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Wealth Gap: Young Vs. Old

This article was written by in Wealth and Affluence. 18 comments.

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.

First BaseThis 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.

Pew Research Center - Age Wealth GapIf 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.

Photo: Jinx!
Pew Research Center

Published or updated November 7, 2011.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 18 comments… read them below or add one }

avatar 1 Anonymous

Everyone should save, but few do particularly when they are young. There is always something that prevent savings such as life. The biggest advantage young people have is time, but they blow it.

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avatar 2 Anonymous

When I was younger, I used to blame every bad thing that ever happened in a baseball game on the umpire. I’ve since matured and started taking responsibility for my own successes and failures.

Unfortunately, there are a lot of people my age who are still approaching the world like I did during baseball games in 4th grade.

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avatar 3 Anonymous

It’s interesting… I had heard about this so-called “Boomerang generation” awhile back and didn’t really believe it… It’s a good point though… if people in their early 20’s are putting off marriage and kids, they don’t really have the responsibilities that would require them to bring in a larger income…

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avatar 4 Anonymous

I was stunned when I read the article this morning, because I had always felt my wife and I had passed just “under-the-wire” when we retired. I’m 64 and not yet in the 65 and older group but I identify myself with them because I’ve already retired. We hadn’t even started saving when I retired from the Air Force after 20 years (lousy pay but great benefits) but we started a retirement savings plan soon thereafter. This morning realizing that we had managed to save more than three times the median amount was a shocker, albeit a rather pleasant one and we nearly broke our arms patting ourselves on the back.
I encourage everyone to get an early start on retirement savings because the pension and entitlements promises are too easily broken by businesses and government.

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avatar 5 Anonymous

I wonder if part of the net worth difference is because of the housing market. In 2009, many 35 year olds had probably taken out home equity loans on previously overinflated housing prices, which contributed to debt and therefore lowered net worth. However, many of the older group probably had already paid their homes off. (Not to mention the number of youngsters that probably took out interest-only loans, which never builds equity.) I also don’t know that buying the biggest house possible was as popular in the 80s as it is has been in the last decade.

Regardless, people do need to stop blaming the economy, their boss, their parents, whoever and start taking responsibility for their own situation. You can build wealth at most salary levels if you can control your spending and you wants. However, so many people they inherently deserve so much, but aren’t quite convinced that they need to actually work for it.

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avatar 6 Anonymous

It is important to note that the increase from $120,457 to $170,494 over 25 years is only an increase of 1.4% per year. With CPI averaging 2.9% during the same period ( this is actually a change from $120,457 to $83,430 adjusted for inflation – not as appealing. I believe there are more opportunities than ever for the under 35 group. It is competitive though as this economy and the evolution of the workplace has them up against the 35-65 group as well as the over 65 group. Creativity, assertiveness and hard work are always rewarded.

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avatar 7 Luke Landes

The numbers are already adjusted for inflation. All dollar amounts are in 2009 dollars. It’s not a decrease for the “old” category.

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avatar 8 Anonymous

Thanks for the clarification!

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avatar 9 Cejay

As a 43 year old I came across the Tightwas Gazette books and read her story. It set a fire in my belly and I decided that I could do better than most people thought/said I could. My husband works in a factory and I worked in an office. We make less than most people our age if our income is combined but we have more net worth than a lot of others we know. Both of us arrived in our marriage with no assets but we worked, lived within our means, and made do with whagt we had in order to reach where we are. I could have sat back and whined that I did not go to college until I was 38, did not understand a computer till later than some people and had no parents to help me out but I did not. I do get real tired of some young people I know, little girl in our office comes to mind, who buy $100.00 jeans but fuss that they cannot afford to pay their student loan.

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avatar 10 Anonymous

Taking responsibility for your actions and life is fine and true, but the deck is stacked against 20- and 30-year olds now like it wasn’t 40 years ago. College has become almost mandatory, and tuition is just off the charts. Unless you come from a wealthy family, you’re going to graduate with a boatload of debt. Given that the median wage has barely moved in the last 20 years while student debts have gone up, it’s no wonder that young people are having a difficult time keeping up.

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avatar 11 lynn

I respectfully disagree. If the 20 and 30 year olds listened to the wisdom of the older generation, then I would agree. But, they wanted it all and foolishly spent on lavish items and didn’t think it was important to pay back creditors. There were enough of this type of consumer that our entire system fell. ( a component of the fall). Even the housing bubble was bought into by the generation. Boomers had very little to do with the mess were in, other than they couldn’t see little Jonny go without, so they created a generation of self satisfying people. (so I stand corrected) I am SO thankful we put up with neighbors thinking we were poor because we didn’t indulge our kids or ourselves. And shunning us because of it. All of their boats and ‘stuff’ are gone and we are stable. What a person puts into something is EXACTLY what they get out of it.

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avatar 12 Anonymous

I’m not sure what you’re referring to. Here’s what I’m referring to: the cost of attending college has gone through the roof over the past 20 years and there has been no appreciable increase in wages, unless you have an advanced degree, which requires–you guessed it–more tuition. It is rather difficult to gain wealth when you have over $100k in loans in a depressed economy with no real increase in wages. How many boats your neighbors bought is completely unrelated to my point.

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avatar 13 lynn

I only said I respectfully disagree. I gave my opinion, which is what the comment section is for. I left the psuedo intelligence conversations behind when I retired.

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avatar 14 Anonymous

I respect your opinion and your right to set it forth, it just has no bearing on my point, and I was fruitlessly seeking clarity.

avatar 15 lynn

I’m seeing things from the other side of the hill. I’m retired, so my view will be different. I really don’t feel comfortable with this anamosity continuing, but I would like to say my original comment wasn’t meant to discredit your thoughts. It was just something I didn’t think of. I paid cash for college from summer money. I went to a private school and it cost no where what they do now. So I’m not even thinking the cost of college, even though it was mentioned in the article.

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avatar 16 lynn

3662$? Could this be the value of a vehicle?
Our 2 oldest followed in our footsteps, The 2 youngest thought we were old fashioned, they listened to everyone else. The 2 oldest are solvent, the 2 youngest are now repairing their mistakes. Some things never change. 1+1=2 is one of them.

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avatar 17 Anonymous

The drop in 35 year olds’ net worth could easily be explained by an increase in the number of people who go to college right after high school. Long term college may make financial sense, but short term you take on debt (student loans) while not getting income (opportunity cost of college) and you may not have made up for that only 10 years into your career. Aggregate that effect for some large fraction of the millions of 35 year olds and it could easily have the effect noted.

The rise in 65 year olds’ net worth could be accounted for by any number of measures. As one commenter pointed out, 65 year olds may tend to own their home, which went up unreasonably. (If so, if they re-ran the study after two years of price declines, the effect might be gone already!) Furthermore there is a trend towards 401(k)s; unless they counted pensions as an “asset” in the 1984 numbers, that would make a big difference.

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avatar 18 qixx

Fewer 25 year olds working and their number goes down. Increase the number of 65+ still working (and not yet in retirement) and their number goes up. Seems to be a pretty direct correlation to me.

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