In mid-March, the Class of 2020 was preparing to commemorate four years’ worth of accomplishments as they began to envisage themselves walking across the stage at graduation, surrounded by their families and peers. The coronavirus pandemic hit, and within the blink of an eye, everything changed. Just days later, we saw a shift for classes and work to an online setting and the cancellation of in-person graduation ceremonies. While these disruptions were surely jarring, they were likely overshadowed by the young generation’s bleak outlook on the state of the economy.
Millennials and Gen-Z have already been affected in the short-term by the pandemic. Now, they are bracing for the devastating economic impacts. There are three critical themes that firms must acknowledge as they carefully cultivate their long-term business strategies.
While it is still too early to know just how young generations will recover from this public-health crisis, the fact of the matter is, millennials and Gen-Z are financially vulnerable. Research has shown that millennials are currently servicing more than half a trillion dollars of student-loan debt. This debt hinders their ability to both supercharge their earnings and build nest eggs for their future. In addition, 62% of adults ages 18 to 29 who have a bachelor’s degree also have student-loan debt, with the average for millennial borrowers being $33,000 each. Although student loan forgiveness is temporarily in effect due to the CARES Act, the economic policy does not consider the debt burdens many young adults will continue to face following this crisis. When adjusted for inflation, over the past forty years, income for young adults has barely risen. Therefore, especially in the face of an economic downturn, the question becomes: is it financially sustainable for young people to keep up with the crippling costs of their student loans?
Even with the little data that exists, it is clear that younger workers have been forced to pay the price. In a newly released report, Data for Progress found an astounding 52% of people under the age of 45 have lost a job, been put on leave, or had their hours reduced due to the pandemic. In contrast, only 26% of people over the age of 45 have had the same fate. This could potentially harm young populations that, unfortunately, may linger for years to come. An April 2019 Stanford study found that students who graduate into and start working in a recession often have to contend with higher unemployment rates and lower starting salaries, causing stagnation in economic prosperity, which can linger for 10 to 15 years. Meaning millennials and Gen-Z are facing more than just the natural anxiety that comes with finding a new job after graduation—with the effects of the disruption; they are feeling alarmed.
Given the widespread joblessness and low wages for millennials and Gen-Z, it will become difficult for young people to build a steady stream of income that will allow them to accumulate assets over the long-term progressively. Not only will the outcomes of COVID-19 affect the ability of younger generations to begin investing early on in their careers. The implications of the virus will also delay their ability to buy homes, start businesses, and have children around the same time in their lives as previous generations. In the future, the trend of young people working past the expected age of retirement and holding more gig and part-time jobs to feel financially secure could be rapidly accelerated. This will undoubtedly leave a lasting economic impact on the lives of millennials and Gen-Z.
At a time when they should be eager about what lies ahead, millennials and Gen-Z are encountering significant financial uncertainty. They are experiencing mounting student-loan debt, plummeting hiring rates, and initial earnings losses. Now more than ever, there is a risk that younger generations will be left without the opportunity to gain the financial security that their parents, grandparents, and even their older siblings were able to enjoy. Along with recognizing the behaviors of the current market, firms must begin to understand the next generation of clients and what they are experiencing. The economic impact on this subset of the population will be long-lasting. Therefore, firms are going to have to innovate and ensure that these impacts are reflected in the strategies that they deploy.
Cassie Apgar, Consultant