A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future releases straight to your inbox.
The wealth gap between wealthy millennials and the rest of their age group is the largest of any generation, creating a new wave of class tension and discontent, according to a recent study.
Even as the vast majority of millennials struggle with student debt, low wages for service jobs, unaffordable housing and low savings, the millennial elite is outpacing previous generations. According to the study, the average millennial has 30% less wealth at age 35 than baby boomers at the same age. However, the top 10% of millennials have 20% more wealth than the top baby boomers of the same age.
“Millennials are so different from each other that it doesn’t make much sense to talk about the ‘average’ millennial experience,” wrote study authors Rob Gruijters, Zachary Van Winkle and Anette Eva Fasang. “There are some Millennials who are doing extremely well — think Mark Zuckerberg and Sam Altman — while others are struggling.”
The study finds that millennials — typically defined as people between the ages of 28 and 43 today — have repeatedly experienced financial problems. As they come of age during the economic crisis, they have lower levels of home ownership, higher debt than assets, low wages and unstable jobs, and lower rates of dual-income family formation.
At the same time, the authors say the top 10% of millennials have benefited from greater rewards for skilled jobs. As they reported, “returns to high-status job trajectories have increased, while returns to low-status trajectories have stagnated or declined.”
Millennials who “went to college, got graduate-level jobs and started families relatively late,” ended up with “higher levels of wealth than Baby Boomers with similar life trajectories,” according to the report.
The great transfer of wealth
There may be another factor creating so much wealth among millennials: inheritances. In what is known as “the great wealth transfer,” baby boomers are expected to shed between $70 trillion and $90 trillion in wealth over the next 20 years. Much of this is expected to go to their millennial children. High-net-worth individuals worth $5 million or more will account for nearly half of that total, according to Cerulli Associates.
Wealth management firms say some of that wealth is already starting to trickle down to the next generation.
“The great transfer of wealth that we’ve all been talking about for the last 10 years is underway,” said John Mathews, head of UBS’ Private Wealth Management Directorate. “The average age of the world’s billionaires is almost 69 right now. So this whole transition or handing down of wealth is going to start accelerating.”
Tensions between the millennial classes are likely to escalate as more wealth is transferred in the coming years. Social media displays of wealth by millennial “nepo babies” could fuel intergenerational class warfare and lead non-wealthy millennials to overspend or create the appearance of luxury lifestyles to match.
A survey by Wells Fargo found that 29% of affluent millennials (defined as having $250,000 in assets to over $1 million in investable assets) admit that they “sometimes buy things they can’t afford to impress others “. According to the survey, 41% of affluent millennials admit to financing their lifestyle with credit cards or loans, compared to 28% of Gen Xers and 6% of baby boomers.
The battle between wealthy millennials and the rest could also shape their attitudes toward wealth. For more than four decades, the vast majority of America’s self-made millionaires and billionaires have been self-made, mostly entrepreneurs. A study by Fidelity Investments found that 88% of American millionaires are self-made.
However, inherited wealth could become more common. A study by UBS found that among newly minted billionaires last year, heirs who inherited their fortunes amassed more wealth than self-made billionaires for the first time in at least nine years. And all of the billionaires under 30 on the latest Forbes billionaires list inherited their wealth, for the first time in 15 years.
“Extreme” wealth
The increase in wealth among millennial heirs is also creating a lucrative new market for wealth management firms, luxury companies, travel companies and real estate agents.
Clayton Orrigo, one of Manhattan’s top luxury real estate brokers, has built a thriving business on affluent millennials. The founder of the Hudson Advisory Group at Compass has sold over $4 billion in real estate and regularly brokers over $10 million in real estate transactions. He says the “vast majority” of his business lately has come from buyers in their 20s and 30s with inherited wealth.
“I just sold a $16 million condo to someone in their 20s, and the buyer had access to the family trust,” he said. “The wealth behind these guys is extreme.”
Inherited wealth has become Orrigo’s specialty. He says he works to forge close relationships with family offices, trusts and the young moneyed elite who mingle at New York members’ clubs like Casa Cipriani.
The pattern is familiar: A wealthy family calls and wants a rent for their son or daughter. A few years later, they want a $5 or $10 million two-bedroom apartment to buy in a new high-security building downtown.
“My gig works very quietly and very discreetly with the wealthiest families in the world,” Orrigo said.
Subscribe to receive future editions of CNBC Inside Pluto newsletter with Robert Frank.