Does Gen Z stand a chance at being one of the wealthiest generations?

The millennial generation has received a lot of attention over the years as a generation that's doomed to always struggle with student loan debt and never generate the wealth of their Generation X and baby boomer parents.

And because of a changing economic atmosphere that's pricing many Americans out of homeownership, and generally making it harder for younger people to save money and hit so-called standard milestones in adulthood, many are beginning to wonder if Generation Z stands a chance at becoming as wealthy, or even wealthier, than baby boomers.

Because Gen Z is currently between the ages of 6 and 24 (though some sources expand Gen Z to include current 25-year-olds), there may not be enough data to draw an accurate depiction of Gen Z's current wealth. However, we can still analyze some economic and behavioral factors that may provide clues for Gen Z's wealth trajectory.

But before we can talk about Gen Z's wealth prospects, we need to start with the baby boomer generation.

Millennials and Gen Z'ers weren't the only ones to have graduated into a state of low job prospects and economic struggles. When baby boomers (those born between 1946 and 1964) graduated from college and were coming of age in the 1970s, an era of both innovation and downturn, their financial future wasn't totally solidified.

In her book "Can't Even: How Millennials Became The Burnout Generation," Anne Helen Petersen explains that by the 1970s, many of those boomers (who were in their-mid twenties at the time), faced wage stagnation, inflation and an unemployment rate of 8.5%. American jobs had begun moving overseas so corporations could pay employees less and avoid the wrath of powerful unions that advocated for workers. And on top of all that, the U.S. was dealing with the Vietnam War, the Watergate Scandal, a general distrust of the government and the resignation of President Richard Nixon.

But perhaps one of the biggest financial hits to the baby boomer generation was the shift from the pension program to 401(k) programs. A pension plan is a benefit provided by an employer who agrees to pay an employee a portion of their salary every year for the rest of their life if they remain at the company for a certain number of years (usually 10 to 20+ years). Petersen writes that combining pension funds with Social Security benefits allowed the generation before the boomers (known as the Greatest Generation) to retire quite comfortably.

But with the shift to 401(k) accounts, retirement planning was left in the hands of boomers, who now had to opt in to save a portion of their income in a dedicated investment account for retirement. And while some companies offered a matching program (like companies still do today), many others didn't offer retirement accounts at all.

All this fueled anxiety about financial security, and with jeopardized job prospects, some boomers found it extra difficult to preserve the middle class status of their parents.

Despite the concern, boomers were able to build wealth by investing in a rising stock market and buying real estate. They benefitted from the the great bull market of the 1980s, which not only saw share prices soar but also had record-high trading volume since many more buyers entered the market.

By the time boomers were between the ages of 25 and 34 in 1989, they had amassed an average net worth of $125,000 (adjusted for inflation), a study from the United States Government Accountability Office finds. Millennials who were between the ages of 25 and 34 in 2016, by comparison, had an average net worth of just over $100,000.

Today, baby boomers (who are now between the ages of 56 and 74) hold over half of U.S. household wealth. And while there has been talk around "the great wealth transfer" — where boomers will pass down their wealth to their Gen X and millennial children over the next 25 years — some experts have reason to believe that the transfer won't be large enough to make a significant difference in the lives of the younger generation.

"What the data has shown is younger generations are optimistic that they will receive a significant transfer of wealth from their parents, but as they grow older, their optimism fades," says Lowell Ricketts, a data scientist for the Institute of Economic Equity at the Federal Reserve Back of St. Louis. "One of the trends driving this is that folks are living longer, so this depletes available savings so younger generations will receive less."

According to a report by the Insured Retirement Institute, only 55% of baby boomers actually have money saved for retirement. This means that 45% of boomers may have to start building their savings or they won't have anything to pass down to their children.

Another important aspect of boomers' wealth is homeownership. When you make monthly payments toward a mortgage, you build equity in the home, which can be accessed for a number of different things, including to buy another home. And when a homeowner sells a home that has appreciated in value — due to renovations and market conditions, for example — they can take their profits and continue to invest, buy more property and build more wealth.

According to a New York Times analysis, boomers hold 44% of real estate wealth in 2021, and unfortunately for the younger generations looking to buy, boomers don't seem to want to put their homes on the market.

The analysis found that many boomers have become increasingly wary of nursing homes since the pandemic (though, that lack of interest has been around since before 2019), and as a result, many are choosing to stay in their homes. The lack of housing supply, increased demand and historically low interest rates has lead to a big spike in home prices in recent years. And until boomers decide to put their homes on the market (or their estates decide for them), prospective homebuyers may have to hope that enough new homes can be built quickly.

But those who are able to begin the home-buying process have found that the cost has increased — even without the massive race to buy homes driving up prices during the pandemic. According to the U.S. Census Bureau, the median price of a home in 1980 was $47,200 ($93,400 when adjusted for inflation). But by the year 2000, the median price was $119,600 (adjusted for inflation).

A report from RenoFi shows that the average home price in the U.S. has risen 48.55% in the last 10 years, and if growth were to continue at this same rate, the average home in the U.S. could cost $382,000 by the year 2030. Simply put, the financial bar for homeownership is going to get even higher.

This can give millennials and Gen Z'ers the feeling that the carrot keeps moving further and further away — just when they were prepared to spend a certain amount for a down payment, suddenly the cost has increased.

This is one reason why millennials have delayed homeownership — and high home prices could also mean a similar fate for Gen Z'ers, many of whom may not prepare to purchase their first homes for another 15 to 20 years. As such, they may be entering the housing market during a time when home prices will be even higher. Those who are unprepared with enough money to cover a down payment may find that this will be another barrier to building wealth.

"It's a bit of a luck of the draw of when you were born, and it really comes out during times like these when we have historically high asset prices, and there are constraints like housing supply that can prevent those asset prices from coming down," Ricketts says.

Enough small steps can eventually produce a big outcome, which is why many Gen Z'ers have already begun acknowledging and showing concern for their finances. According to a 2019 study from Next Gen Personal Finance, 33% of high school students have their own bank account and another 34% of them share a bank account with a parent.

What's more, when compared to millennials when they were the same age, a higher percentage of Gen Z'ers have begun investing.

"In 2019, around 27 to 28% of Gen Z'ers had some exposure to equities through holding a stock or through retirement accounts," Rickketts explains. "That percentage is much higher than that of other generations. When millennials were the same age back in 2004, just 18.7% of them had some exposure to equities."

Still, fewer millennials might have been investing but they had more money in the market. In 2004, millennials had an average portfolio value of $3,200, while Gen Z'ers at the same age in 2019 held an average of $950, the numbers show that more Gen Z'ers are already taking steps to start building wealth. Some investing exposure, after all, is better than none at all. And according to Ricketts, the rise of more accessible investment platforms like Robinhood and robo-advisors like Wealthfront and Betterment may have contributed to this.

With new technology making it more convenient to own securities and even invest in properties through Real Estate Investment Trusts (REITs), it can be argued that Gen Z'ers may actually have more opportunities to get some skin in the wealth-building game earlier compared to previous generations.

Because they're getting started sooner, Gen Z'ers have time on their side — and time is a very important factor that allows you to really reap the rewards of compound interest.

Let's say you invest $300 into an S&P 500 index fund that returns about 10% each year on average, then you continue contributing $200 every month for 30 years; by the end of the 30 years, you will have contributed $72,300 and accumulated a balance of $458,049.

But if you start investing later and instead give yourself 20 years to grow your money, you will only have $154,072 after contributing $48,300. The more time your investments have to grow, the larger they will become.

And that's not all: According to the 2021 21st Annual Transamerica Retirement Survey, 70% of Gen Z'ers surveyed have already begun saving for retirement, and the median age at which they've begun saving is 19. By contrast, the median age millennials began saving for retirement is 25. But the survey also found that Gen X'ers and boomers didn't start saving for retirement until ages 30 and 35, respectively. Having started much sooner than the earlier generations, Gen Z has already begun positioning themselves to have more money in retirement.

Many boomers entered adulthood worried about their ability to earn and save money. But time and planning have proven valuable in their wealth building journey. Though the stock market can be unpredictable, keeping their money in the market has allowed boomers to take advantage of periods of astronomical gain.

It is also important to keep in mind that boomers, the oldest of whom are turning 75 this year, have had more time to grow their wealth and this will inevitably be true for the generations that follow.

The younger generation is facing unique obstacles on their wealth-building journey, but at the same time they've already begun taking action toward improving their financial outcome. Asset prices are increasing faster than ever, making it harder for Gen Z to start building wealth in the first place.

It may still be too early to tell if Gen Z stands to become the wealthiest generation. However, more Gen Z'ers have exposure to the stock market and have started saving for retirement earlier. These are significant factors that could allow them to accumulate substantial wealth over time.