"the typical household headed by someone in the older age group had 47 times as much net wealth as the typical household headed by someone in the younger age group"
47x! Wow! But I suppose it could be worse. If the median under-35 household had just $4,000 more in debt (e.g. student loans) than it actually does, the gap would be NEGATIVE.
No doubt some of this is related to the current recession. I wonder if there were similar numbers for the last few recessions. However, I do beleive a trend like this speaks to the productivity of the different generations. It speaks dimly of our future.
It has absolutely nothing to do with productivity and only a little with the recession.
The median under-35 household has essentially zero home equity, some savings, and $10,000 in debt.
The median over-65 household has no loans, $40,000 in savings (401k, etc), and $140,000 in home equity.
The over-65's have always been the wealthiest age group. Most of the wealth is amassed in the 30's and the 40's. Compared to 1984, young households start out with more debt so their median net worth is down.
The truly shocking part is that the median American household hits the retirement age with the amount of nest egg savings that would not last them even a year if they couldn't rely on Social Security and Medicare. Yep. And aren't the average Social Security benefits well under $20K per year? Even if SS benefits aren't cut and the dollar doesn't collapse, the financial projections for old folks really don't look tremendously great.
It's really a little amazing how America's leaders managed to undo one of Bismarck's proudest 19th Century social achievements in just a single generation or so...
I wouldn't blame America's leaders, I'd blame demographics. In essence, all retirement schemes (other than living with your kids) are based on the money illusion. If there aren't enough workers to take care of retirees then passing around money won't help. In a truly useful way, the American social security system is warning us of this is advance.
My sister pays for daycare to take care of her two children, and then pays into social insurance schemes that support their four retired grandparents. What's wrong with this picture?
The old always has the most wealth, the thing that does not go well is the trend which says the old are getting even more wealth and the young are getting even less. And the two data point is from 84 to 09, quite a long span of time. If debt is the problem for the young, we should see a better trend in the last few years since the young are less able to get mortgage loans. In theory, with each generation, we are getting more productive since the new tools and trainings benefit mostly the young. The fact that the trend goes the other direction says something about the current generation. One of the prominent economist(I think it was Alen Greenspan) made this observation. It is also possible that the younger generation save less or spend more than their parents, either way, it does not bode well for the future.
Arguably, this is a natural implication of expanding access to higher education. Increased access to higher education significantly reduces net worth at age 35, because student loan liabilities are greater and the number of years in which people earn money is reduced. But, in the long run, increased access to higher education should increase net worth.
The data also reflect the fact that young people have more of their net worth in homes, which are leveraged assets that are more vunerable to market price shifts than financial assets, and that the financial crisis actually hit housing harder than it hit financial assets in the long run. Further, ordinary investors in mortgage backed securitiies have been the biggest beneficiaries of the government bailouts - the other bailouts were tiny by comparison.
"the typical household headed by someone in the older age group had 47
ReplyDeletetimes as much net wealth as the typical household headed by someone in
the younger age group"
47x! Wow! But I suppose it could be worse. If the median under-35 household had just $4,000 more in debt (e.g. student loans) than it actually does, the gap would be NEGATIVE.
No doubt some of this is related to the current recession. I wonder if there were similar numbers for the last few recessions. However, I do beleive a trend like this speaks to the productivity of the different generations. It speaks dimly of our future.
ReplyDeleteIt has absolutely nothing to do with productivity and only a little with the recession.
ReplyDeleteThe median under-35 household has essentially zero home equity, some savings, and $10,000 in debt.
The median over-65 household has no loans, $40,000 in savings (401k, etc), and $140,000 in home equity.
The over-65's have always been the wealthiest age group. Most of the wealth is amassed in the 30's and the 40's. Compared to 1984, young households start out with more debt so their median net worth is down.
The truly shocking part is that the median American household hits the retirement age with the amount of nest egg savings that would not last them even a year if they couldn't rely on Social Security and Medicare.
ReplyDeleteYep. And aren't the average Social Security benefits well under $20K per year? Even if SS benefits aren't cut and the dollar doesn't collapse, the financial projections for old folks really don't look tremendously great.
It's really a little amazing how America's leaders managed to undo one of Bismarck's proudest 19th Century social achievements in just a single generation or so...
I wouldn't blame America's leaders, I'd blame demographics. In essence, all retirement schemes (other than living with your kids) are based on the money illusion. If there aren't enough workers to take care of retirees then passing around money won't help. In a truly useful way, the American social security system is warning us of this is advance.
ReplyDeleteMy sister pays for daycare to take care of her two children, and then pays into social insurance schemes that support their four retired grandparents. What's wrong with this picture?
The old always has the most wealth, the thing that does not go well is the trend which says the old are getting even more wealth and the young are getting even less. And the two data point is from 84 to 09, quite a long span of time. If debt is the problem for the young, we should see a better trend in the last few years since the young are less able to get mortgage loans. In theory, with each generation, we are getting more productive since the new tools and trainings benefit mostly the young. The fact that the trend goes the other direction says something about the current generation. One of the prominent economist(I think it was Alen Greenspan) made this observation. It is also possible that the younger generation save less or spend more than their parents, either way, it does not bode well for the future.
ReplyDeleteArguably, this is a natural implication of expanding access to higher education. Increased access to higher education significantly reduces net worth at age 35, because student loan liabilities are greater and the number of years in which people earn money is reduced. But, in the long run, increased access to higher education should increase net worth.
ReplyDeleteThe data also reflect the fact that young people have more of their net worth in homes, which are leveraged assets that are more vunerable to market price shifts than financial assets, and that the financial crisis actually hit housing harder than it hit financial assets in the long run. Further, ordinary investors in mortgage backed securitiies have been the biggest beneficiaries of the government bailouts - the other bailouts were tiny by comparison.