The kids are not fiscally all right — and here’s a few more thoughts on why 2015
[A post I put up on Medium archived here in October 2015]
Ana Swanson’s Washington Post Wonk Blog piece, “The growing wealth gap that nobody is talking about: Young people have always been poor, but today’s young people are poorer than most”, ends in puzzlement. A few potential sources for the comparative poverty of Gen-X and Millennials in the United States are offered, but the concluding paragraphs seem out of place with the confident, data-driven statements cited before them.
Why should the lack of wealth among Gen-X and Millennials be such a surprise given their (or I could say ‘our’, in the case of Gen-X) role as the generations who were most encouraged to run up and continuously carry substantial credit card debt? (See, for example, trends charted here.)
These generations also walk away from college graduation with substantially more student loan debt (“Soaring College Tuitions.” The New York Times, Dec. 4, 2008, corrected chart 1; see also Friday’s piece “We’re Making Life Too Hard for Millennials” with its chart captioned ‘Tuition Races Upward, Debt Mounts’).
Beyond credit debt, though, our extending lifespans in the U.S. have to be important too. Based on my initial exploration of changing life expectancy (as described by the Social Security Administration in these sources 2, 3) it appears that as you move forward from 1900 there is a later and later age of potential inheritance of wealth from older relations. (That potential is not evenly distributed, as, for example, an examination of African-American experiences* in home ownership and debt over the past century painfully reveals. When there is no family wealth accumulated, there is even less opportunity for any upward climb.)
The sources cited above support that, showing the increasing percentage of those who reached age 21 who then reached age 65. If you get old enough to likely become a parent, you also have an increasing likelihood of reaching retirement age. Those who are able to collect wealth are holding it longer.
Thus, to give specific examples based on the charts in these sources, someone born in 1895 (the parents of the Greatest Generation), who reached age 21 only had 60–71% odds of living until 1960. That 65 year old would then, on average, be unlikely to live past 1975. They would therefore be releasing their wealth into the next generation when their kids are 55–60 years old (assuming they had had their kids when around age 20–25). Put another way, 29–40% of the Greatest Generation would likely have inherited their parents’ remaining wealth by age 60.
Our boomer, born in 1955 (the parent of our Gen Xer), who reached age 21 has 79–88% odds of living until 2020, and then on average of not living past 2035–2040, releasing their wealth into the next generation when, if they had their kids generally around age 20–25, their kids are 55–65 years old. Put that another way and only 12–21% of Gen Xers will likely have inherited their parents’ wealth before age 55–65.
The parent of our Millennial, let’s say, is born in 1975, and having reached 21 has 82–90% odds of living until 2040, and then on average of not living past around 2060, when, if they had their kids generally around age 20–25, their kids are 65–70 years old. Thus, only 10–18% of Millennials will likely have inherited their parents’ wealth before age 65–70.
Over just nearly a century we’ve gone from a generation where 1 in 3 inherited by retirement age, to a generation where fewer than 1 in 5, perhaps as low as 1 in 10, will inherit by or soon after retirement age.
There is a cascading effect of extended lifespan which may be more important than inheritance, given that many will not inherit a meaningful amount of money even in the best scenario for their age and generation.
Increasingly, not only would a given generation not yet have inherited at their own retirement age, their parents are more likely to use up more of that potential inheritance supporting themselves living on well after retirement, or even to require financial assistance from them, further reducing potential wealth passed on to the children of that given generation.
There may be an offsetting influence of later parenthood (e.g., children more often had at 25–30 or even 30–35 years old) but I suspect that, at least until very recently, lifespan has been extending faster than parenthood has been trending later. The CDC data I found in a cursory search, (4, 5), suggests that only within the last 10 years are we seeing average age of the mother pushing up to the 25–30 year old age range. That trend may be picking up speed, but so far I don’t have the impression it has overtaken the influence of extending lifespans in terms of average age of child at time of death of last surviving parent.
While past generations were motivated to build their wealth in order to create a better future for their children, now those parents are more likely to still be around enjoying that future, with the children needing to shift for themselves far longer. It becomes somewhat less clear what the younger generations’ motives would be to take on years of debt and hard work to build wealth for anyone but themselves. With less reliable relationships between debt and long-term wealth — as college degrees no longer are as sure a path to high income and as the mortgage crisis demonstrated the vulnerability of investing in a home — recent generations are finding it hard to determine their best method of avoiding destitution in old age.
Freedom to define your own path is a touchstone of Generation X, but that freedom is also for many simply a hard fact: there is, starting with that generation, decreasingly going to be a transfer of the prior generation’s progress.
Approaching that future, clear-eyed, amidst financial crisis and Great Recession, little wonder that Gen-X and Millennials aren’t looking particularly lucky. And little wonder that they’re exploring other ways of defining the good life.