Net worth of millennials has quadrupled: Why some call it ‘phantom wealth’ and How much money do millennials really make?

Millennials have come a long way since their days of being called lazy or entitled. Despite reaching key milestones later than their parents once did, they are now wealthier than previous generations were at their age.

“Younger families in the U.S. made remarkable gains,” according to an analysis of 2022 data by the St. Louis Federal Reserve.

Collectively, millennials are now worth about $15.95 trillion, up from $3.94 trillion five years earlier, according to Federal Reserve data. 

Still, very few millennials would consider themselves wealthy. The disconnect between being rich on paper and feeling well off has been referred to as “phantom wealth.”  

For example, gains in the value of a home or a retirement plan can feel like phantom wealth because they are illiquid and have no bearing on day-to-day cash flow. 

Boosted by a strong jobs market and rising wages, many in this age group have purchased homes and benefited from soaring home values. To that point, the St. Louis Fed report found between 2019 and 2022, home prices jumped 44%.

Largely driven by real estate gains, the “median wealth of these younger people more than quadrupled” during this three-year period, the report said.

Net worth of millennials has quadrupled: Why some call it ‘phantom wealth’ and How much money do millennials really make?

However, homeownership does not offer the same sort of safety cushion other investments do, noted Michael Liersch, head of advice and planning at Wells Fargo.

“Unless you are willing to downsize, you are really not going to monetize the increase in that asset,” said Liersch, especially in the case of a primary residence. “Millennials, in particular, haven’t been able to use that wealth.”

Millennials have ‘phantom wealth’

“Phantom wealth is a nonsensical term: assets either exist or they don’t,” said Brett House, an economics professor at Columbia Business School. However, there is a very real phenomenon at work.

As it turns out, “millennials experienced a sharp swing in their relative standing,” the St. Louis Fed report found.

The median wealth of older millennials, between the ages of 36 and 45, was 37% above expectations. The wealth of younger millennials and older Gen Zers, or those aged 26 to 35, exceeded expectations by 39%.

Compared with other generations, millennials are also more likely to say that their income went up over the last few months and that they expect their earnings potential to increase again in the year ahead, according to another report by TransUnion.

But even as households became wealthier, inflation and instability have left more people in the bucket of so-called HENRYs — “high earners, not rich yet,” House said.

And “the ‘HENRY’ phenomenon isn’t limited to millennials or Gen Z,” he added.

“It’s harder for every generation to feel financially comfortable when the management of so much risk related to employment, healthcare, retirement pensions, insurance, and other components of economic well-being has been shifted to individuals during a period of rapidly rising prices,” House said.

‘There is so much more to achieve’

Many millennials also say it’s harder today to make it on their own than it was for their parents when they were starting out.

They have higher student loan balances, bigger mortgages and car payments, and more expensive child care costs, explained Sophia Bera Daigle, founder and CEO of Gen Y Planning, a financial planning firm for millennials.

“Cash flow has been tight,” she said.

That makes it more difficult to set extra money aside or make long-term plans, said Bera Daigle, a certified financial planner and a member of CNBC’s Advisor Council. “While they are making significant progress on reaching some financial goals, it still feels like there is so much more to achieve.”

However, feeling financially secure is often less about how much money you have and more about the ability to spend less than you make, experts say.

In part, higher prices have fostered the feeling of being overextended, according to CFP Kamila Elliott, co-founder and CEO of Collective Wealth Partners.

Elliott, who is also on CNBC’s FA Council, said clients often ask “Where is my money going?”

“If you feel like a lot of fixed expenses are going up, it may mean you need to cut back on the fun things,” she advised, such as eating out or taking a vacation.

“It’s going to take a little bit of an offset to have more money at the end of the month,” Elliott said.

Your income provides a way for you to pay for housing and food, save for retirement and meet other life goals. Some people are fortunate enough to be able to cover all their needs and wants with just one primary income source. Others, however, have to stretch each paycheck to cover their basic expenses. And according to a report conducted by the TIAA Institute, millennials are the generation most likely to face financial strain in areas such as paying down debt and saving money.

Millennials — classified by the Pew Research Center as people born between 1981 and 1996 — have gotten a ton of attention as a generation struggling to balance their lifestyle costs with their financial goals. And a large part of that imbalance could stem from not earning enough money to float their costs.

According to data from the U.S. Census Bureau, the median millennial household pretax income was $71,566 in 2020. However, a Sunmark Credit Union study on the spending habits of different generations found that millennials spend an average of $208.77 per day. This includes the average daily costs of groceries, housing, utilities, insurance, entertainment, eating out and more. That number works out to be $1,461.39 spent each week and $5,845.56 per month. But at the end of the year, the average person will have spent $70,146.72 — just under the median millennial income.

Spending almost as much as they earn each year means that there’s less room to save for emergencies or invest for retirement. But with the average cost of rent — millennials’ largest expense — weighing in at $1,584 for a studio and $1,636 for a one-bedroom in the U.S., many millennials find that their wages just aren’t enough to allow them to keep up with the costs of day-to-day life.

Factors affecting millennial earnings

The 2008 recession took a huge financial toll on millennials. A lack of jobs meant that fewer millennials were able to earn income or advance their careers, which set them back financially. In fact, a report from a non-profit group called the Young Invincibles found that the 2008 economic downturn cost younger workers an estimated $22,000 in lost earnings per person.

Even after out-of-work millennials finally landed jobs in the years following the recession, their salaries had decreased. The Hamilton Project, an economic analysis from the Brookings Institute, found that prior to economy-related job loss, millennials earned around $3,640 per month, which works out to be $43,700 annually. But two years after the recession hit, those who landed jobs earned an average monthly income of only $1,910 ($23,000 per year). Millennials have had to work their way back up from this staggering difference in earnings.

And while the 2020 COVID-19 pandemic had an effect that played out across all age groups, it seemed as if millennials took yet another hit, as they are the largest generation currently in the workforce. According to the Pew Research Center, 30% of Americans between the ages of 30 and 49 say that they, or someone in their household, lost a job due to the pandemic. However, it may still be too early to see the pandemic’s full impact on millennial earning potential.

How millennials can keep more of their money

While the issue of low wages may not be solved overnight, there are some ways millennials can go about retaining more of their money and adding new income streams. Side hustles have risen in popularity as a way for workers to supplement their income, save more and even have some extra spending money. And while the extra cash can go a long way, millennials may also consider cutting some “silent costs” that are eating up their money, like interest charges and recurring monthly expenses they may have forgotten about.

The Mint app can analyze your income and expenses and help you build a budget based on your spending patterns. This can help you uncover unnecessary or unwanted expenses so you can save some extra money.

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