Millennial wealth has quadrupled in the past few years, but many aren’t in a mood to celebrate.
The illiquidity of home equity and retirement savings are causing many millennials to write off the wealth as “phantom wealth,” according to CNBC.
Of course, there’s really no such thing as phantom wealth. You either own the asset or you don’t, and it either has value or it doesn’t.
But these millennials still have a point – cash flow matters.
Last week, I saw a carton of eggs at Whole Foods for around $10 a dozen. Setting aside the fact that everything is more expensive at Whole Foods, egg prices have more than doubled since this time last year, largely due to a bird flu epidemic.
The price of eggs stands out not only because it’s so shocking, but because eggs are used in so many other items that prices will surely spike elsewhere. Enjoy your cookies while you can!
Going back to millennial wealth, there are a lot of things going on here. First, my colleague at Pacific Research Institute, economist Wayne Winegarden, told me there are likely some really wealthy millennials skewing the data.
“If Bill Gates walks into a bar, the average person in the bar is a millionaire,” Winegarden said. “Not exactly helpful to most patrons, of course.”
There’s also any number of lifestyle choices that might have made some millennials “house poor.” In most instances, reducing spending on non-essential costs is a good place to start.
But essential household expenses have spiked too. My PG&E bill has exploded in the past few years, despite no rise in usage on my part, and certainly no improvement in service. The cost of food, gasoline, and basically everything else has spiked along with it.
Unfortunately, unlike eggs, there is no real substitute for many of my expenses. I have to heat the house – my toddlers insist.
In other words, many millennials don’t feel wealthy either because their assets are illiquid or because they’re actually just not wealthy, nevermind the macroeconomic trend. It’s the on-the-ground reality that often defies broader trends that might be correct but don’t tell the whole story.
For example: California has one of the highest average incomes in the country, which is great. But it also has one of the highest costs of living, which is not great.
Wages across the country are on the rise, which is great. But they have barely kept ahead of inflation, which is not great.
I’m reminded of the age-old talking point California governors of both parties love to use: California’s economy would be the fifth largest in the world if it were its own country, which it’s not.
Times are especially hard on Californians at the moment. We have the second highest home prices, one of the highest electricity costs, some of the highest rents, and weekly grocery bills, and overall tax burden, which makes it particularly annoying when Gov. Gavin Newsom avoids accountability by bragging about the overall state economy.
When you consider that California also has the highest poverty rate in the country – why is the size of the economy anything more than a piece of trivia? Does Newsom go to Skid Row and let everyone know the good news about Gross State Product?
Similarly, the Biden Administration touted stock market gains as inflation was wiping out wage gains and the purchasing power of the dollar. While I personally appreciate the value of my retirement investment accounts growing, those living paycheck to paycheck aren’t marvelling at the heights of the S&P 500.
Which brings me to public policy. There’s no easy fix to the Bird Flu epidemic ravaging the poultry population and driving up the cost of eggs. But California voters in 2018 voted to increase the cost of eggs with Prop 12, which added well-intentioned regulations on farmers.
Home prices in California are high. This is great if you’re a homeowner, but not so great if you’re looking to build wealth through homeownership. California policymakers absolutely refuse to revamp housing policy, particularly by reforming the California Environmental Quality Act, which would pave the way for the construction of more homes that aspiring homeowners could afford.
Also putting homeownership out of reach now are high interest rates. Rates are high due to many factors, like excessive and unwise federal spending driving inflation. There’s no switch to quickly stop inflation and drive down prices without triggering a recession, but it’s easy to identify ways the government could help — like knocking it off.
An entire text book could be written on how California policies are driving up the cost of gas. Unlike eggs, there is no adequate substitute for gas. Electric vehicles are not as easy to get as politicians would have you believe, electricity rates are spiking anyway, and going carless is only feasible in places like San Francisco.
I could go on. There are countless examples of how government policies are making matters worse.
Californians need to demand better from their government and not be satisfied with macroeconomic headlines that might be good in a way but are greatly diminished in context.
Matt Fleming is a columnist for the Southern California News Group.
