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Wealth gap between young and old is wider than ever

Wealth gap between the young and old is deeper than it has ever been. The recession hasn't helped, but the wealth gap has been growing for years.

By Staff writer / November 7, 2011

A home is shown for sale in Chagrin Falls, Ohio. Home prices have reached their lowest points since the housing bubble burst in 2006, driven down by foreclosures, a glut of unsold homes and the reluctance or inability of many to buy. Although gains in home equity have helped the oldest Americans, homeownership hasn't helped younger generations, according to a Pew study, widening the wealth gap to a new record.

Amy Sancetta/AP

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The wealth gap between older and younger Americans has widened sharply in recent years – because of both the deep recession and longer-term trends.
 
That's the conclusion of a new analysis released by the Pew Research Center, which looked at an array of government numbers to reach its conclusions.
 
In all, the typical household headed by someone younger than 35 has seen its net worth fall by 68 percent between 1984 and 2009, after adjusting for inflation, according to the Pew report released Monday. Those in the 35-to-44 age group also saw a decline in net worth over that period, a drop of 44 percent.

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By contrast, older households posted gains in wealth over the past quarter century. Net worth rose 42 percent for households headed by someone 65 or older. Other age categories saw either a modest gain (10 percent for those age 55 to 64) or a modest decline (10 percent for those age 45 to 54). Overall, the median US household posted a 10 percent gain.
 
What explains this big divergence?
 
Top reasons include housing-market trends that have favored the old over the young, the rising burden of student loans on college graduates, and a job market in which challenges appear to have affected younger age groups more heavily.
 
"These age-based divergences of [wealth] widened substantially with the housing market collapse of 2006, the Great Recession of 2007-2009 and the ensuing jobless recovery," says the new report, by Pew researchers Richard Fry, D’Vera Cohn, Gretchen Livingston and Paul Taylor. "But they all began appearing decades earlier, suggesting they are as much linked to long-term demographic and social changes as they are to the sour economy of recent years."
 
For example, the typical ages of those entering the labor market and entering marriage – which the report calls "two markers of adulthood traditionally linked to income growth and wealth accumulation" – have risen. Rising college loans are also a long-term trend.

Also, today’s young adults are more likely to be minorities and more likely to be single parents, characteristics often linked with lower net worth.
 
A countervailing trend: Many young women are postponing childbearing, with its costs on household budgets.
 
Older households gained the most from a general rise on home values. For many of them, the housing bust that began in 2006 did not fully erase earlier gains in home equity. Another factor affecting seniors: More of them hold jobs today than in the past, although Social Security remains their income mainstay.
 
The report's findings underscore the importance of the nation's current focus on economic policy, which is visible from "Occupy Wall Street" protests to the presidential campaign and the fractious debate in Congress over budget reforms.
 
The once unfettered US economy now faces the twin challenge of high unemployment and historically high debt, both for government and households. The task for policymakers is to chart a path back to full employment and solid growth while getting debts and deficits under control.
 
Failing to solve the growth challenge could mean that the now-young generation won't experience a higher standard of living than their parents. Failing to solve the debt problem could leave those same younger Americans to pay the tab for fiscal mismanagement.
 
Although concerns over generational fairness in policy haven't generally been front-page news, they are not new. US history over the past 60 years "is marked by ever-larger redistribution from the young to the old," Boston University economist Laurence Kotlikoff writes in a recent Bloomberg News column on Republican tax-reform proposals.
 
Mr. Kotlikoff, who has studied the generational impacts of federal policies, argues that a flat-tax proposal from Texas Gov. Rick Perry would make the problem worse. Mr. Perry's plan would tax the old and rich less when they ought to pay a higher share of US taxes, the economist says.

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