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Many US millennials feel broke despite six-figure salaries

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Some Millennials, who others would describe as very wealthy, feel that their paychecks are not enough. As Melkorka Licea first reported for the New York Post in October, they are known under the name of “Henrys”. The acronym – short for “high earner, not rich yet” – was invented by Shawn Tully in a 2003 article in Fortune magazine. It characterizes a certain group of mostly US millennials who earn six figures.

According to the experts, the typical Henry earns over $ 100,000, is in his early 30s and struggles to balance his spending and savings habits. As a result, they lag behind in wealth accumulation and get no closer to their financial goals. Their comfortable, if not lavish, lifestyle is partly to blame for making them feel broke.

There is a parallel on a social level that cannot be overlooked – where an economic system seems to work well on the outside, but beneath the surface there are many tensions and in some places it is boiling.

High-earning millennials are falling victim to lifestyle inflation

One of the biggest financial problems facing Henry Millennials is that they typically live beyond their means and fall prey to lifestyle inflation, Gideon Drucker told NewsABC.net. He is a financial planner at Drucker Wealth and the author of the recently published book How to Avoid HENRY Syndrome. Lifestyle inflation, he says, occurs when a person increases their standard of living to match an increase in their disposable income.

But just because a Henry’s income goes up doesn’t mean he has to spend more, says Drucker. In fact, he shouldn’t be spending any more. Anyone who’s gotten used to spending $ 3,000 or $ 4,000 a month in the US could find out a decade later that they are now wasting $ 10,000 a month, he added.

Henrys like a comfortable lifestyle.

Henrys like a comfortable lifestyle.

Edward Berthelot / Getty Images

Licea spoke to several American Henrys who have expensive habits: They stay in luxury hotels, take vacations all over the world and own or rent two houses at the same time. According to Licea, the Henrys don’t want to give up this lifestyle. And that, although they often have to cut back on other areas: They buy clothes in stores like Forever 21 or TK Maxx and go on vacation with credit card points when they have more money to travel.

These lifestyle choices contradict one of the golden rules often made by financial professionals. Avoiding lifestyle inflation is essential to building wealth. However, there are other circumstances – particularly in the US – that are beyond a Henry’s control and hold him back financially.

US millennials are facing an affordability crisis

The stock market has recovered somewhat since fears of an impending recession last year. But the cost of living has grown exponentially, and incomes have not necessarily dragged along. The income of young adults in the United States rose only $ 29, adjusted for inflation, from 1974 to 2017. But over the same period, real estate has risen 39 percent in price, and healthcare costs per person have increased by as much as $ 9,000 since 1970.

The cost of training, which is already expensive in the USA, has more than doubled since then, resulting in students having to take out loans more than ever. Students who graduated from university in 2018 had to take out an average of $ 29,800 student loan.

Henrys are also struggling with student loan debts.

Henrys are also struggling with student loan debts.

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While Henrys typically have well-paying jobs, their student loan debt is about $ 50,000 more than the US average. Priya Malani is the founder of Stash Wealth, a finance firm that calls itself the Home of the Henrys. She told NewsABC.net that 40 percent of her customers have student loans – which averages $ 80,000.

None of this is particularly promising for a generation that is already financially behind due to the Great Recession. Older millennials had a tough start in the job market and had to catch up financially. Younger millennials watched the financial crisis and became more cautious and risk averse with their money. Studies have shown that millennials are the most financially conservative generation since the Great Depression and that the majority are reluctant to invest. So, even if the stock market is doing well, it’s likely that millennials are too anxious to put their money there – missing out on yet another wealth-building opportunity.

100,000 dollars does not mean “rich” in the USA

With the cost of living higher than income, a six-figure salary is no longer what it used to be. In today’s economy, $ 100,000 is considered middle class in the US. The Pew Research Center defines the US middle class as people who earn two-thirds to double the median household income – the median in 2016 was $ 60,336. That means middle-class American households made between $ 40,425 and $ 120,672 that year.

A 2019 survey by NewsABC.net and Morning Consult found that 38 percent of millennials who earn $ 100,000 or more a year think they are middle class. About 23 percent consider themselves to be the upper middle class and only 6 percent consider themselves wealthy.

Millennials tend to live in areas with high cost of living.

Millennials tend to live in areas with high cost of living.

Edward Berthelot / Getty Images

A family in the United States needs an annual income of $ 421,926 to be in the top one percent of the top earner. The minimum wage required to belong to the 1 percent varies by state and ranges from $ 255,000 in Arkansas to more than $ 700,000 in Connecticut.

Accordingly, the location also plays an important role – where a person lives is decisive for how much the money is worth, how much it is taxed and how much the person is influenced by their fellow human beings. And although the Henrys could live anywhere, most of them live in states where the cost of living is notoriously high: New York City, California, and Washington, DC, for example, says Malani, who has customers in 32 states.

Millennials who feel broke despite six-figure salaries are influenced by both internal and external factors. Since $ 100,000 is not worth as much as it used to be, you need to organize your money carefully. You need to learn to find a balance between living now and putting some money aside for the future. And of course that means they have less money to spend – which in turn helps make them feel broke.

However, these Millennials also face economic circumstances that are beyond their control, and which reveal the consequences that affect their entire generation. Even with careful financial planning, a $ 100,000 salary in the US seems much more modest given the higher cost of living, the immense student debt burden, and the ongoing aftermath of the recession.

This article was translated from English and edited by Ilona Tomić. You can read the original here.

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