The generational wealth gap

An article in USA Today explains the very alarming generational wealth gap:

How wealth and income have changed for two age groups, after adjusting for inflation:

•Ages 55-59: Median net worth — the middle point for all households — rose 97% over 15 years to $249,700 in 2004, the most recent year for which data is available. Median income rose 52%.

•Ages 35-39: Median household net worth fell 28% to $48,940. Median income fell 10%.

One question some people will ask is whether this is even a problem? Well I am almost certain that the declining birth rate among the college educated has to do with the resource insecurity that results from this generational wealth inequality. And a situation in which the smartest people have the least children is definitely a serious long run problem.

The wealth gap explains why more young men are living at home with their parents. This is because there is a limited supply of housing due to zoning restrictions, and poor young people are shut out of the market by rich older people who bid up the prices.

The unanswered question here, and even I don't have an answer, is will the poor young people today be as rich when they are in their late fifties as those currently in their late fifties? Do young people simply have to wait their turn? Or have we witnessed one time wealth transfer (helped by the massive asset inflation in the stock and real estate markets) that young people today will never experience for themselves? This means that, in the future, inheriting money from one's parents will become a much more common way of gaining wealth, and young people whose parents lack wealth will be disadvantaged when compared to the older generation.

Comments

[mondo]

Yep. The baby-boomers aren't dying or getting disabled like they used to back in the bad ole' days, meaning the gen-Xers find themselves on a string of lateral career moves rather than moving up on a single corporate ladder. I should start becoming nicer to my parents, as they've paid off their house, which is in a good school district.

I think young people today have artificially high standards of living when it comes to family formation, aided by modern birth control and family-planning. This environment gets exacerbated by all the other dual-income couples who put off kids til their 30's, so they can spend more on getting settled in the right the dream house and future schooling. We tend to forget that we, like our ancestors, were probably "accidents" and our parents had to literally scrape by.

Of the age 35-39 group, it shouldn't be that surprising that their median net worth has dropped, considering they're the ones saddled with cost-of-raising-children expenses.

Isn't "55-59 years" just prior to retirement? From a permanent-income POV, it makes sense that they would be wealthier than today's young people: this tells us nothing about intergenerational equity.

Or have we witnessed one time wealth transfer (helped by the massive asset inflation in the stock and real estate markets)

The "massive asset inflation" you refer to is mostly due to a significant decrease in interest rates. Younger generations will benefit, since the economy becomes more "future-oriented".

[Turambar]

Yawn. 401K's have benefited from stock market increases in the past 15 years. Primary and vacation homes have appreciated. Older people have much more assets in this area, so they appreciate more.

Younger people have had more student loan debt, and more wealth destroying divorces.

Leased vehicles = no accumulated asset value.

[Don Marsh]

Now that my kids are less dependent on me, my wife and I are experiencing a higher standard of living. I am making more, and if I suddenly quit, you will not see a lot of young bucks rushing to take my place...cleaning windows. In fact, there is room for them now.

I think the gen-X-ers expect more while expecting to do less. Kinda like every generation does until they figure it out.

Funny thing is, an increasing number of people of that generation are living in the big houses I clean...

[nobody]

Internal regulations can not full explain what is happening. The big picture is clear. America in 2007 is very different place than it was during the 1950-60s. The middle class is becoming an endangered species. The mass outsourcing the blue/white collar jobs abroad has greatly reduced the opportunities for the middle class. The flood of cheap Mexican labor has certainly not helped the wage situation for the lower classes in this country.

It is not a matter of waiting anymore. The only thing the youth can expect is the debt burden of their elders.

[Chris]

Two questions -

How do we know that the resource insecurity isn't the result of the declining birth rate? Married men with children seem to get all kinds of professional perks because it's understood they have more mouths to feed, or at least that's been what I have noticed in my field.

How do you know the single men living at home aren't fallout from dysgenic breeding, a phenomenon HS has blamed a number of things on. The young men living at home with their parents I know are all pretty much losers with no career prospects. I do know one young woman living at home because her parents are older and have a lot of health problems, but pretty much all the others are losers, plain and simple.

Just wondering.

[Peter]

The young men living at home with their parents I know are all pretty much losers with no career prospects.

The stereotypical introverted nerd who lives in Mom's basement and spends almost every waking hour playing WoW, in other words.

Isn't "55-59 years" just prior to retirement?

To an increasing extent people in that age group are in the process of retiring or in some cases already are retired. 55 is the new 65.

The middle class is becoming an endangered species.

Hardly. There has been some job dislocaion, but this is temporary. How many auto jobs did the USA shed in the 1960's-70's as the Asian Tigers were industrializing?

The young men living at home with their parents I know are all pretty much losers with no career prospects.

This may be true in American suburban areas, but it's not the case in Japan. "Parasite singles" are a world-wide phenomenon: they have nothing to do with dysgenic breding.

[nobody]

Really, care to explain where are these high paying jobs that will replacing ones alread lost? Please don't say it is the "new marketing economy" or "service based industry".

If premise is that wage equalization across the globe will stop the export of jobs, then one must accept the standard of living is not likely to improve.

[David Alexander]

The young men living at home with their parents I know are all pretty much losers with no career prospects

I live at home with my parents, but I probably fall under the loser with no career prospects category. I have two male colleagues, both gainfully employed, both with college degrees, and very successful with women, and both have chosen to stay at home with their parents.

In parts of the country with high house prices and high rents, some twenty somethings are uninterested in finding their own places because it's a massive decrease in their lifestyle. Why pay $2000 rent each month to enrich some landlord and have no car when you can live at home, drive a nice car, and have money left over for either stashing away in high yield savings accounts or IRAs to buy a home, retirement, or squander on entertainment?

as they've paid off their house, which is in a good school district.

I've ruined my school district by apparently just simply moving into it...

[GMR]

High housing prices are not a good thing. Well, sure, it's good for the current owners, but it also symbolizes that demand is outpacing supply. But all these open space, smart growth, anti-sprawl folks won't have more development. Someone once said sprawl is anyone who moves to the suburbs after you.

Now that our education costs are sky-high, municipalities are trying to restrict the number of kids. Heck, in NJ, a majority of new housing permits are for age-restricted housing, i.e., 55 and older. Many Connecticut towns have 2 acre zoning requirements, so the number of houses (and thus children) is limited. This of course makes it more expensive for families to afford houses.

"Why pay $2000 rent each month to enrich some landlord and have no car when you can live at home, drive a nice car, and have money left over for either stashing away in high yield savings accounts or IRAs to buy a home, retirement, or squander on entertainment?"

Amen to that. If you put $1000 a month into even just a measly CD, you are still ahead of the game. $1000 a month also gets you quite a car and it sure as hell buys alot of beer and fancy stuff like sushi, pink polo shirts and Bruno Magli shoes.
Of course, you could move to NJ, but that is even more shameful than living at home. I'd rather tell women that I meet in NYC that I live at home with my parents than that I live in Harrison, NJ. Thank God we can post anonymously around here.

DA don't sell yourself so short! You are the kind of black guy I want around. You're intelligent, probably have a cool Caribbean accent and as far as I can tell, pretty much non-threatening, but still providing enough of that, "I know a black guy from the hood" authenticity. No rap music, garbage reggaeton or spinners either.

[Alex]

You are the kind of black guy I want around. You're intelligent, probably have a cool Caribbean accent and as far as I can tell, pretty much non-threatening, but still providing enough of that, "I know a black guy from the hood" authenticity. No rap music, garbage reggaeton or spinners either.

I have a hard time believing DA is black since I have never met a young black man who didn't like rap music.

[David Alexander]

Amen to that.

When I was working, I was putting at least 2/3rds of my sub-$500 checks into high yield (3.5% or so back then) savings accounts. That alone taught me that paying rent has no real economic benefit, and that living with my rents until I can buy a condo isn't such a bad idea. There are social costs, but I'd rather have stuff, financial security, and money to spend on my niece and nephews.

Actually, I've considered moving to the Jersey side of the Hudson as there are condos and beautiful homes. That combined with the lower tax burden makes it more attractive. Probably something further up the Morris and Essex like South Orange or Maplewood. But I can see why Harrison isn't winning points.

It's not exactly the nicest looking community in New Jersey. Years of passing by it on the PATH, NJT, and I-280 have left a decidedly downscale taste of the community in me.

[David Alexander]

BTW, I don't have an accent (and many have asked "are you Canadian"), I drive a Saturn, and a Celine Dion song is the most played song on my iPod. I'm not the best choice for "authentic token black guy".

[David Alexander]

High housing prices are not a good thing. Well, sure, it's good for the current owners, but it also symbolizes that demand is outpacing supply. But all these open space, smart growth, anti-sprawl folks won't have more development.

What's interesting is that the people who are against sprawl in the suburbs are also the first ones to say that basement apartments and two family homes are evils that are worse than child molesters. The choice is to either expand deeper into the suburbs or provide more density.

Many Connecticut towns have 2 acre zoning requirements, so the number of houses (and thus children) is limited.

That's done to keep out developers from cramming in townhouses on larger plots of land to sell to immigrants and high proles both of whom have a tendency to ruin school districts and demand services for their large broods.

[David Alexander]

Ages 35-39: Median household net worth fell 28% to $48,940. Median income fell 10%.

Student loans repayment, increased credentialism (see graduate school), increased credit use combined with low savings rates, high real estate costs discouraging home ownership. The concern isn't so much that older people are richer, but that the median net worth and income of our adult Gen Xers has decreased.

BTW, IIRC, the Gen Xers are the first generation to not grow up with unionized high-paying industrial work and "lifetime" employment in white collar corporations. The generation that entered the working world with low inflation, low interest rates (a disincentive to save), and no pensions except for government work.

This environment gets exacerbated by all the other dual-income couples who put off kids til their 30's, so they can spend more on getting settled in the right the dream house and future schooling.

What's happened in our society is that children in general have become expensive pets and instruments of our ability to brag about our social wealth. We no longer dress them in simple clothing, but with overpriced name brands and stuff from Baby Gap and Pottery Barn Jr. General school districts aren't good enough, but only the best school district will do.* Then high degrees have the earning power of crap, and directional colleges are no longer a path upwards, an educational arms race has developed with students putting themselves into deep debt to go to prestigious private colleges and universities. In turn, paying for toys, camps, houses with individual bedrooms for each child, extra-curricular activities, and tutoring is a deep expense. Then because of the bizzare stay at home mom fetish, you need to have paid off student loans before you can even consider having a spouse drop out the workplace to have kids with most student loans having a 10-12 year repayment plan. In effect, raising children "properly" has become so financially prohibitive and time consuming that the rich don't bother, the middle class are too scared to do so, the high proles cut corners, and even the poor are having less kids** with the exception of certain immigrant classes.

One thing a writer about the poor economics of stay at home wives pointed towards the fact that we've become such a winner take all society in which second place seems to be the worst option of all. It's as if we're not on a career track that leads to BIGLAW or its equivalents, we're pathetic lazy losers. In effect, it's possible that this has spread to our ideas of raising children in which unless our kids are the best then they're the worst.

As for the assets of the babyboomers, they'll be swallowed up by their long retirements, and hopefully their property doesn't devalue when they start selling off assets they don't need.

*Let's avoid blaming blacks. They're only 12% of the population and they live mostly outside of white neighbourhoods. Even if a few move around and "take over" white areas, it still doesn't explain the fear of failing school systems for whites.
**The black birthrate fell dramatically after welfare ended with the black rate converging near the white rate.

That's done to keep out developers from cramming in townhouses on larger plots of land to sell to immigrants and high proles both of whom have a tendency to ruin school districts and demand services for their large broods.

I don't understand why this is an issue. Affordable housing may "ruin" a school district, but it also makes private schooling more feasible for middle-class families - even the "best" public school districts are way below a decent private school. Increased demand for services could be easily funded by local property taxes, since total assessments would presumably rise.

"But I can see why Harrison isn't winning points"

It doesn't have to win any points with me. I'm cheap and so is my rent. The place is pretty quite and I have a parking space. No loud neighbors and nobody fucks my with car or mail. However, it lacks cachet and a good zip. But like I said, I'm cheap. But my Portuguese has gotten really good! I'm living a diverse, multi-cultural life that most Americans only wish they could experience. DA, move in down the hall and and my dream will be complete! There is already an asian guy in the unit and you are the last peice of the puzzle.

[Peter]

Now that our education costs are sky-high, municipalities are trying to restrict the number of kids. Heck, in NJ, a majority of new housing permits are for age-restricted housing, i.e., 55 and older.

Penny wise and pound foolish. Senior citizens are the last people you want to attract. Seniors = nursing homes = Medicaid = taxpayer $$$$. Of course it's not quite that simple, as zoning is a local government function while Medicaid costs are usually borne directly on the state level, but high Medicaid spending still trickles down - more accurately, pours down - onto taxpayers.

The financially smartest thing any state could do is offer each resident tens of thousands of dollars to move out of state upon reaching age 65.

[Turambar]

The big picture is clear. America in 2007 is very different place than it was during the 1950-60s. The middle class is becoming an endangered species. The mass outsourcing the blue/white collar jobs abroad has greatly reduced the opportunities for the middle class.

Its a totally different country. In the '50's there were 62 million people with jobs, now there are 150 million. You just cant make a manufacturing economy with 150 million people unless each person turns one screw and they get paid very little. And imagine all the pollution from these hardhat industries you pine for, expanded 4 to 5x.

What opportunity is there in unionism for young people? The opportunity to only be valued in your job by your seniority and not to have any chance for advancement on you merits because there are hundreds of loafers in front of you who have been in the job five times longer. No thanks.

Like it or not, there is a larger middle class in America then before. There is less job security, but more opportunity.

[Turambar]

The financially smartest thing any state could do is offer each resident tens of thousands of dollars to move out of state upon reaching age 65.

I dont think thats right. I read an article recently ( I think it was a NYT crowing about how the really elderly are moving back to the rust belt)that distinguishes between the old elderly and the young elderly.

The elderly are the most affluent section of society and up to 80 their lifestyles are pretty active and their health problems are manageable. The young elderly really are a good group to have in your society- they dont have children in school and likely live independently- you do have to discount their property taxes, but for the most part they dont need much in the way of services. They have the most disposable income and help provide a large number of related support jobs such as lawn care, home maintainance, and health care services.

Since they have flexible schedules they dont contribute to peak traffic problems or use community facilities such as resteraunts, golf courses or movie theaters during peak times.

They are also skilled and active enough that they make a great volunteer force.

Of course NY was so excited to have anyone moving there, that they ignored that it was the people who are out of this phase and now are dependent on long term care and convolesent homes.

[David Alexander]

Of course NY was so excited to have anyone moving there, that they ignored that it was the people who are out of this phase and now are dependent on long term care and convolesent homes.

One of the bizzare issues with New York City in particular is that Medicaid is a jobs program for barely skilled immigrants and minorities via over-employment as nurses aids, hospital assistants, and home care attendants. In turn, many people demand such programs from Medicaid because New Yorkers have a tendency to flee the state and leave their older family members behind.

Remember, New York State's Medicaid program has the lowest reimbursement rates in the Northeast, and most medicaid funds in New York were spent on taking care of chronically ill, elderly, and disabled. Interestingly, we also have low doctor and nurse pay when compared to our cost of living and some of the worst public hospitals in the country due to understaffing by doctors and nurses. In effect, it's continuation of NYC's policy of overpaying for cheap services and underpaying for expensive ones.

[The Engineer]

My dad is 60. He worked as a mailman since he was 25, after a short stint in the Army and a trip to Vietnam.

He has a degree from Hofstra, which he graduated from back in '68, when tuition was trivial.

He just sold the home that he bought in 1973 for $26k for well over $400k. He's also got an apartment in Forest Hills that he picked up 10 years ago or so for $60k that is now worth north of $200k.

I think that he's pretty typical of baby boomers. He rode the real estate wave. He was at the right place at the right time.

And he's better off than most people because he has a pension.

My in-laws are similar. They rode the stock market wave, and could afford to retire early. They've also got pensions.

Myself, I'm just thankful that I got my house in Chicago in '98 and could ride that wave. I'm also thankful for tax advantaged retirement accounts, and that I could get into the market in '97. Anybody who doesn't max out their 401(k) is a fool. Pensions are done, the baby boomers are going to bankrupt them all. You need to save for yourself.

[David Alexander]

He has a degree from Hofstra, which he graduated from back in '68, when tuition was trivial.

That's a big advantage that many of the baby boomers have over their kids. Tuition costs were much lower, and just going to a directional college was enough to get you a good job with a degree in any major. In addition, there was less competition overall because there was still some high paying industrial work left for the others.

He was at the right place at the right time.

I wish I could say the same for my parents. OTOH, they've done rather well for themselves.

Pensions are done, the baby boomers are going to bankrupt them all. You need to save for yourself.

What about those of us who are eyeing government pensions at the state and municipal levels?

"Pensions are done, the baby boomers are going to bankrupt them all. You need to save for yourself."

I can't wait till Congress raids our 401K plans for that "one-time" tax. After all, these Baby Boomers will be old and still alive. And old people vote and they want our money. We are going to get fucked with no lubricant.

[The Engineer]

What about those of us who are eyeing government pensions at the state and municipal levels?

There is going to be a reckoning. There is no way that taxes are going to be raised to pay for these outrageous pensions.

There was just a story in the Chicago news about the top Illinois pension geterers. They're retired U of I medical school profs. Their pensions are over $300k per year!!!! That's just insane. With the pension system underfunded by literally billions and billions of dollars, at some point very soon it will be bankrupt.

Anyway, the first step is that new hires don't get a pension, so if you want in, you better get hired soon.