The wealth gap is growing, and if the Occupy Wall Street and its satellite protests are any indication, those not within the top one percent of income earners are not happy with their circumstances or the policies that help foster the wealth of those at the top. It’s been called class warfare, but there are other dimensions to the wealth gap than the spectrum that includes poor, working middle class, upper middle class, and wealthy.
The gap in wealth between young and old Americans is growing. Today, the Pew Research Center released new data showing the widening divide between Americans 35 years old or younger and Americans 65 and older. In 1984, the median net worth for the younger group was $11,521 (adjusted for inflation). The same year, the median net worth for the older group was $120,457. Net worth includes the value of all one’s assets, including a house, minus the value of all one’s liabilities, including student loan debt, credit card debt, and mortgages.
The passing of twenty-five years makes a difference. Today’s median net worth — actually not today’s number, but 2009’s number — for Americans 35 years old or younger is $3,662. That’s a 68% decline! Today’s youth is significantly less wealthy than the youth of the previous generation. In 2009, the older group’s median net worth was $170,494, a 42% increase.
This is a comparison between age groups, which I would expect to be fairly similar to each other and similar to the past in terms of socioeconomic distribution. They would have to be, or the data would need to be standardized, for the numbers to have merit. There are great reasons to be happy about the increase of wealth in one group, but there is also a wide variety of reasons why young people (and I am one — I’ll remain 35 for just a few more months, if all goes well).
- Unemployment within the young age group is high, while older workers are opting to stay in their jobs longer. In fact, recent graduates facing unemployment may never reach their income potential. This problem isn’t just going to go away when the job market improves.
- Some call today’s young adults (or old adolescents) the Boomerang Generation. After college, they move back to their parents’ house while looking for a job. They delay marriage and purchasing a house, both activities that are correlated with increased wealth. Yesterday’s recent graduates had jobs and houses, both of which contributed to gains over the past 25 years, particularly if the house was purchased in advance of the real estate bubble.
- Student loan debt is a much more significant part of a young person’s life today than it was in 1984. College costs have far outpaced inflation, and lenders have always been keen to extend the availability of higher education to more students (otherwise known as borrowers and customers).
- A college education is increasingly seen as the gateway to a good career in any field. It’s difficult to compete in an information-based economy (opposed to a manufacturing-based economy) without a bachelor’s degree. A high school diploma is no longer enough for participation, particularly when companies can afford to be selective in hiring.
If you’re in the younger group, the question should always be what you can do to reverse this trend. While there can be some results by supporting public policies that don’t include bail-outs for the rich (socialization of losses) while cutting back resources for those with the least opportunity (privatizing the gains), it’s important to put yourself in the best position possible so that you don’t need to rely on public policy in your favor.
Assume you’re a major league baseball player. (That will easily put you in a position where your wealth is quite healthy, but that’s besides the point at the moment. Just go with the unexpected metaphor for a second.) You have three balls and two strikes, there are two outs, you’re down by one run, the bases are loaded, and it’s the bottom of the ninth inning. You hit your next pitch to the shortstop. He mishandles the ball but gets it over to first base. It’s a close play, a tie, but the umpire calls you out. Your manager rushes the field from the dugout to argue, but it’s no use. You head back to the showers momentarily defeated.
It’s easy to blame the umpire for getting the call wrong on such an important play. It’s your job to perform well enough that there’s never any question about whether you’re safe or out. The “system” that requires an umpire to make a snap judgment call on a close play is the same “system” that makes it difficult for people to succeed financially. By taking control of your finances, you make the “system” — the job market, the economy, politician’s policies, to name a few societal aspects that aren’t easily controlled by one person — less relevant to your long-term success.