Closing The Relative Income Gap

A recent study of Federal Reserve data by the advocacy group Young Invincibles, reveals the extent to which Millennials are falling behind previous generations: Median income is 20% less than their Baby Boomer parents at the same stage of life and they have accumulated half as much in assets, this despite the fact that they are better educated. Much has been made of this generational phenomenon as well as the implications for asset purchases, household formations, and economic growth that will be felt for years to come.

The math surrounding wealth accumulation is predicated on a few simple data points – the size of your initial savings or investment account, the amount and frequency of your contributions, and the number of years and rate of its compounding. All else being equal, if you start with a smaller balance and/or delay the start and frequency of your contributions, you will end up with fewer total assets over time. What’s more, the lingering wage effects of starting in a weak economic environment may persist even after economic growth resumes. Over the course of a 30 or 40-year career, these differences can prove to be quite sizeable. Unfortunately, this is what Millennials are facing. And yet, nowhere in economics is there a principal that promises ever-higher wealth to successive generations.

It’s true that Millennials are the first generation since the Great Depression to endure such an extended period of economic uncertainty. But, setting aside for a moment the timing of their arrival into the workforce, every generation has faced a marketplace that differs from the previous one simply due to the dynamic nature of our economy. For example, few of today’s jobs are dependent upon pure brute strength that dominated much of the twentieth century, thanks in large part to advances in robotics and machinery. Today’s value creators are more likely to spend the day flexing their patents, not their muscles, especially in fields like programing, engineering, science and physics.

Regardless of a generation’s fortunes, the key to success has always been having the skills that employers demand. For some, choosing a profession is simply a matter of following one’s passion; for others, passion comes from doing something well. Regardless of your journey, you’ll want to have skills that provide the best prospects for personal satisfaction as well as financial reward. One way to obtain those skills is with additional education. Study after study has shown that earnings increase with successive levels of educational attainment; historically, those with a Master’s degree or Professional degree have received the highest earnings.

A Masters in Business Administration (MBA) continues to be one of the most versatile graduate degrees. The key to its popularity is the enterprise-wide knowledge that prepares its holders for success in any business function, at any time in their career. Moreover, as the economy changes and new business models emerge, the degree is no less valuable. There are many factors besides the economic cycle that determine earnings potential, however, for business professionals, there’s little doubt regarding the returns from having an MBA.

The jury is still out regarding Millennial fortunes but I would not want to bet against their potential. The one thing we already know for sure is their ability to enjoy life regardless of their relative financial status. Cheers!

Categories: MBA