The wealth gap between millennials is sparking a new class war

A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for the affluent investor and consumer. To register to receive future editions straight to your inbox.

The wealth gap between wealthy millennials and the rest of their age group is the widest of any generation, creating a new wave of class tension and resentment, according to a study. recent research.

Even as the vast majority of millennials struggle with student debt, low-paying service jobs, unaffordable housing, and little savings, the millennial elite is outpacing previous generations. According to the study, the average millennial has 30% less wealth at age 35 than baby boomers at the same age. Yet the top 10% of millennials have 20% more wealth than the top baby boomers at the same age.

“Millennials are so different from each other that it isn't particularly meaningful to talk about the 'average' Millennial experience,” wrote the study's authors, Rob Gruijters, Zachary Van Winkle and Anette Eva Fasang. “There are millennials who are doing extremely well – think Mark Zuckerberg and Sam Altman – while others are struggling.”

The research shows that millennials – generally defined as people between the ages of 28 and 43 – have repeatedly faced financial headwinds. As they mature during the financial crisis, they have lower homeownership rates, higher debts exceeding assets, low wages and unstable jobs, and lower dual-income family formation.

At the same time, the authors say the top 10% of millennials have benefited from greater pay for skilled jobs. As they put it: “Returns to high-status work pathways have increased, while returns to low-status pathways have stagnated or declined.”

The millennials who “went to college, found college-level jobs and started a family relatively late” ended up with “higher levels of wealth than baby boomers with similar life trajectories,” the report said.

The great wealth transfer

There may be another factor creating so much wealth among millennials: inheritances. In what's known as “the great wealth transfer,” baby boomers are expected to pass on between $70 and $90 trillion in wealth over the next two decades. Much of that is expected to go to their millennial children. High net worth individuals worth $5 million or more will account for nearly half of that total, according to Cerulli Associates.

Asset managers say some of that wealth is already trickling down to the next generation.

“The great transfer of wealth that we've all been talking about for the past decade is happening,” said John Mathews, head of UBS. Department of Private Asset Management. “The average age of the world's billionaires is currently almost 69 years old. This entire transition or wealth transfer will therefore accelerate.”

Tensions between millennial classes are likely to escalate as more wealth is transferred in the coming years. Displays of wealth on social media by millennial “fake babies” could contribute to intergenerational class warfare and push non-wealthy millennials to overspend or give the appearance of a lavish lifestyle to keep up.

A Wells Fargo survey found that 29% of affluent millennials (defined as having assets ranging from $250,000 to more than $1 million in investable assets) admit they “sometimes buy items they can't afford to impress others'. According to the survey, 41% of affluent millennials admit to financing their lifestyle with credit cards or loans, compared to 28% of Gen Xers and 6% of baby boomers.

The battle between wealthy millennials and the rest could also shape their attitudes toward wealth. For more than forty years, the vast majority of America's created millionaires and billionaires have been self-made, many of them entrepreneurs. A study by Fidelity Investments shows that 88% of American millionaires are self-made.

Still, inherited wealth could become more common. A UBS study shows that heirs who inherited their fortunes last year amassed more wealth than self-made billionaires for the first time in at least nine years. And all the billionaires under the age of 30 on the latest Forbes billionaires list have inherited their wealth for the first time in 15 years.

'Extreme' wealth

The increase in wealth among millennial heirs is also creating a lucrative new market for asset managers, luxury companies, travel agencies and real estate agents.

Clayton Orrigo, one of Manhattan's top luxury real estate agents, has built a thriving business on wealthy millennials. The founder of Compass' Hudson Advisory Team has sold more than $4 billion in real estate and agents regularly trade in excess of $10 million. He says the “vast majority” of his business lately has come from buyers in their 20s and 30s with inherited wealth.

“I just sold a $16 million condo to someone in their mid-20s, and the buyer got access to the family trust,” he said. “The wealth behind these children is extreme.”

Inherited wealth has become Orrigo's specialty. He says he is working to forge close relationships with family offices, trusts and the young moneyed elite who mingle in New York membership clubs like Casa Cipriani.

The pattern is familiar: a wealthy family calls asking for rent for their son or daughter; a few years later, they want to buy a $5 million or $10 million two-bedroom apartment in a new high-security building downtown.

“My act is working very quietly and very discreetly with the richest families in the world,” Orrigo said.

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