her grandfather writes her every month.
Suddenly, we don’t feel so sorry for this intern.
Reading through her diary, it’s clear that this money—passed from multiple generations to the next—covers her basic needs so that she can use her weekly income to finance Whole Foods grocery trips, yoga classes at Equinox, weekends with friends at the Hamptons, and Uber rides. While the anonymous intern chalks it up to being #blessed, other folks have argued that her “money diary” is a clear example of “financial privilege.”
This intern’s week-long financial recount is an interesting peek into the ways money from previous generations ends up in Millennial bank accounts. This flow of cash—from grandparents and parents to their young adult children—happens more than you might think. Recent data suggests that 53 percent of Millennials rely on financial assistance from their parents or family members to make ends meet. But, what does this “financial assistance” look like?
- Recent data suggests that more than 60 percent of Millennials between the ages of 19 and 22 received some financial help from their parents for their education, whether that be for tuition, room and board, transportation, books and supplies, or other costs. When it comes to who makes up this 60 percent, data shows that women get less financial help for college than their male peers, which means that they must finance their education through a mix of scholarships, loans, and job earnings.
- Upon graduation, many Millennials—and their families—must reckon with steep student loan debt, which has surged in the past few decades. According to Brookings, less than 5 percent of graduates had balances above $25,000 in 1990, but in 2014 that number grew to 40 percent. Loan debt is also on the rise for people between 45 and 74 years, in part because these borrowers are taking out loans to help their Millennial children and grandchildren. Student loan debt is now becoming a family affair, siphoning away money that could be used for retirement or other savings.
- Millennials must contend with the increased cost of living and decreased wages and net wealth since the Boomer generation—likely their parents’ generation. So many Millennials may be staying on a parent’s family cell phone plan, getting health insurance through their parents, receiving supplemental income to help with rent or monthly bills, or having parents or other family members cosign lease agreements, even after they start working, because their incomes are insufficient to make ends meet.
The transfer of money, assets, and benefits from one (older) generation to the next (younger one), provides an important economic safety net to those on the receiving end. As illustrated by the Money Diaries example, with the economic support from her family, this young woman is not struggling to survive on her intern salary. What’s more, Millennial recipients of intergenerational wealth are more likely to be set up for future financial success because these wealth transfers produce a cascading effect. Millennials who get help with educational costs from their parents will have more income to put towards savings or investing once they enter the labor market. Millennials whose parents pay their rent, like the 21-year-old intern featured in Money Diaries, are better able to pay off student loans, invest in a 401(k) plan, or accrue assets that will help them build wealth over time. And the benefits go on and on and…
In contrast, those Millennials who don’t receive financial assistance from family members can fall further behind. For example, not only do Black women graduate with more debt than their male counterparts but they are also less likely to receive family assistance with student loan costs just because they are women. Their higher debt load may be compounded by the fact that, overall, Black women are only paid 63 cents for every dollar paid to white, non-Hispanic men, which makes them disproportionally feel like their educational debt makes paying for day-to-day expenses difficult. The end result: Millennial women have zero dollars in median wealth (yes, you read that right), and Millennial women of color are at an even greater disadvantage.
Highlighting which Millennials have access to parental financial support—and which parents have the financial support to give—is key to understanding how the wealth gap and intergenerational wealth are interconnected. It’s important to understand that the intergenerational transfer of wealth each month enjoyed by the Money Diaries intern would not have been possible if the intern’s family had not benefited from “boosts and blocks” to wealth-building over time. Unfortunately, many families—especially lower-income families and families of color—were not able to access these same financial supports.
For example, the legacies of slavery and Jim Crow precluded Black and African American families from owning homes, starting businesses, or participating in other wealth-building activities, while simultaneously allowing white families to profited from slave labor, sharecropping, and low-wage work of men and women of color. Entrenched residential segregation and underfunding of Black schools, threats of violence, and other forms of intimidation further worked to prevent Black families from accessing wealth long after the formal end of slavery and Jim Crow. But, during this same period, white families were able to pass on their wealth to their children, allowing the racial wealth gap to widen over time. At present, Black families have an average net worth of $11,000. which is just a small fraction of the $134,000 in net worth, on average, of white families.
But this isn’t just a Black/white issue. Asian and Latinx immigrants have also faced blocks to building wealth. U.S. immigration policies have limited how many immigrants can enter the country and from where, in part because some populations are wrongly viewed as a threat to white workers and their families. Recently, folks have been connecting the dots between Trump’s current rhetoric on Latinx immigrants to the 1882 Chinese Exclusion Act, which prevented Chinese immigrants, who had come to the U.S. during the Gold Rush, from obtaining U.S. citizenship for ten years. Without citizenship, these workers could not buy property or other assets that would help them build long-term wealth to pass onto their children. The legacy of this exclusion continues today, as Asians have become “the most economically divided racial or ethnic group in the U.S.”
Asking how intergenerational wealth has been built—and by whom—over time gets us one step closer to better understanding that some Millennial women today are on more solid financial footing than others based on their race, class, and gender. The shameful legacy of financial inequality persists today, and women of color and their families have less wealth to invest in the next generation.
There are policy solutions that can work to close the wealth divide plaguing the Millennial generation. Fixing the tax code and closing loopholes to benefit more Americans would be a good place to start. For example, lowering the estate tax exemption from $11.2 million back to the Obama-era $5.6 million would raise federal revenues for national priorities like health care, social programs, and infrastructure. This tax only affects 0.2 percent of the wealthiest Americans. Raising or repealing the estate tax (which Congress tried to do late last year), leaves large amounts of wealth untaxed—and free to pass down to future generations who already have access to wealth and resources.
Much can be done to stop the vicious cycle of policy choices and practices that have prevented women and families of color from building wealth at the same rates as men and white families. This work is imperative for gender justice because this disparity not only affects the wealth-building potential of Millennial women but also affects which Millennial women can depend on familial financial support to survive.