The millennial wealth gap

I was in a meeting this week when the subject of ‘millennials’ came up. And, shortly into the conversation, an awkward distinction of ‘old’ versus ‘young’ millennials occurred. The term millennial is often used to describe 20-somethings. But, in reality, the age group now encompasses those aged 25 to 40. And when you think about life’s journey, that’s a huge range and by no means a “one size fits all” generation.

For example, my sister is ten years older than me and still a millennial, yet her financial concerns are completely different to my own: a mortgage, two car payments, three kids and a dog. When she was my age she was already married, had earned a PhD, bought her first house, had her first dog and a baby. Needless to say, my experiences are very different to hers and that influences our relationship with money differently.

The pandemic has exacerbated the income inequality amongst millennials and the affordability crisis millennials were already facing pre-COVID in areas like home ownership. It’s well documented that millennials will struggle to catch up with previous generations but, instead of comparing millennials to Baby Boomers, for example, the millennial wealth gap explores this difference between the “millennial rich” and the “millennial poor” within the generation. Today, there’s a big difference between a millennial working in cloud computing versus one who manages a restaurant.

“The best time to buy a home is always five years ago.” – Ray Brown, Jazz musician

Millennials as homeowners

One report found that US millennials purchased homes more than any other generation in 2020*. It makes sense: millennials are in their prime home-buying years. And I expect it’s a similar picture in the UK – especially because they will have had the added bonus of the stamp duty holiday. But the same report also highlighted that 18% of millennials now believe they’ll never own a home and plan to rent forever*.

Time and time again we see that one of the biggest roadblocks to millennials buying a home – myself included – is the upfront cost of a down payment. According to the study from Apartment List, of millennials who plan to buy a home in the future, 63% don’t have a deposit set aside*.

The past year has also brought into question things like location. Will remote working continue, allowing a unique opportunity to access good jobs and affordable homes at the same time? If I could do my job from a farm in the middle of America, I would move tomorrow.

Saving for a house deposit

Lack of savings means many millennials turn to their parents or grandparents and over 20%* said they’re expecting down payment assistance from a family member. But not all parents can help and for some, it might mean withdrawing from their own pension or savings, which isn’t ideal.

So how do you save for a deposit and pay rent? Investing for your first home can be daunting but there’s no reason not to try. “Revisit your budget” is often overused when it comes to saving money but sometimes it’s not about cutting spending but reallocating it. For example, pre-pandemic I spent £2,300 a year on travel into the office and work related discretionary spending, things like drinks out with co-workers or a new dress. While I might have to build that back into my budget in a few months’ time, last year I was able to reallocate the money to paying off debt. Reviewing your budget doesn’t have to mean cutting everything out.

Find what you can and get started saving, soon rather than later.

Five global funds to get you started

Guinness Global Equity Income invests in approximately 35 equally-weighted stocks. The managers have the freedom to avoid entire countries and sectors if they don’t like their outlook. They look for growing, rather than high, income and their one-in, one-out philosophy means the fund stays up to date with the managers’ best ideas.

Rathbone Global Opportunities invests in undiscovered or out-of-favour growth companies. Comprised of 40-60 stocks the fund has no restraints on geography or sector within the fund, although it tends to stick to companies based in developed markets.

Aberdeen Standard Global Mid-Cap Equity invests between 40-80 medium-sized companies. The fund is designed for investors who have a lower risk appetite, but still like the growth profile associated with companies towards the smaller end of the market.

Fidelity Global Dividend is well-diversified and lower risk than many of its peers and may suit investors seeking a stable global income. When considering potential investment opportunities, the manager places a large emphasis on the sustainability of the dividend and whether the current share price provides an adequate margin of safety.

Lazard Global Equity Franchise can invest in any business around the world, but because the managers are looking for industry leaders, there is a natural bias towards larger-sized companies. The final portfolio will vary between 25-50 names.

*Source: Apartment List’s 2021 Millennial Homeownership Report, February 2021