Are today’s young adults better off financially than previous generations?

Today’s Dutch thirty-somethings have a median disposable income of €30,000. Their parents’ generation didn’t reach that income level until the age of 47. Thijs Knaap, Chief Economist at APG, explains what this “figure of the week” really tells us.

“It’s not always easy to make generalizations about a generation,” says Knaap, referring to Statistics Netherlands (CBS) data reported by newspaper Het Financieele Dagblad (FD). “After all, generations consist of many individuals leading very different lives. But the researchers did well to focus on the median income, which sits right in the middle of the income distribution. That’s different from the average income, which can be skewed—say, if nine people earn €50,000 and the tenth earns a million.”

The data on median income shows that people tend to earn more as they age, peaking around age 54. “After that, working people's earnings typically decline,” Knaap continues. “That’s mainly because—especially in the past—people who had built up enough financial security would stop working around that age.”

Housing costs
According to CBS figures, each of the last six generations has earned slightly more than the previous one by the time they reach their thirties and forties. Between 1979 and 2019, this translates to an annual income growth of 1.3%, based on Knaap’s calculations. “We owe that growth to technological progress and the fact that more women are working and are better educated, which leads to higher earnings. So, in financial terms, the most recent generation is actually the best off—even after adjusting for inflation.”

“Still, I can’t help but feel uneasy saying that,” Knaap adds, “because today’s thirty-somethings are facing real challenges, despite their relatively high disposable income.” This is where the Consumer Price Index (CPI) comes into play, which tracks the price trends of commonly purchased goods and services across Dutch households. CBS uses the CPI to make income levels comparable over time. About 20% of the CPI is based on housing costs. And that, according to Knaap, is where the problem lies.

“There’s a huge disparity in what people pay for housing in the Netherlands—even for similar types of homes. Are we talking about a home that’s been bought? When was the mortgage taken out? Has it been paid off? And if it’s a rental, is it from a housing corporation or a private landlord? It makes sense that CBS uses an average of all these scenarios, but the amount the CPI assumes you can get a home for doesn’t get you very far in today’s housing market—especially if you’re in your thirties. And housing costs make up a large portion of consumer spending.”

The avocado economy
This context also sheds light on the so-called “avocado economy,” Knaap says. “Older generations often complain that young people today earn plenty but spend it all on avocado toast and coffee at the train station—leaving nothing for a house. But the real reason young people can’t afford homes is that housing prices have skyrocketed in recent years.”

“On top of that,” he continues, “unlike older generations, today’s young adults are burdened with student debt and face precarious employment through flexible contracts, as the FD rightly points out. A small consolation is that young people today do have access to products and services like iPhones and Netflix—things earlier generations didn’t have in their thirties. And since the CPI doesn’t account for these new conveniences, it actually underestimates how well off today’s thirty-somethings are in some respects.”

Growing inequality
So, the €30,000 disposable income figure for today’s thirty-somethings tells the story of the median Dutch person, Knaap concludes. “The number and the calculation may be accurate, but they don’t reflect the differences between individuals. The ‘average Dutch person’ never really existed, and fewer and fewer people will identify with being ‘average.’ Most people now find themselves on one side or the other of the inequality divide—especially when it comes to housing. And if you only look at the median or the average while inequality keeps growing, disposable income becomes an increasingly meaningless figure that few people can relate to.”