Why Younger Generations Are Convinced They Are Falling Behind | Philipp Carlsson-Szlezak

Philipp Carlsson-Szlezak · Boston Consulting Group

Gen Z and millennials are ahead of prior generations on income and balance sheets at the same age.

Comparing generations like-for-like at each age, on an inflation-adjusted basis, Gen Z and millennials earn more than prior generations did at the same age and hold somewhat more wealth on their balance sheets. The data show a generation progressing through life, not a failed one. The paper also says the path differs from boomers' (later and different), but the results are not a failure.

“On the income side, Gen Z and millennials are not doing worse than prior generations. They're actually ahead in terms of income at a given age, and in terms of balance sheets too, they're actually somewhat ahead of prior generations.”at 8:46

Philipp Carlsson-Szlezak · Boston Consulting Group

Consumer sentiment is at record lows while real consumption is at record highs, so the gloom is not showing up in spending.

Consumer confidence surveys such as the University of Michigan and Conference Board measures are at record lows and have not recovered. Over the same period real consumption has risen by more than a trillion dollars since COVID. Spending is also visible in broad earnings-season evidence showing firms making a lot of money because consumers are consuming. So young people's perceptions diverge from what they actually spend, and that spending is part of the macro cycle.

“These are at record lows even as real consumption is at record highs. So we've added like more than a trillion in real consumption since COVID, and in the same period, these survey results have cratered.”at 12:45

Philipp Carlsson-Szlezak · Boston Consulting Group

Young households' post-2020 net worth jump was mostly a COVID stimulus story, not a trend.

Grant showed Federal Reserve data in which young households' net worth rose from about $16,000 to about $40,000 after the pandemic. Philipp says the surge lines up with the government's stimulus checks, which he calls rightly sent. Households also had fewer expenses because pandemic constraints limited what they could spend on. Together these explain the bump in net worth. He adds that the series is volatile and may have come down since, and calls the episode mostly a COVID story.

“a lot of stimulus checks were sent... the surge lines up with the stimulus effort that the government undertook rightly.”at 1:01:48

Philipp Carlsson-Szlezak · Boston Consulting Group

Wealth inequality among young generations is likely not greater than among older ones, because they have not yet inherited.

Inequality is stark in America and always has been, but there is no evidence that it is greater within Gen Z and millennial cohorts than in older generations. Inequality of income among the young is not wider, since real wage growth has been strongest at the bottom of the distribution. On wealth, the young may be less unequal because they have generally not yet received inheritances, and inheritance is a major driver of US inequality. Inequality data by generation is limited, so the argument relies on triangulation.

“I would think that the young generations may be less unequal for one specific reason, which is they have generally not yet received their inheritances, and inheriting is a big driver of inequality in The United States.”at 29:18

Philipp Carlsson-Szlezak · Boston Consulting Group

Boomers' dual-income wealth tailwind was a one-time shift that millennials cannot repeat.

Baby boomers had a structural income and wealth tailwind because women joined the labor force, which created double-income households and fast wealth accumulation. That shift can only happen once. Gen X had a smaller tailwind, and millennials have none, because most women have already joined the workforce and the structural shift has topped out. He argues that wage growth is gated by this, which explains part of the gap in generational wealth.

“Baby boomers had a structural tailwind to their income and wealth generation because that is the generation when women joined the labor force... But that's a shift that can only happen once. You can't repeat that.”at 43:18

Philipp Carlsson-Szlezak · Boston Consulting Group

US income and wealth distribution is not K-shaped; the bottom quintiles are also making progress since 2020.

He indexed income and balance sheets of income and wealth quintiles/quartiles to 2020 and tracked them to the present. The rich are getting richer in dollar terms, but the bottom of the distribution has also strengthened in both income and balance sheets, so the chart does not form a K. He says the official data does not show the poor getting poorer, while acknowledging that the bottom gains can be small in dollar terms and that a quarter of wage earners see falling real wages every year, as they did in 2005 and 2015. He argues that the K-shape narrative is taken as an article of faith and that it explains the gap between Gen Z and millennial expectations and reality.

“Now, only half of that is true. The rich are getting richer, the poor are not getting poorer. There is no data to support that. I'm sorry. There is no official data that you can show that with.”at 52:39

Philipp Carlsson-Szlezak · Boston Consulting Group

Recent earnings season showed broad, overwhelming evidence that firms of all types are making strong profits from consumer spending.

The speaker cites the most recent earnings season as evidence of broad spending. Firms of all types are making large amounts of money because consumers are consuming. He calls this evidence overwhelming and uses it to argue that youth consumption is part of a broad macro story. He also notes that equity valuations have come down while earnings have been very strong.

“And when you think at total consumption in the economy or if you think also about the earnings season that we last saw, the evidence of broad spending and firms of all types making tons of money because consumers are consuming, that evidence is overwhelming.”at 13:03

Philipp Carlsson-Szlezak · Boston Consulting Group

Last earnings season's strength was broad across sectors, not driven by a few tech firms.

He says earnings were not strong because of a handful of tech companies. They were strong across virtually all sub-sectors of the economy. He argues that this breadth does not happen without broad progress in consumption, and that consumption cannot be carried by just the rich, so it must be broad-based.

“If you look at the earnings picture, the last earnings season, it's not that earnings were really strong because of a few tech firms. Earnings were strong across the board in virtually all sub sectors of the economy.”at 55:39

Philipp Carlsson-Szlezak · Boston Consulting Group

Home affordability is flat for a constant-size home; the young's delay is a choice of urban living plus rising size expectations.

Average home size has grown roughly 50-60% over generations, and new homes are also better built. Holding home size constant, the affordability of a medium-sized home has been flat over the last 20-30 years rather than collapsing. Much of the perceived unaffordability reflects a preference for expensive urban cores, where young people live in their 20s and 30s. Homeownership then catches up with Gen X at about age 42 as people move to more affordable areas, so homeownership is delayed rather than denied. The speaker also argues that buying in New York City over the last 15 years has often produced flat or negative real returns after property taxes, maintenance and leverage. He concedes that hedonic adjustments are only partly sufficient and that the same-size comparison is limited by the scarcity of smaller homes.

“The affordability of a constant size home over the last twenty, thirty years is actually flat. It hasn't gone down.”at 16:10

Philipp Carlsson-Szlezak · Boston Consulting Group

Many New York City apartment purchases lose money after leverage and fees; renting builds wealth better.

He says many NYC apartments over ten to fifteen years delivered negative real or nominal returns. After leverage, maintenance fees and carry costs, these purchases are often total losers. From a financial and economic perspective, he argues there are many ways to show renting in a place like New York is better for wealth building than putting money into apartments that never turn a profit. He grants that homeownership has emotional value and says he personally understands it.

“There are tons of apartments in the New York City market that over ten, fifteen years have negative real returns or worse, negative nominal returns. After calculating leverage and maintenance fees and carry costs, often these are total lossmakers.”at 34:01

Philipp Carlsson-Szlezak · Boston Consulting Group

The US economy held up through tariffs, Iran, energy and rate shocks; consumers kept spending, so no recession.

A recession was called inevitable several times but did not arrive. He argues the economy held together mainly because consumers were able and willing to spend. Where price growth was too rapid, they turned away and cut spending: quick-service restaurants slumped after taking too much price too fast, and consumers redirected spending to other things while still spending overall. He argues the economy would not have survived tariffs, Iran, the energy shock and interest rate increases if it had been brittle in January 2025.

“There was no recession even though it was described as inevitable multiple times. The economy has held together one big reason is because consumers were able to spend and they were willing to spend.”at 56:22

Philipp Carlsson-Szlezak · Boston Consulting Group

Repeated recession calls have been false alarms; the aggregate US economy has proven robust and resilient.

Carlsson-Szlezak argues that the widely predicted recession did not happen, pointing to the cover of The Economist that forecast one. He says the many other doom-and-gloom alarms have also failed to materialise. He attributes the gap between pessimistic coverage and reality to the aggregate economy being robust and resilient in totality, while public discourse focuses on the worst-off tail of the distribution. He concedes that the losers exist and always have, but says the evidence that this tail is much bigger today is not there.

“Just on the most basic level, the inevitable recession, which graced the cover of The Economist at least once, it didn't happen. ... no recession, right? ... It often stems from an aggregate that, in totality, is actually pretty robust and resilient.”at 1:09:26

Philipp Carlsson-Szlezak · Boston Consulting Group

Equities remain a reliable long-run wealth vehicle; a near-term correction is possible but no bubble is evident.

The speaker says the equity market may well correct soon, and he is not in the camp that says a bubble is about to pop. Valuations are fairly strong, though they have come down, and earnings are very strong. Historically equities have been a formidable way to build wealth, and over ten-, twenty- and thirty-year horizons setbacks are smoothed out. Young people have had greater equity exposure than prior generations at this stage of life, and that exposure has paid off over the last fifteen years as the equity market performed very well. Housing also suffered in the financial crisis, and neither asset class gives total protection. He hedges that it is speculative whether equities beat homes.

“and I have no reason to believe that over the long run where setbacks are smoothed out over a ten, twenty, thirty year period, I have no reason to believe that the equity market stops being that vehicle of wealth accumulation.”at 22:58

Philipp Carlsson-Szlezak · Boston Consulting Group

Real wage growth has been strong since 2022 and has been strongest at the bottom of the distribution, despite a recent stall.

Wages have risen by more than prices in aggregate. Tight labour markets since the financial crisis, and real wage growth fast since roughly 2017, delivered strong gains particularly at the bottom of the distribution since about 2015. Since inflation came down around 2022, real wage growth has been very strong. The speaker acknowledges real wage gains have stalled over the last eighteen months and that the experience varies across individuals. He argues these gains are why bars and restaurants are full and why consumption is strong.

“Not in the last eighteen months where real wage gains have actually really stalled, it's true. But since 'twenty two or so, since inflation has come down, real wage growth has been really, really strong.”at 24:28

Philipp Carlsson-Szlezak · Boston Consulting Group

Social media distorts expectations of what is attainable, and smartphone culture may have peaked.

He argues that the private jet is a social media-created aspiration, since very few people fly private. He calls these social media-driven distortions of what is attainable and says it is generally an expectations problem. He is somewhat optimistic that peak social media and smartphone culture has arrived: schools restrict smartphones, policy has caught up, and handwriting is returning. He describes the oldest Gen Z as a guinea pig generation that grew up unfiltered on social media with no guardrails.

“I view these things as social media driven distortions of what's attainable. It's not attainable for everyone.”at 38:36

Philipp Carlsson-Szlezak · Boston Consulting Group

Young people's pessimism drops sharply in years when Republicans win, tracking the electoral cycle.

On the chart of youth minus older-generation pessimism, the series falls off a cliff twice: in 2016 and in 2024-25. Both were years of Donald Trump's election. He says the young appear to translate politics into their subjective optimism and pessimism, and that the swings coincide with election cycles. He says he takes no value judgment from this and only notes that extreme youth pessimism lines up with the electoral cycle.

“they do coincide with election cycles and the two times when they fell off a cliff was when Republicans won.”at 40:10

Philipp Carlsson-Szlezak · Boston Consulting Group

Affordability slightly improved by end of Biden term, as wages rose about as fast as prices.

He says the claim that prices rose too fast in the last election was correct, but wage growth also rose fast and went unmentioned. Taking the ratio of price change to wage change, affordability was slightly better at the end of the Biden administration than at the start. He notes that real wage growth has slowed over the last year because nominal wage growth is not very high and inflation has bounced back, and that consumers feel this. He attributes the persistent awareness of inflation partly to psychology: price increases feel like a silent thief, while wage gains feel earned and are offset mentally.

“What was not talked about was that wages had also gone up very fast. So actually, if you do the ratio of price change and wage change, there was slightly better affordability at the end of the Biden administration...”at 58:29