Millennials and Gen-Z betting on crypto can help bridge the wealth gap in the medium term and change the world in a longer run.

The looming economic crisis presents a good opportunity to talk about the generational wealth gap, a phenomenon particularly pronounced in developed countries.

You have certainly heard Millennials complaining about Boomers “ruining the economy” for them: buying a disproportionate share of housing, unleashing the money printing machine, driving up the cost of living…etc

While the reality is more nuanced, the gap exists indeed, and the Millennials’ struggles with homeownership serve as a prime example. Fortunately, Millennials and Gen-Zers’ unique life experiences helped them develop new investment behaviors, which could offer a potential solution to bridge this gap. This includes, of course, crypto investment.

Moreover, the natural cycle of life is taking its course, with the Boomer generation expected to reduce in size in the upcoming 20 years, leaving their wealth to their heirs. This shift, known as the Great Wealth Transfer, will put more value at the hands of the Millennials, who will likely invest it in familiar assets. Including crypto 😊

The world is changing, and this particular demographic situation, together with experimental monetary policy (52 years of modern money-printing can be considered experimental on a civilizational scale) and the emergence of cryptoassets, will reshape the world.

Let’s take a look at the big picture.

Generational wealth gap

The current generational classification is based on the very different historical contexts that have molded distinct sets of people. The Silent Generation came of age during the Great Depression and WWII, Baby Boomers – in a period of unprecedented economic growth, Gen X – when both divorce and two-income households became increasingly common, Millennials – in the digital age, alongside successive economic and environmental crisis, and Gen Z –  amid the social media revolution.

Boomers are widely considered the luckiest of them all. The post-war baby boom led to a blissful period of economic prosperity, where young people could easily access well-paying jobs, buy homes, and invest the rest into mutual funds and… more homes. In the US, a number of government stimulus incentivized people to invest in real estate as much as they could.

However, no growth is eternal, and the stagflation of the 70s pushed US President Nixon to ditch the gold standard and basically set the dollar free, opening the door to unlimited money printing. This helped in the short term, and the tech boom of the 90s caught the Boomers in positions of leadership, which helped them accumulate more wealth.

In contrast, Millennials have faced much worse economic odds. The cost of living has outpaced income growth, making it considerably more difficult to obtain real assets like homes. In the US, this problem is exacerbated by the increasing burden of student debt. The dot-com and the 2008 crisis could have wiped out the few early investments they could have made.

The wealth gap between the Boomers and the Millennials is particularly visible in homeownership.

Housing affordability sinks

While two-thirds of American Millennials do aspire to own homes, many cannot afford them, even by sacrificing their lifestyle and moving to cheaper neighborhoods (Bankrate).

In the US, 43% of 30-year-olds owned their home in 2022, compared with 52% of baby boomers and 49% of Gen Xers when they were 30 (Redfin). In Australia, just over half of millennials are homeowners. This compares with 62% of Gen X and 66% of Boomers when they were at the same age (The Guardian).

In the United Kingdom, a new monicker has even emerged to describe the Millennials who have been forced to move back in with their parents – the “Guppies”, as in “giving up on property”. According to a real estate company survey, less than a quarter of people under 40 years own a home (Fortune), and the rising prices are to blame. Just between 2012 and 2021, house prices in the country rose 53%, while wages grew only 19%. In these conditions, it is unsurprising that the rare Brits who actually own homes must often thank the “Bank of Mum and Dad” (The Telegraph).

Some Millennials and Gen-Zers seized the brief window of opportunity, buying real estate in pre- and post-Covid periods, but this window is now firmly closed. The ever-increasing cost of living, coupled with the surging interest rates, has created one of the worst housing affordability conditions we’ve seen.

How Millennials and Gen Z invest

In the face of financial crises, a sluggish job market, mounting student debts, and an ever-increasing cost of living, Millennials have adeptly learned the art of doing more with less.

Many studies have focused on the investment habits of younger generations, highlighting trends such as greater risk tolerance, distrust of the traditional financial system, and willingness to diversify.

Those who can afford it do not hesitate to buy houses. Those who cannot, invest in stocks, particularly tech-oriented, and “alternative” assets, such as art, wine, and of course, crypto. The emergence of investment apps, such as Robinhood, and the variety of crypto exchanges have made it easier to start investing. Today, virtually anyone can open an account and invest even modest sums, all while social media platforms offer inexhaustible sources of investment-related information.

A recent study led by Finra and CFA Institute revealed that crypto is the most common investment among the Millennials and Gen-Z, over 55% of whom have some in their portfolio.

As to the mutual funds with conservative portfolios of stocks and bonds, so favored by the previous generations, they started to lose their appeal.

And yes, despite their young age, Gen-Z also invest. Approximately a half of surveyed aged 18-25 reported having some form of investment, and a quarter (in the US) started investing even before they turned 18.

Morningstar’s 2023 Voice of Investor study found a smaller percentage of Gen-Z investors, but confirmed that over a half of the US Millennials invest in crypto.

This trend can have important implications for wealth distribution in the medium term.

If the bet on crypto pays off, it could help Millennials and Gen-Zers to narrow the wealth gap in a way traditional assets cannot. Adding the remote work trend to the picture, we could imagine more and more people moving to previously weakly populated areas, where housing is more affordable, changing the existing urban dynamics.

In the longer term, however, another transformative shift will take place.

The Great Wealth Transfer

As Boomers, the largest generation in history, are reaching their twilight years, the Great Wealth Transfer approaches. By 2045, American Millennials and Gen X are expected to inherit $84 – roughly half of today’s total population wealth of $156 trillion.

The ensuing implications for investment markets will be huge. Millennials will find themselves able to invest much more, all while keeping the familiar investing style. And it will likely not include government bonds and other assets that are now showing their inherent flaws.

This means more money will flow from traditional finance into the crypto space, setting in motion the processes that can reshape our entire world 🌍

The demographic shift is already underway. With Millennials and Gen-Zers already representing 42% of the US population, the role they are playing in the investment business is increasing.

Given their lived experiences, these generations do not fit the same mold as their older counterparts at comparable ages. They are following nonconventional life paths, driven by convictions and FOMO (fear of missing out), very comfortable with technology, and highly independent.

Understanding their investment choices and the upcoming demographic shifts gives even more reasons to take the crypto narrative seriously.