The Above Average Millennial Net Worth

Get to the top!The Millennial Generation (18-29 years old) has gotten a bad rap. I’m part of this group (as much as I deny it due to the negative connotation!) and can safely say, that they (not we) deserve part of it, but not all of it! So where do we proud few, we above average Millennials rank? What should our net worth goals be?

In September, the WSJ reported that as of 2013, it only takes $10,400 to be richer than a millennial (which they describe as under 35 years old)! Think about that, if you have a 401k plan, chances are you have a greater net worth than that (assuming minimal debt). That even includes 6 extra years of earnings than my definition! Unemployment in June 2014 fell to 6.1% but the unemployment rate of Millennials remained at a whopping 15.2% if you include those who have given up looking for work.

It’s hard to get ahead without a job! But for the rest of us who have jobs and are working hard towards financial independence, how do we compare ourselves to a financially sub-par generation? We don’t, obviously. We need our own formula.

Let’s borrow from Financial Samurai’s definition of an above average person and make a few changes for the millennial generation:

  1. A person who went to college and performed well.
  2. Saves for the future with the goal of retirement.
  3. Does not depend on the government or their parents for financial support.
  4. Understands the importance of risk-reward in investing and in their career growth.
  5. Consistently seeks to improve in all facets of life, not just their career. This includes, becoming or staying healthy, learning, and being socially healthy (this includes surrounding oneself with like-minded individuals).
  6. Has some student loan debt initially but focuses on paying it off immediately.
  7. Spends money to enjoy life instead of purely save for retirement (namely a lot of travel).

Student Loan Debt

We’ll explore student loans first. Generation X had a much more favorable higher education environment than Millennials. How you may ask? Less than half of graduates in the Class of 1994 left university with student loans compared to over 70% for the Class of 2014. The average amount of debt has almost doubled from an inflation-adjusted $17,500 in 1994 to a whopping $33,000 for the Class of 2014. This represents an inflation adjusted CAGR (compound annual growth rate) of 3.2% or 6% if we don’t adjust for inflation.

Meanwhile, on an inflation adjusted index, median income has fallen 0.5% per year. So, if we take the growth in tuition of 3.2% and tack on another 0.5% for falling real (inflation adjusted) income then the true effect is more like 3.7% annually. I say that is the true effect because your income level is directly associated with your debt level. Stating the obvious, right?

Pre-Tax 401(k) Savings

As a result of student debt, Millennials will not be able to max out their 401k contributions immediately. Let’s look at two scenarios here. First, in the Conservative case, we’re assuming it will take 3 years to pay off your student loan debt. As the average debt is $33,000, we assume our above average Millennial had scholarships and internships in college that paid off some of their debt. In the Conservative case, we assume $22,500 of debt to be repaid in 3 years (~25% less debt than average) and in the Aggressive case (assuming a better than average internship every summer) we will assume that we have $7,500 of debt to be paid off (~75% less than average).

Keep in mind that even though these debt amounts seem “much better” than average at first glance (especially in the Aggressive Case), state scholarships and worthwhile internships quickly add up. For instance, a Wall Street internship pays the pro-rated amount equal to a $70,000 salary year. A rational, above average Millennial will use a lot of this money wisely.

Above Average Millennial Pre-Tax Savings

After the initial pay down of debt, it is expected that you contribute the maximum amount to your 401k per year. Both cases are generally conservative for two reasons. First, we assume the max contribution amount of $17,500 does not increase. Second, we assume a very conservative 4% return in our Conservative case and a less conservative (but still below historical average) 6% return in our Aggressive case.

Note that we’re assuming these are pre-tax savings in an effort to be conservative. I’ll apply a punitive tax rate further on in the analysis.

Real Estate

Home ownership is widely considered to be a key stop on the road to wealth. Studies come out every few years detailing that homeowners have 20-40x greater net worth than renters. A few thoughts about this: renters are typically younger (and thus have less time to build their net worth) and renters do not include the extremely affluent which skew statistics. Regardless, those who own homes will build equity in their home which will become a valuable (and illiquid) asset.

However, real estate, namely your home, should not be included in your net worth. Chances are, when you retire, that you will not sell your home and thus will not be able to draw money from your home like you will your savings accounts. To go another route, Millennials just aren’t buying homes until they start a family. Home ownership simply isn’t as important to this generation as it was to previous ones. Thus we can safely exclude this asset from our calculation.

Other Savings

The Above Average Millennial will have very solid income streams once they turn 30. For example, associates (relatively early career) in banking can earn anywhere from $85,000 to $110,000 in base salary alone. Factor in a 25-50% bonus (conservatively) and all of a sudden you have a very large amount of cash flow.

That being said, it’s highly unlikely that the above average millennial will not save outside of their 401k. Taxable accounts are typically the way to save here.  I will assume that beginning in their 5th year of work, outside savings will begin modestly at $2,500 and ramp up to $10,000 over time. See the chart below for my assumptions.Above Average Millennial Other Savings

Keep in mind that these savings seem modest given the salary range I mentioned for an early career banker, but that salary range is on the higher end of the spectrum. So for another example, let’s look at different career: saving $5,000 a year extra as an engineer shouldn’t be difficult as the total saving rate including your 401k would be approximately 32%. I’m also assuming that around age 30, you will begin to start thinking of starting a family and thus buying a house. The down payment required will eat into much of our post-tax excess cash flow.

Lastly, this other income should not solely come from your salary. Those who truly think as the wealthy do always find other ways to earn an income. Some will invest into business ventures as active partners, some as passive partners. Regardless of the method, you should always be thinking of how to make an extra buck!

The Above Average Millennial Net Worth

Let’s bring this all together now. We’ll assume a 33% tax rate in retirement to continue being conservative with our 401k savings.

Total Above Average Millennial Net Worth

As you can see, the difference between the two cases is almost $1.5 million! This simply goes to show the power of compound interest. When you compound at 4% versus 6% over 43 years, you naturally will see a huge difference. The take away in that difference should be to start investing early. The quicker you pay off your student loans and build your savings base, the sooner you can just watch your money exponentially grow!

I would argue that $120,000 at the age of 30 (post tax) is a very conservative number. Assuming you reach the max 401k contribution of $17,500 for just 5 years, you’ll already have almost $90,000 saved in pre-tax dollars assuming zero return! By age 60, the average tax adjusted net worth should be approximately $1.9MM excluding any real estate equity built up. Not too shabby!

This conservative approach (when it comes to tax and interest rates) will mean that many of you already have much more saved than I projected. For example, it was recently reported that at just a $135,000 salary, which is easily attainable in banking and technology sectors, below the age of 31 puts you in the top 1% of your age group! Thus, using a salary near $135,000 or anywhere near the top 1% is unrealistic, even when we’re discussing the above average millennial.

May the (compound interest) force be with you!


29 Responses to The Above Average Millennial Net Worth

  1. Myles Money says:

    I see student loan debt as one of the biggest problem areas for millenials going forward because we’re being pushed into a college education as “the next logical step” but with increasing numbers of graduates being pumped out of the further education system each year, there are simply not enough graduate-level jobs to go around. The result is an over-educated, under-employed underclass who have unmanageable debts and little chance of reaching their retirement goals. The UK is a perfect example: tuition fees recently tripled and many young graduates will be saddled with a £60k debt (around $90k) with which to start their working lives. These loans are being sold on the basis that “they’re cancelled after 30 years so you may never need to pay it all back…” but the truth is that most people won’t be ABLE to pay them back: going back to our old friend compound interest, a £60k debt will balloon to almost £850k with inflation and interest over that 30 year period.
    Myles Money recently posted…Halloween #SmartMoney RoundupMy Profile

    • Jay says:

      I don’t disagree at all. People have well paying jobs they could be going after but the pressure is on college. Don’t get me started on those people who go to private schools for dance or music degrees.

    • Cool Hand says:

      Thats exactly why I tell people to NOT go to college with very few exception’s. They’re good jobs out there that do not require a college duhgree. Trades being just one. If you start working young you can get alot of skills and experience. While I’m not “rich” I make a good living with 0 college and 0 debt.

      The vast majority should not go to college schools will close and college will become more affordable. But that ain’t gonna happen for another 10 years.

  2. I’m not a millennial, but I feel sorry for the young generation these days. Poor job prospects, hue amounts of student loan debt, etc. It’s a recipe for disaster for so many people.
    Holly@ClubThrifty recently posted…Why I’m Skipping Black Friday This YearMy Profile

    • Jay says:

      Student loan debt is the big thing in my opinion. It’s not jobs, jobs will come but its tough not having a legitimate one with all that debt coming due!

  3. I am lucky because I don’t have any student loan debt because my parents paid my full tuition BUT I’m not really good at saving. Now, I’m planning to save a lot to pay for my first real estate and to have a solid emergency fund.
    Teffany @ The Rideshare Guy recently posted…9 Tools to Make Your Rideshare Life EasierMy Profile

    • Jay says:

      Saving for a down payment isn’t comparable to investing. Saving implies you’re not investing that money so you miss out on returns. Keep in mind that the stock market is up over 200% since the 2009 bottom now… You started with one dollar and now have three! Not so shabby, eh?

      • Dustin says:

        Saving for a downpayment can actually be a great investment strategy. Owning a home in itself is a great investment, especially in a market where rent is proportionally higher compared to home ownership, and especially in markets with appreciating property values. The main issue with saving a downpayment is Private Mortgage Insurance (PMI). PMI is usually between .5% and 1% of the loan amount each year. Assume it is .75% and you buy a 200K home with no downpayment. You will be paying $1500 in mortgage insurance for the year. This is on top of the mortgage interest. Assuming a 30 year mortgage at 4%, that would bring the loan rate up to 4.75% until you get down to 80% of the loan remaining, at which point you probably have to pay for a home appraisal to remove the PMI. You can deduct the mortgage interest and the PMI, so in effect it is like you are making a 4% investment, guaranteed and tax free, and it is even higher if you would be paying a higher mortgage interest rate due to bad credit or if mortgage rates rise. You could compare this to the average return in the stock market, but that is much riskier. It’s also worth mentioning that the larger your downpayment is, the more house you can afford, which means an improved quality of life and can even avoid having to move into a larger house later in life (with all the attendant costs of selling and buying a home, and moving).

        This is, in fact, the strategy my wife and I have adopted. We finished school and began our careers within the past few years and are preparing to put down 50K on a 250K family home (3 bedroom, 2 bath, 2000-3000 square ft, you know the drill). We plan to live there for many years and to raise children. Basically, our goal is to get in someplace we like for our first home, jumping right over mortgage insurance, where we can peacefully remain and raise a family for a couple decades. To us, that seems like the best possible investment, considering both finances and lifestyle.

        Finally, it’s worth mentioning that “saving for a downpayment” doesn’t really contradict investing in the market. You can use the market to build a downpayment. My wife and I did exactly that, recently draining her entire Roth IRA to supplement our downpayment. If there is any contradiction at all, it is in actually paying the downpayment versus investing in the market, but which decision is correct depends on mortgage and market rates, and how much risk one is willing to take.

        • Jay says:

          Great points and sorry for taking so long to get back to you. First of all, I’m a huge advocate of saving for a downpayment by investing in the market. The problem is, most people don’t do that or have extenuating circumstances (ie, expecting a child) that force them to have a house purchased by a specific date.

          On your points about expensive renting, there are cities where it makes incredible sense to rent and buy, the scale works both ways. I just dug up an article that I absolutely love on the topic. There are so many other costs in a home besides insurance and interest that offset the appreciation:

          • Dustin says:

            So I agree with you that it depends on your personal circumstances whether you should buy a home. If you are itinerant, can’t obtain a good interest rate due to bad credit, would pay mortgage insurance, or are in a market where renting is relatively inexpensive, then it might not make sense to buy.

            But consider our situation. My wife and I currently pay $1188/mo for rent. We live 15 minutes outside Nashville and only have around 1000 sqft. We are required to pay renter’s insurance.

            Over the past year, we have managed to save a good sized downpayment. We just signed a contract to purchase a home for 240K that will have more than double our current living space. Nashville real estate in that area has appreciated at over 8% for the past couple years. We will make this purchase with 20% down and paying our own closing costs. There will be some up front costs such as a home inspection ($350), an appraisal ($400), the state transfer tax ($850), and title work ($3000), or approximately $4600. We will also have to move and may have some loan processing fees. Over the long run, however, these up front costs will be negligible.

            The real costs are the continuing costs, including the mortgage, property taxes, and homeowner’s insurance. We’re still getting the financing settled, but at the very least we have locked in a 3.125%, 15 year rate, which gives a monthly mortgage payment of $1,337 on a $192K loan. Over 15 years, that comes to $48,748 interest.

            Assume that the other starting costs total $6,252, bringing our total, non-equity producing cost (not adjusted for the time value of money) to 55K plus property taxes ($200/mo) and homeowner’s insurance ($73/mo). Divide the 55K interest and up front costs by 180 months and you get $306.

            So our average monthly cost of homeownership (that which doesn’t become equity) ends up being $306 + $200 + $73, or $579. This is less than half of our monthly rent, so we will make approximately $600/mo for the next 15 years by buying a home. And that doesn’t even consider the facts that rental rates and home values rise over time. There will of course also be some maintenance costs to owning a home, but those should be way less than $600/mo, and in the meantime we get a huge upgrade in quality of life (as well as access to great schools for when we have kids).

            In sum, if you can build good credit, save 20%, and commit to living in the same area for at least 5 or so years, buying a home is likely to be your best investment.

            • Jay says:

              First of all, “only 1000 sq ft” for that price – count your blessings my friend! Perks of not living in a huge city. Congrats on the purchase, big step. And congrats on the rate, that’s great. The NYT has a great calculator and estimates that the break even of $1100 of rent is ~$290k worth of home. Of course this matters where you live and what your property taxes are. Do you have HOA fees? Also, does your landlord cover any utilities? Typically maintenance costs average 1-3% of a home’s value per year over the life of the home due to some large expenses/upgrades and renovations so I think your $600 may be aggressive. Plus, let’s not forget all the smaller expenses like yard work! Factor in your time!

              • Dustin says:

                HOA fees will be around $25/mo. That’s close to canceling out our renter’s insurance though so I left it out. Our landlord doesn’t cover any utilities (and the way it’s set up we have to pay for some of other people’s water), so if anything that should be savings. I agree that yardwork and home repair well detract from that figure, but those should be more than offset in the home appreciation we accrue and the increased cost of renting we avoid.

  4. Interesting article, Jay!

    While I’m not completely in the know of the US situation, I believe student loans can really cripple someone’s finances early on in life. I can’t imagine having to pay off some of the amounts I hear of on the internet. That’s why I’m happy higher education in Belgium is almost completely subsidised.

    No More Waffles recently posted…There’s a New Currency in TownMy Profile

    • Jay says:

      Thanks! Glad you enjoyed it.

      Hey, maybe we should adopt the new German plan to attract those who want to succeed (and turn everyone else down).

  5. moneystepper says:

    Very thorough article Jay, good work!

    I completely agree with the premise, but would be interested to see stats on the proportion of above average millennials who own their own home by the age of 30. I’d imagine that it is still pretty high and therefore they aren’t maxing out 401k etc as they will be saving for a deposit on a home. Also, a large proportion of the above average millennials will be living in areas with very high rent and house prices, so this may again impact on the amount being put towards retirement savings.
    moneystepper recently posted…15 Ways to Save Money – A Game of Thrones InfographicMy Profile

    • Jay says:


      Considering the market is up 200% since the bottom, I’d be willing to bet that those who own a home already have a lower net worth if you compare apples to apples salaries and starting positions. The tricky thing is, those who own homes, are naturally people who are better off than those who rent. But not always! Hell, I rent and plan on renting for a few more years!

  6. Thinking Wealthy

    Great article. It boils down to a few essential points: Save Early, Save often and save a lot. Invest into opportunities that provide you additional cash flow (Businesses, dividend stocks, etc..). Luckily for me – I’m in my mid-20s with over 160K net worth – but right now I am in the high accumulation phase and am aiming to save 60% of my income every month… crazy I know. What percentage do you try to save TW? Good post, talk soon.

    Dividend Diplomats recently posted…Stock Purchase 11/11/14 – Tech & ToysMy Profile

    • Jay says:

      I don’t save nearly as much because I travel quite a bit. I’m probably only around 30% but that’s fine given a healthy income. As promotions come, that rate will get much higher of course.

      • Of course – given a healthy income – a lower savings rate can be taken for that. Also – it seems that you are having awesome experiences instead of saving a higher amount – I would trade experiences over savings almost any day. With that being said… haha if I am saving 60% tells you exactly about my life experiences I am having haha.

        Good post TW.

        Dividend Diplomats recently posted…Stock Purchase 11/11/14 – Tech & ToysMy Profile

  7. Dustin says:

    Because you are drawing from Financial Samurai’s website, your numbers have the same problems. One major issue is that this completely fails to take into account the effect of higher education. It delays when a person begins to work, but also increases earnings once a person does enter the workforce. Essentially, the curve looks entirely different for educated people.

    • Jay says:

      I disagree. This is clearly intended to reflect undergraduate degrees based on my ages presented. I’d hardly argue that someone with a BA or BS is not “educated.”

      • Dustin says:

        Fine, let me revise my comment. The curve looks entirely different for HIGHLY educated people (such as doctors, lawyers, professors, etc). These people often pursue HIGHER education until they are 25-30, then they begin making more money than people who just have BA’s or BS’s.

        • Jay says:

          I’m with you. I didn’t mean for this to be all inclusive as you can’t compare starting points and middles for people with varying levels of education.

  8. Great article! Its always an eye opener to show how compound interest can put you in a much better financial position by starting early. Its important for everyone to understand but especially for millennials.

    • Jay says:

      Agreed, millennials have been screwed by skyrocketing real estate (even with the collapse), cost of university, and rocky job market. It’s tough to offset all of those factors. I read a great piece recently discussing how Boomers are the entitled generation (and not millennials). I’ll try and dig it up.

  9. Kevin tx says:

    I love these sorts of articles and I like the conservative approach over the ultra aggressive if you get everything right view. Not to say all of the ducks won’t fall in a row it’s just significantly tougher even for a bright person to not make mistakes or have some family member in need (of money) anchor weighting you down. For example I work in the finance industry at top 5 bank albeit not in front office but I’ll tell you with the downturn newbs are getting small bonuses (absolutely less then 25%) and raises across the board. It seems with the lack of revenue from growth and consistent payouts only folks who are making it big are people who were around before the downturn, (and thus already command huge pay packages).
    However that being said there are still plenty of opps to make big money outside of ones day job stock market definitely with the market practically going straight up even a nitwit can make 10%. And if you bought a house outta school in a top 10-20 city chances are your sitting on major equity growth. So plenty of ways.
    My biggest concern these days is the 11%+ default/nonperformance rate. What do you think will be the rate that will capsize the US economy?
    Also I’m 28 wrth around $330k no house

  10. G says:

    interesting article.. i am 30 with ~ 200k of net worth.

    I didn’t think I was more than aggressive :O

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