Will the Younger Generation Survive the Economic Downturn?
The wealth gap between younger and older Americans has stretched to the widest on record, worsened by a prolonged economic downturn that has wiped out job opportunities for young adults and saddled them with housing and college debt.
The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data recently released. The 47-to-1 gap in net worth between old and young is believed by demographers to be the highest ever, even predating government records.
While people typically accumulate assets as they age, this gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.
The analysis by the Pew Research Center reflects the impact of the economic downturn, which has hit young adults particularly hard. More are pursuing college or advanced degrees, taking on debt as they wait for the job market to recover. Others are struggling to pay mortgage costs on homes now worth less than when they were bought in the housing boom.
The report casts a spotlight on a government safety net that has buoyed older Americans on Social Security and Medicare. "It makes us wonder whether the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them," said Harry Holzer, a labor economist and public policy professor at Georgetown University who called the magnitude of the gap "striking."
The median net worth of households headed by someone 65 or older was $170,494. That is 42 percent more than in 1984, when the Census Bureau first began measuring such data broken down by age. The median net worth for the younger-age households was $3,662, down by 68 percent from a quarter-century ago, according to the Pew analysis.
Because the Pew report examines households at the midpoint of the economic scale, it does not delve deeply into changes occurring at the top and bottom of the distribution. A new census measure shows the poverty rate to be higher than previously known — about 15.9 percent for Americans 65 or older, compared to the official 9 percent rate reported last September. Working-age adults ages 18-64 also saw increases in poverty — from 13.7 percent to 15.2 percent.
Nancy LeaMond, an executive vice president of AARP, noted that older Americans spend a disproportionate share of their income on out-of-pocket medical care, compared to other groups. "Millions of older Americans today continue to struggle to make ends meet," she said. "Many older Americans do own their homes, but plummeting housing values — along with dwindling savings, stagnant pensions and prolonged periods of unemployment — have taken their toll."
In all, 37 percent of younger-age households have a net worth of zero or less, nearly double the share in 1984. But among households headed by a person 65 or older, the percentage in that category has been largely unchanged at 8 percent.
While the gap in net worth has been widening gradually due to delayed marriage and increases in single parenting among young adults, the housing bust and recession have made it significantly worse.
For young adults, the main asset is their home. Their housing net worth dropped 31 percent from 1984, the result of increased debt and falling home values. In contrast, Americans 65 or older were more likely to have bought homes long before the housing boom and thus saw a 57 percent gain in housing net worth even after the bust.
Older Americans are staying in jobs longer, while young adults now face the highest unemployment since World War II. As a result, the median income of older-age households since 1967 has grown at four times the rate of those headed by the under-35 age group.
Social security benefits account for 55 percent of the annual income for older-age households, unchanged since 1984. The retirement benefits, which are indexed for inflation, have been a consistent source of income even as safety-net benefits for other groups such as low-income students have failed to keep up with rising costs.
Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis, said the report shows that today's young adults are starting out in life in a very tough economic position. "If this pattern continues, it will call into question one of the most basic tenets of the American Dream — the idea that each generation does better than the one that came before," he said.
— Households headed by someone under age 35 had their median net worth reduced by 27 percent in 2009 as a result of unsecured liabilities, mostly a combination of credit card debt and student loans. No other age group had anywhere near that level of unsecured liability acting as a drag on net worth; the next closest was the 35-44 age group, at 10 percent.
— Wealth inequality is increasing within all age groups. Among the younger-age households, those living in debt have grown the fastest while the share of households with net worth of at least $250,000 edged up slightly to 2 percent. Among the older-age households, the share of households worth at least $250,000 rose to 20 percent from 8 percent in 1984; those living in debt were largely unchanged at 8 percent.
The Pew survey is a wake-up call for our elected officials that social security and Medicare must be fixed, and sooner rather than later. We are not likely to emerge from the recent economic downturn anytime soon. I believe it will take at least another five years to be anywhere close to where we were before the 2008 meltdown. That would mean a ten-year period of slow or no growth accompanied by a continued loss of jobs overseas, dependence on unreliable foreign sources of oil, and an appetite for war that seems to send our brave soldiers to the most troubled areas of the world with little chance to make a sustainable difference in how those countries are run or the quality of life for the population.
If the U.S. continues down the same path we’ve been on since Bush invaded Afghanistan and Iraq and corporate American and Wall Street took greed to an unfathomable level, then I fear this country may become susceptible to an infiltration by groups that want to destroy the American dream. Where are our politicians on these important issues? Where is the discussion and debate in the current election cycle? I’m still waiting.
Blog posted by Steven Mintz, aka Ethics Sage, on February 23, 2012