Younger Generations Fall Behind Parents’ Wealth Building

Published April 2, 2013

When it comes to building wealth — adding to savings, owning a home, paring down debt, growing a retirement nest egg — those under age 40 have stagnated as their parents’ generation accumulated, new research from the Urban Institute’s Opportunity and Ownership Project demonstrates.

Average household net worth, even with the fallout from the Great Recession, nearly doubled from 1983 to 2010, but not for those born after 1970. Their average inflation-adjusted wealth in 2010 was 7 percent below similarly aged individuals in 1983.

While the housing and stock market crashes of the last decade hurt younger people, researchers Eugene Steuerle, Signe-Mary McKernan, Caroline Ratcliffe, and Sisi Zhang said, these households were generally falling behind even before the Great Recession.

Stagnant Wages, Weak Opportunities

They were on the losing side of stagnant wages and weak job opportunities, negating the long-observed pattern that, as our society gets wealthier, each generation gains relative to the previous one at any given age.

The situation for today’s adults in their 30s and younger is particularly gloomy, with more storm clouds on the horizon. Their net worth relative to their parents is only about half what their parents’ net worth was relative to their own parents.

In addition, Washington’s continual deficits and unresolved budget woes, the researchers pointed out, portend higher interest costs, higher taxes, or lower benefits, especially for younger generations.

‘Financial Uncertainty Could Reverberate’

“If these generations cannot accumulate wealth, they will be less able to support themselves when unexpected emergencies arise or when they eventually retire,” the researchers observed. “This financial uncertainty could reverberate throughout the economy, since entrepreneurial activity, saving, and investment tend to build on a base of confidence and growing wealth.”

The researchers recommend that federal policy turn more attention to asset building for younger households and other low-wealth groups. With older, high-income families benefiting disproportionately from hundreds of billions of dollars of subsidies annually via the mortgage interest deduction and preferential tax treatment of retirement savings, “a greater sharing of those benefits with the young likely would improve both their lifetime accumulation of wealth and the economic well-being of the nation as a whole.”

“Lost Generations? Wealth Building among Young Americans,” which used the 1983 to 2010 waves of the Federal Reserve Board’s Survey of Consumer Finances, was funded by the Ford Foundation and the Russell Sage Foundation.

Source: Urban Institute