Lost Generations? Wealth Building Among the Young
By Caroline Ratcliffe Signe-Mary McKernan :: March 19th, 2013
Despite the recent recession, average household wealth approximately doubled between 1983 and 2010, and average incomes rose similarly. Older Americans shared in the rising economy and doubled their wealth. But, our recent research with Eugene Steuerle and Sisi Zhang reveals that younger generations have been largely left behind.
Today, people in their 20s and 30s (Generations X and Y) have accumulated less wealth than their parents when they were the same age about 25 years ago. The average wealth of 20- and 30-year-olds in 2010 was 7 percent below that of those in their 20s and 30s in 1983.
Change in Average Household Net Worth by Age Group, 1983-2010
Source: Authors' tabulations of the 1983, 1989, 1992, 1995, 1998, 2001, 2004, 2007, and 2010 Survey of Consumer Finances (SCF). Notes: All dollar values are presented in 2010 dollars and data are weighted using SCF weights. The comparison is between people of the same age in 1983 and 2010.
As a society gets wealthier, children are typically richer than their parents, and each generation is typically wealthier than the previous one. But younger Americans’ wealth is no longer outpacing their parents’. Americans expect every generation to do better than the previous one, but this young generation is not. Why?
The Great Recession’s effect on housing hit the young particularly hard, as they were more likely to have the largest balances on loans and the least equity relative to their home values. Some ended up underwater on their mortgages and could not take advantage of recent low interest rates. Also, many young Americans have limited job opportunities in the post-recession economy, particularly as they leave school and enter the labor force.
But the young were falling behind even before the Great Recession. Student loan debt stands near $1 trillion, surpassing credit card debt. Other likely factors include delayed entry into the workforce, stagnant wages, and lack of educational attainment that is higher than previous generations.
In addition, public policy now burdens the young with ever-increasing interest payments on the federal debt. The cost of preserving retirement and health benefits for older Americans and baby boomers should not be passed on to younger generations who have already been losing out on their share of private wealth. Education has been shortchanged amid tightening state and local budgets, and post-recession policy has discouraged homeownership.
If current trends are not reversed, when today’s younger Americans retire, they may be more dependent on safety net programs less capable of providing basic support. The fall in wealth building among Gen X and Y may also have far-reaching implications for budget, tax, and education reform.
If we want to secure our economy’s future, we must make asset-building among the young a priority.