Generation Gap in Americans’ Net Worth

Households headed by older adults have made impressive gains when compared with those headed by younger adults in their economic well-being over the past 25 years, according to a Pew Research Center analysis. In 2009, households headed by adults aged 65 and older had 42 percent more net worth (assets minus debt) than households headed by their same-aged counterparts had in 1984.  During this same period, the wealth of households headed by younger adults declined.  In 2009, households headed by adults younger than 35 reported 68 percent less wealth than in 1984.

As a result of these trends, in 2009 the typical household headed by someone in the older age group had 47 times as much net wealth as the average household headed by someone younger – $170,494 versus $3,662 in 2010 dollars.  In 1984, this had been a less asymmetrical ten-to-one ratio.  This means that the oldest households in 1984 had median net wealth $108,936 higher than that of the youngest households.  By 2009, the disparity had grown to $166,832.

Writing for CNN Money, Annalyn Censky notes that “So why the growing chasm?  Housing trends have played a major role, the Pew Center said.  While rising home equity helped drive wealth gains for the older generation over a long timeframe, the younger generation has had less time to ride out the housing market’s volatility — especially its most recent boom and bust.  Meanwhile, the younger generation is also taking longer to enter the labor force and get married.  And surging college costs are also leaving them burdened by more student loans than prior generations.”

According to the Pew report, “Most of today’s older homeowners got into the housing market long ago, at ‘pre-bubble’ prices.  Along with everyone else, they’ve been hurt by the housing market collapse of recent years, but over the long haul, most have seen their home equities rise.  For young adults who are in the beginning stages of wealth accumulation, there has been no such luck, at least so far.”

The impact of the Great Recession on individual wealth was taken into account by the Pew Researchers. We don’t know what the future will bring, but things are happening much more slowly for this generation,” said Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis.  “If this pattern continues, and this difficult start plays out and slows this generation down, then you start to call into question the basic tenets of the American dream, which is that every generation does better than the one before.”

While the recession hurt people of all ages, the older group was much better sheltered, and saw its median net worth drop just six percent between 2005 and 2009.  Generally speaking, it has increased 42 percent since 1984 when the Census Bureau first began measuring wealth according to age.  The median net worth for the younger-age households fell 55 percent since the recession and 68 percent when compared with 25 years ago.

Net worth consists of the home’s value, possessions and savings, minus debt such as mortgages, college loans and credit-card debt.  Fully 37 percent of younger households reported that they have a net worth of zero or less, nearly double the amount reported in 1984.  That percentage remained at approximately eight percent for households headed by a person 65 or older.  “It makes us wonder whether the extraordinary amount of resources we spend on retirees and their healthcare should be at least partially reallocated to those who are hurting worse than them,” according to Harry Holzer, a labor economist and public policy professor at Georgetown University.

The news isn’t all bad for young people.  For example, they may have more student debt.  That’s good news because it means that more of them are going to college, a choice that will show returns in the long-run, according to the study.  Education is essential  to making money in today’s economy, said Steven Klineberg, a professor of sociology at Rice University.  Unlike in the past, the availability of blue-collar jobs and unions that could boost a worker into the middle class no longer exist.  “The ability to keep learning is a critical requirement,” Klineberg said.