Wednesday, July 20, 2022
Lies, damned lies, and statistics
As I mentioned before, I recently went into retirement. People always ask you what you are planning to do with your time in that situation. In my case I have a big project for the moment: I will leave the city and build a house in a small village in the countryside. So for entertainment I currently watch a lot of TV shows about building and decorating houses, for inspiration. As I recently managed to sign up to Discovery+, I now have access to HGTV, which is full of shows like that. And after watching a wide range of those, something struck me: There were a lot of millenials on those shows, renting appartments in Chicago for $2,500 a month, or buying expensive single-family houses. Is that real, or a TV fantasy? Aren’t millenials supposed to be the broke generation, who somehow got robbed of all the money they were due by boomers like me? So I did some research on the topic, and it turned out to be a case of Mark Twain’s “there are lies, damned lies, and statistics”.
Statistics in general is an attempt to make a statement about a group (e.g. of people), although each individual is different. It is very obvious that in a large group like “the millenials” there are both very rich and very poor people. So how do you make economic statements about the whole group, and what do these statements mean? Two very common concepts here are using the average (all the money divided by all the people) or the median (the amount of money where half of the population has more, and half has less). Both concepts have their flaws. The USA is a rich country, with a GDP per capita of over $63,000, but that is an average that doesn’t tell you much about the financial situation of a typical American. The median household income in 2021 was $70,000 , which gives you a better picture. However, the average household income was $97,000. In personal finance statistics, the average numbers are always higher than the median numbers, because the very rich impact the average much more than the median.
So how about those millenials? Of the 72 million millenials in the USA, over 600,000 are already millionaires. While the boomer generation has a much higher percentage of millionaires now, that percentage is very much a function of age. When the boomers were young, they actually had a lower percentage of millionaires than the millenial generation now. If you look at all the publications showing how poor the millenials are, they all use median incomes, which are very bad for this generation. If you use averages instead, the millenial generation is suddenly richer than the boomers were at the same age, because GDP has gone up every year. What has changed is that inequality has gone up: The difference between average and median is much bigger now, with the median having gone down and the average having gone up.
In a way, the COVID pandemic was a perfect showcase for the rise of inequality in the millenial generation: A lot of millenials in lower income jobs, especially in hospitality, lost their jobs and suffered severe financial consequences. But other millenials in high-paying tech jobs suffered no loss of income at all, being able to comfortably work from home. How comfortable working from home is depends very much on the size of of your home, thus one trend was richer millenials moving away from small appartments in cities and buying large and luxurious homes further away from their jobs, thanks to being able to work home office. HGTV isn’t lying, but they only show a richer slice of the population. I don’t think they have any TV shows on buying the cheapest houses on the market and decorating it from the dollar store, although that obviously is a reality too.
Regardless who you compare them to, rich boomers or rich millenials, the median millenial is in a bad economic place. While the boomers are starting to die, that generational wealth transfer will not fix the plight of the median millenials, it will only increase inequality. Even when all the boomers are dead, the median millenial will still be poor. Because this isn’t really a generational problem, but an inequality problem, and inequality is getting worse. It is the concentration of wealth in fewer and fewer hands that make median households poorer.