Why Do So Many Millennials Still Live at Home?

May 30th, 2016 by 

Here's a crazy statistic: in 2014, for the first time in recorded US history, more 18-34 year olds lived at home with their parents than cohabited with a spouse or a romantic partner.  While a total of 45.6% of that age group either cohabited or lived alone, it was the first time more young folks lived with parents than romantic interests.  I guess we have to ask: why do so many Millennials live at home?

The topic was kicked off by a massive new research report from Pew Social Trends on the living arrangements of Millennials - roughly defined by Pew as people between 18-34 years of age.

(Pew Research) Millennials live at home in more numbers than any other arrangement.

(Pew Research) Millennials live at home in more numbers than any other arrangement.

While the Pew lede was interesting, there was another very interesting report from the other side of this trend: the Boomer Generation, which includes most of the Millennials' parents.

A UBS Investor report on the trends including Boomers and Millennials (PDF warning) noted this statistic: 74% of Millennials received some sort of financial support from their parents after finishing school... while only 35% of Boomers reported the same after they were finished with school.

What's Behind Millennials Living at Home... or Receiving Extra Parental Help?

Just like we've often delved into the weeds of the CPS microdata here on DQYDJ, the Pew report came from careful study of IPUMS-CPS data.  Looking at that data, they found that the increase in living at home coincided with a downturn in wages for young men*.  As those wages started dropping around the year 2000, there is an obvious increase in the number of young males living at home with their parents.

The recent phenomenon may not have been called out too much in the mainstream press, but it's familiar to you DQYDJ readers.  We have a number of articles on the demographic shift in the United States, and the rear looking wages for men (and women) of a certain age.  We'll dump a few on you here:

* For females, there are echoes but the data diverges - "traditionally", working women lived at home, as before the large increase in female career work starting in the 1980s more women left the workforce after marriage.  So, contrary to the male statistics, earlier statistics show females moving away from home after losing jobs.  As there is more parity in the workforce nowadays, recent trends are roughly equivalent for both men and women.

Why do so Many Millennials Live at Home? It's the Economy Stupid!

Here's the thing: income gains are never completely equal (nor can we expect them to be), but a majority of the earnings gains in the last generation have proportionally gone to older, more experienced workers.  It has been a gradual decline, but our aging workforce is masking slow wage growth for entry level workers - although perhaps it explains some of the country's recent ennui... and the protests aiming to increase the minimum wage.

Pew's research shows the same point: Millennials with jobs are less likely to live at home, and as Millennials earn more they are also less likely to live at home - worth spelling out, even if it's expected.  What's new this generation is how we make up the gap - even if Millennials are making less money relative to their parents' generation, they are also participating in one form of wealth transfer: staying on the parental payroll.

The Parental Payroll: Mind the Gap

We're certainly not the first ones to notice the large increase in parental help with downpayments... or homes purchased  for them (or at least provided to live in), outright.  But that's the thing - short of a few extraordinarily timed exits (or, perhaps, the most dedicated financial site readers and writers), it's incredibly hard for a Millennial to afford prime property in expensive areas, such as the Bay Area.  All throughout the Bay Area, I can point to a number of my peers with homes purchased with one-time (...or continuing) parental help.

So perhaps some of what we're seeing is selection bias - surely the Washington, D.C. and New York (and Portland, Seattle, Boston, and others?) real estate markets see a similar phenomenon - but the UBS study suggests that parental help is much more common than we've been lead to imagine.  A full 28% of Millennials reported some parental help with buying or renting housing after college, with 23% reporting parental help with utilities(!).

And with Pew's analysis, we know that ~32% of Millennials are getting help of a different time - by living at home, presumably avoiding rent altogether, or just getting utilities and a room at a reduced rate.  While cohabitation with a romantic partner used to be the way we defrayed to costs of living outside of the nest, it seems that flying back to the nest has become pretty comfy for the Millennials.

(UBS) They live at home, but they also take more of other forms of assistance...

(UBS) They live at home, but they also take more of other forms of assistance...

What Does More Millennials Living at Home or Getting Parental Help Mean?

Here's a hot take for you: as our society gets richer and richer, you're going to see more of these arrangements and more assistance, not less.

Not only are we witnesses to a huge wealth transfer from the Boomer generation to the Xes and Millennials (and whatever you call what comes after), but we're also witnesses to an incredibly wealthy society in general.  While there has always been wealth transfer in the highest net worth echelons, there is so much retained wealth throughout the middle classes now that you're likely to see this from higher and higher percentages of the population.

And, yes, this inter-generational help will become more and more of a political issue as well.

As the joke goes, only the rich can afford to work for free - and we've witnessed a backlash to unpaid internships and other positions which were only possible with parental help (and who pays the rent for that unpaid summer internship?).  By the time Millennials are passing wealth on to their children, who knows what the political battlefield will look like?

Here's what it means though: parents are in a better position to help the next generation than they have ever been before, and our society is evolving into one where getting ahead often means getting help from our elders.  The full implications of this shift have yet to be seen, but even if you start seeing the kids moving out again, I imagine that the younger generations will continue taking post-college help at increasing rates.

There's no putting the genie back in the parental assistance bottle.

Don't Quit Your Day Job...

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