Wall Street Frets about its Nightmare Generation

Turns out, to the greatest consternation of some folks on Wall Street, millennials are smart.

“They don’t trust the stock market,” Goldman Sachs determined in a survey. Only 18% thought that the stock market was “the best way to save for the future.” It’s a big deal for Wall Street because millennials, having surpassed the baby boomers, are now the largest US generation – and the future source of bonus checks for Wall Street.

“Millennials will become the most important financial generation in America, and the industry will have to adapt to meet their needs,” the report warned.

The older ones in the cohort have seen the market soar, collapse, re-soar, re-collapse, re-soar…. They’ve seen what amount of monetary gyrations the Fed undertook to re-inflate stocks this time around. They’ve read about the stock market scandals and manipulations, high-frequency trading, dark pools, and spoofing. They’ve seen that the little guy gets mauled, that you can make a ton of money if you get in at the right time and get out before it’s too late. They’ve seen hard-working people get wiped out. They’d rather play with their apps than mess with that infernal machine.

But they do have a problem, smart as they are: they’re carrying on their shoulders a good part of the $1.2 trillion of student debt outstanding. In 2004, Americans under the age of 30 had $146 billion in student loans, according to Equifax. By 2014, in just ten years, the student-debt burden of the under-30 cohort had skyrocket by 152% to $369 billion.

Delinquencies are rising. Some of the millennials have gotten caught up in the for-profit-college scandals that have left them with lots of debt and little education. Now they’re waiting for a taxpayer bailout. It has been the school of hard knocks for them.

But there are consequences. Equifax determined in its analysis that millennials aren’t borrowing money to buy homes like their predecessors a decade ago did – “a trend that may have as much to do with high levels of student debt and poor job prospects as it has to do with trauma from the housing bust….”

The analysis also confirmed our suspicions that those earning less than $30,000 per year – so for example, lawyers working as bar tenders – face the highest risk of delinquency. Then with each $10,000 increase in income, the delinquency rate drops by 20%. A “phenomenon that demonstrates the strain student debt puts on young consumers starting their careers,” as Equifax put it.

Unlike their predecessors, millennials still have trouble staying current on their student loans as late as four years into a job, which is where the delinquency rates of their predecessors began to improve.

And given these realities, millennials are establishing a new trend: they’re not piling on mortgages. In 2006, 33.2% of their predecessors under 30 who had student debt also had mortgage debt. By 2014, just eight years later, the number plunged to 20.9%.

But it’s not just the additional burden of student loans; even Millennials who don’t have student loans aren’t borrowing to buy a home: In 2006, 29.6% of Americans under 30 without student loans had mortgage debt. By 2014, their number dropped to 21.7%.

When the New York Fed asked renters in its Survey of Consumer Expectations why they hadn’t bought a home yet, for crying out loud, 55.7% responded: “too much debt/not saved enough.” The problem is only getting worse. With rents rising sharply, with incomes nearly stagnant, and with home prices soaring, renters won’t be able to save up enough  money for even a puny 3% down payment. Just one of the many distortions Housing Bubble 2 is leaving behind in its wake.

Equifax data suggests that the conventional theory – millennials are the rental generation and uninterested in home ownership – is only a part of the story,” Dennis Carlson, deputy chief economist at Equifax, said. “Importantly, large amounts of student debt and less than stellar job prospects for recent college graduates make the dream of home ownership shine less brightly than in the past.

So they don’t trust the stock market, and they’re not borrowing money to buy overpriced homes either, even with interest rates at historic lows. They’d rather rent, remain flexible, live in urban centers rather than distant suburbs, and do their thing. The perfect nightmare generation for Wall Street.

Why does this economy “feel” so much worse than the overall economic numbers, lousy as they are? Because we get hit by per-capita reality. Read…  Why This Economy Feels So Lousy

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  23 comments for “Wall Street Frets about its Nightmare Generation

  1. NotSoSure says:

    I would not characterize them as smart. It just sounds like they don’t have discretionary income. Your “smartness” also seems to depend on how closely related you are with your employment in certain industries like tech.

    I actually just came back from grad school, a 30 plus old guy mixing with millenials. And trust me they all believe the hype when it comes to the tech nirvana. Facebook is known to give interns a 100K signing bonus if said interns accept their offer for full internship and you would not believe how many of them actually believes that the manna will flow forever. The professors and myself usually just nod and wink at each other.

    • NotSoSure says:

      Sorry a correction: …. if said interns accept their offer for full employment …

  2. VegasBob says:

    In 1925, Mohandas (aka Mahatma) Gandhi published a list of “Seven Social Sins.”

    I’ve inserted the complete list below.

    When I survey what has happened to this country over the past 60 years, Wall Street always seems to be first on the list of my musings. In my humble opinion, Wall Street’s ongoing behavior is a daily reminder of Gandhi’s first Social Sin – Wealth Without Work. And Wall Street exhibits characteristics of most of the remaining 6 Social Sins.

    Here is the entire list:
    1. Wealth without work.
    2. Pleasure without conscience.
    3. Knowledge without character.
    4. Commerce without morality.
    5. Science without humanity.
    6. Worship without sacrifice.
    7. Politics without principle.

  3. Pavel says:

    Good piece as always, Wolf. Note a few other generational changes that will impact highly on existing US social and economic trends:

    — a generation without landlines or cable TV
    — a generation which gets its entertainment via phone, laptop, internet and binging on netflix. No allegiance (or even knowledge) of ABC, CBS, NBC or watching weekly sitcoms
    — a generation with little interest in owning cars, and many of them apparently don’t even have licenses. Contrast this with the earlier kids whose lives revolved around the car. And no car = no suburban life, no shopping center visits.

    Big shifts ahead.

    • Wolf Richter says:

      I totally get the no-landlines no-cable-TV thing. I’m one of those damned cable cutters :-)

      • d says:

        No land lines,

        No cables,

        No personal occupation property taxes.

        But they always get you on something.

        $250 A year mooring license fee. Which also cover a parking space for the motor-home.

        But it is easier than playing the game of Anchoring the Boat in a slightly different place every few days and all the aggravation that goes with not having a permanent parking space for the Motor-home.

  4. MC says:

    The world has a huge problem.
    The consumption-based model we’ve relied upon for the past twenty years to provide “growth” requires good salaries. So far, so good: China and India have come to the rescue with cheap trading goods, monetary policies have allowed consumer credit to boom and long-lived Baby Boomers and their children have been courted at every turn to buy the latest “must have” product.
    But the cogs are stopping grinding: so called Millenials are, by all accounts, poorer than their parents. They have far less disposable income. To make matters worse having to deal with lower wages since they started entering the job market means they’ve developed a consumer culture of their own that does away with big ticket items.
    For old nickel-dimers such as myself coughing up €600+ for a cellphone is madness pure and simple but buying such a phone every two-three years, perhaps on credit, is far far cheaper than buying a motorcycle or a boat.
    Millenials may not seem “smart” on the surface but their consumer culture is actually pretty ingenious: it gives them the illusion of prosperity on the tight budget provided by modern entry level jobs. Steve Jobs was nothing short of a genius for sniffing out this change in consumption and betting his company’s future on it. Traditional companies, such as BMW, may bask in the dying twilight of Baby Boomers buying convertibles and motorcycles by the dozen to feel young again, but the future belongs to visionaries who can take up Jobs’ mantle. Millenials won’t be able to afford a Z4 for a long, long time.

    As we say around here, Millenials are making a virtue out of necessity. Renting may be due to not been able to affford a mortgage, but it affords far more mobility than being tied for thirty years to a piece of real estate left to the vagaries of fate and central banks’ whims. There’s a better paying, steady job 200 miles away? You just talk with the landlord and move on without having to worry about having to shift a house or dealing with the mortgage.

    Of course Wall Street doesn’t like these people. AAPL may be fine and good, but what about those loans to be sliced, diced and mixed to sell to investors desperate for yield? What about car sales? What about all those companies manufacturing big ticket items or supplying components and services to them? What about hotel chains? What about now booming luxury brands? What about eternal financial serfdom?

    In a way it can be said the multinational banks and corporations we collectively call “Wall Street” regardless of where they are based collectively shot themselves in the foot for creating the conditions Millenials have to deal with. A little greed is all fine and good, but you don’t kill the goose which lays the golden eggs to maximize profits in the next quarter.
    They’ll have to deal with the consequences: over the next decade Baby Boomers will all be either dead or retired. Unless there’s a change in monetary policies, they’ll have to buy financial junk just to feed Mr Friskies. Buying BMW’s and vacationing in luxury hotels will be completely off the table as medical costs spiral out of control.
    My generation is already feeling the strain and won’t take up the mantle. Many of us had or are having children in their late 30’s if not early 40’s and caring for them in face of the coming storm will be our top priority for many years to come, not fattening corporate profits by buying cars we don’t need or propping up a housing market long for a very painful correction.
    That leaves Generation Y and Millenials. In my opinion both are far smarter than they look and seem to buy far less into the economic propaganda which still has such a tight grip on my generation in face of one catastrophe after the other.
    Sometimes I like to think they are far better than us and perhaps will forgive us for leaving them neck deep in this mess.

    • d says:

      I dont live in America or have enough money for this.

      Upmarket motor home (Not trailer) Parks/Parking buildingd’s. Which also sell upmarket motor homes 150K +.

      US Millennial are not far from some of the upmarket (Grey nomads) in Australia who rent out their urban dwellings and travel Australia and other places on the proceeds in upmarket motor homes. Except they as yet do not have Motor-homes.

      There is no reason (or regulation that could no be dealt with) modifying or building, good quality secured parking buildings, with serviced spaces for these vehicles, close enough to the work centers frequented by Millennials is not viable. It just hasn’t been done yet, possibly as it is a business Investment (With all the risks that go with it). Not a fly by night get rich quick, paper scheme.

      The Millenials you describe are modern Nomad’s (Go to the work), who rent their tepees, instead of bringing them with them.

      150K plus Motor-homes are still an investment, and in some country’s, still a common stepping stone to a brick house.

      150K Plus Motor-homes are above the “urban blight trailer park” and have greater self determined mobility than a trailer home.


      150k is relevant value in AU and NZ, of a good quality Motor home 2 people can live in, with not much less space than a lot of small NYC apartments, values may differ in the US market.

  5. ERG says:

    Nice comment VegasBob.

    It all boils down to one phrase: TANSTAAFL.

    Anyone remember this? Millennials and everyone else would do well to know it, understand it, and lives their lives in accordance with it.

    There Ain’t No Such Thing As A Free Lunch

  6. Petunia says:

    These kids, the ones from the middle class, not the affluent ones, aren’t stupid at all. The financial crisis has been a life altering experience for them just like the ones who lived through the great depression. They saw their parents, good people, lose their homes, savings, retirement, everything.

    They are more politically aware than you imagine because they have to be. What they are is disconnected from the govt and centers of power. They look at govt and Wall St. as the cancer that is destroying the country. Most of them expect to have a future away from America. Why engage in a society that doesn’t care about you? At the very least they will create a segment of America that functions much like an immigrant community, detached and unaccountable.

    • PotemkinCity says:

      Coming from a early 20s male, my personal anecdotes match a lot of what you say. My class is mostly resigned to easily-disposable, low pay, low benefit, meaningless jobs. If you are lucky to find jobs at my age that are high-pay they usually destructive to society or the environment (i.e. healthcare, insurance, banking, oil drilling, resource extraction). Our success is not for a lack of trying. Many of us are college educated like we were instructed to become (that was a scam). Many of uswork 2 jobs trying to get ahead. Many of us have completed unpaid internships to get a foot in the door. Ultimately, the corporations that run this country and buy the government are taking advantage of us like they do of other vulnerable populations–using us and then throwing us away when we are inconvenient to them.

      We are cynical. We don’t really trust politicians and other bureaucrats. The fault my generation I personally believe my generation has is that instead of challenging the injustice (political, economic) we run from it or distract ourselves hoping it will go away (cellphones, internet, videogames). We have more individualist values than generations before and have less practice working together. It doesn’t help that our country now represses peaceful protest, either.

      We are a sleeping giant, a potential nightmare to bankers and kleptocrats, IF (big if) we are ever to organize.

      Also, Petunia, I just want to thank you for your insightful comments. I too live in Orlando and have noticed many of the disturbing trends: the developments built that no family can afford, families doubling up in housing, collapse in retail, etc. Whenever I point them out to people not affected by them I am dismissed with a hand wave and a over-simplified explanation. It is great to be affirmed by someone else. The constant gaslighting has sometimes made me wonder if my observations are all in my head.

      • Adam says:

        Great comment PotemkinCity. I would just say that making an organized resistance falls into the trap of collectivism. If we believe we need a large group and strong leader in order to make any real change, you start relying solely on that person and much less on individuals working together.

        The goods guys will win, but it will be through decentralization, not centralized organization against TPTB. America becoming a nation of self sufficient farmers learning valuable trade skills will bring down the corrupt system much faster and more efficiently that trying to bring about organized resistance in the confines of the existing system.

      • Greta B says:

        Thanks for your post, Potemkin.
        The corporations and bloated governments will get what they deserve: we all leave their table. I read somewhere that the average tax paid by a US regular citizen was $9,000. HA, HA.
        I’m over 60 and pay nothing because I make so little money. Insolvent = mission accomplished for the banksters. Although I’ve read that the feds run on black op money, there aren’t enough heroin users in the world to provide the income they need desperately.

        Keep on your path, Millenials, and know that they need us more than we need them…all any of us need to do is wait this out, without panic or fear.
        PS in my area in the west, they are manically building housing too—but there’s no work.

  7. Mark says:

    I’ve dealt with a lot of Millennials over the years with my store. They are lazy, stupid and expect everything to be handed to them on a silver platter without working or earning it. I wouldn’t call that smart i’d call that stupid.

    They think they are bucking the system, when they are really a part of it. As is the case with them Renting instead of buying a home. They are not buying because they don’t have the money ! They don’t invest because they don’t have the money ! Plain and simple.

    Bottom line if this generation had the funds of previous generations, nothing would have changed in terms of spending habits. They would have gone out and bought over priced homes, clothes, tech, cars, etc.. etc.. etc..

    Tell the author of the article to do a direct comparison of Millenials who make 100,000 a year to the ones who don’t and see the difference. Article is misleading.

    Another example. With Acting. Today’s Millennial actors can’t act for beans. They want the fame, the money without doing the work of learning their craft.

    Another one. In the music industry. Today’s Millennials can’t sing, or play an instrument, instead they sit in front of their Crapple run their voice through a synthesizer and play beats. They want the fame, the fortune without going on the road, touring 300+ dates a year, or learning the songwriting craft. Just look at the average age of the alumni list of the Berklee school of music.

    If anything Millennials are exactly like wall street. They want the money without doing the work. And people wonder why society is falling apart. And the same can be said for their relationships.

    Who to blame? Bad parenting, bad education system.
    Garbage into the system = Garbage out of the system.

    • Mark says:

      Actually I take that tech part back. Maybe if they didn’t spend 800 dollars for a crapple smartphone and an additional 500 a month for the smartphone plans then maybe they would actually have money in their pockets ! I have seen so many of them laugh at their 400-800 dollar a month smartphone bills.

      • Petunia says:

        I posted a comment previously and I was deliberate in separating the affluent millennials from the middle class/working class millennials. Just like their parents, the affluent ones are not aware that there was a financial crisis. They still live well, go to private schools, have cars, and expensive phone planes. The others know what is like to lose your home and get the lights turned off. They have smart phones that are not so great but can cost as low as $30 a month. It scares me more that the commenters here don’t know the difference.

  8. Sabbie says:

    Perhaps they know that The Powers That Be have written off the American lower and middle class moving forward. We can no longer sustain them, the TPP crowd have set their sights on the global consumer and worker. American execs producing products in Ethiopia for consumption in China while paying their taxes to Ireland. And with the crony politicians passing laws that make it hard to compete, that leaves too few jobs for too many people, and not enough money to put the rest on welfare. It’s going to get interesting.

  9. Julian the Apostate says:

    Well, Vegas Bob, 6 out of 7 ain’t bad. I reject #6 on principle, as I don’t worship and don’t believe in sacrifice. People often misuse the word. If you value your country more than your life, that is not a sacrifice. If you value your life higher than your country, it is. I believe in trading value for value. Mark, you are right on. Seen from the blue collar world, with allowance given to the few millennials who are exceptions, most of them would not be in the trades if they had to work as hard as I did when i got into trucking. But with society punishing the ones who stand out I can’t say I’m surprised. The blue collar trades are aging, and in another ten years we’ll be replaced by smart bots anyway. Petunia has a point as well, however, as her expertise is in IT and that’s where these youngsters want to be.

  10. Michael Gorback says:

    I don’t think the Millennials know enough about the stock market to have a valid opinion. I try to talk to my twenty-somethings about finance and their eyes glaze over. They hate even thinking about it and beg me to stop bringing it up.

  11. Natalie says:

    The phone comments make me laugh. I don’t know anyone who pays more than $100/month for a decent, operable phone plan. I’m a millennial, and so is my husband. My husband is a bit older and was laid off in the last downturn. We pay quite a bit for our phones because instead of going and applying for new jobs, my husband created his own business. He now employs 2 other people and uses smartphones / data technology to run his business. This is the world in which we now live. In order to compete, he has to pay more money for smartphone technology. I pay quite a bit of money for my phone as well, but it allows me to check mail and access the internet from home, eliminating my commute two days per week.

    I like reading this blog because it gives me ideas about how to find ways to beat the system. Ideas: ELIMINATE cable TV, which was created to separate hard-working and otherwise smart people from their earned money; EAT AT HOME instead of eating at overpriced eateries; DRIVE OLD CARS and maintain those vehicles well so that we don’t have to replace them every 5 years (we drive cars that are both 15 years old;) GO OUTSIDE instead of spending every weekend in a big-box store looking for things to charge to our plastic cards; and my personal favorite, FIND FREE SHIT TO DO like going for walks, using the public library, going to the park, spending time with an aging family member, sending someone a letter, enjoying a cup of coffee on my porch, or better yet, taking a nap. I feel like I will never be able to overthrow Wall Street or the massive consumerist machine that is America today, but there are small things I can do to reject the status quo. And every small step I take to reject mainstream over consumption makes me feel just a little bit better about the life I choose to lead.

    This is my favorite SNL commercial featuring Steve Martin. Sums it up pretty nicely. :-D


    • DD says:

      At 38, I’m a little outside of the millennial bracket (I have a millennial sibling,) but I can relate. I’m fortunate enough to own a reasonably successful business in TV, and it was built off of my knowledge of techie gadgets, even though I’m not a trained computer person. I also look for ways to not be a part of the spending machine, like cutting the cable chord, and, by living in-close in Portland, we find lots of non-commercial things to do, even though I can afford a pretty nice consumer life…not that I’m perfect in that regard.

      I think Wolf is right. To lots of millennials, it’s not necessarily cool to be up to the eye balls in debt (except maybe for student debt,) and it’s really going to change the economy. I make six figures, and I still don’t own a house, although that may change when the next collapse happens.

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