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Much work has gone into understanding the relative income of key American generations at the same stage in life — especially regarding the Silent Generation, Baby Boomers, Generation X, and Millennials. But less has been done to understand the comparative wealth of these generations. This is because of the complexity involved in parsing that data by generation, even though it’s crucial to understand. But we can get a general sense of the differences in income and wealth among these generations.
What’s the difference between income and wealth?
Income is primarily the paycheck that individuals get, plus such things as their investment income. Wealth, also referred to as net worth, refers to the assets that individuals have, less any debt they have — such as a mortgage, student loan, or credit card debt. The predominant assets households have comprise the amount they have in the bank, plus stocks, bonds, and real estate.
As regards their income, Baby Boomers, Gen Xers, and Millennials have all outpaced the Silent Generation, and appear collectively to represent a high-water mark of American income — the culmination of our prosperity. Whether one of these three groups outpaces the other is a matter of dispute, with data collection proving genuinely challenging for even the most credible sources. The US Census statistics indicate that Millennials earn more than their predecessors, while other studies, such as a 2019 report from New America, conclude the opposite. But let’s accept for the moment that the census data shows that incomes have continued to rise on a real basis from the 1960s through 2022.
Where we don’t see disagreement among sources, however, is on trends in net worth. From data obtained from the Fed’s Distributional Financial Accounts and Survey of Consumer Finances, we conclude that on a percent to GDP basis, the net worth of Millennials at ages 20 to 25 is well below Baby Boomers at the same age. Similarly, the net worth of Millennials from the ages of 30 to 35 is meaningfully below Boomers at the same age. The differences are even more stark when we look at this by income percentiles.
We deal with this data often enough to take it all as indicative, not absolute. We confront a variety of issues in this type of analysis, including small sample sizes, data revisions, and the challenge of aligning the data from different time periods. But it does provide at the very least a sense of the direction of things — which is that wealth accumulation has been more challenging for those born more recently.
Why is wealth accumulation harder today?
First and foremost, it’s the increasing unaffordability of housing. The average house in 1984 was 430 percent of the median household income, and at the end of 2022 it was 741 percent. Twenty-somethings today simply can’t afford a home as readily or as early in life as their predecessors.
Stocks and real estate constitute 79 percent of total household assets in the US, with real estate alone accounting for 27 percent. For most middle-class Americans, real estate wealth comes down to the simple condition of owning a home. If homes are less affordable, fewer people can buy them, and those that do can often do so only later in life, thwarting a key wealth-building opportunity. Also foiling first-time home buying was the bad luck of those who bought their first home during the insane period before the Global Financial Crisis between 2007 and 2009 and ended up with underwater mortgages. This will bring a greater number of people with dependency on the social safety net later in life.
What can we do?
First, we can create tax incentives, up to and including tax credits, for the real estate and stock purchases of middle class and lower income groups. Individuals with incomes in the bottom 60 percent of Americans only own 14 percent of all the stocks and real estate in the country — a level so small that almost any tax incentive, however generous, will be imminently affordable.
We can also create better paths for them to deal with excessive debt, such as introducing a program of debt forgiveness for the 40 million Americans that have a student loan. This program can be based on borrowers performing substantial volunteer work for a qualified not-for-profit institution.
Further, the US can improve the parameters of the venerable and time-tested individual retirement accounts and 401(k) retirement accounts, lifting limits on contributions and reducing penalties for withdrawals. Doing so would allow more family savings for things like down payments on homes.
These are just two of the many ideas that stem from a recognition of the challenges more recent generations face in building net worth. Implementation of such types of ideas would bring the promise of an improvement in the outlook and opportunities for our society’s younger generations.
Richard Vague’s career has spanned fields as varied as banking, energy, government, and the arts. He recently served as Secretary of Banking and Securities for the Commonwealth of Pennsylvania. Vague previously was managing partner of Gabriel Investments, an early stage venture capital company; was also co-founder, Chairman and CEO of Energy Plus, an electricity and natural gas supply company; and also co-founder and CEO of two banks – First USA, which was sold to Bank One, and Juniper, which was sold to Barclays PLC. He is author of numerous books. His new book is Paradox of Debt: A New Path to Prosperity Without Crisis (Univ of Pennsylvania Press, July 11, 2023). Learn more at richardvague.com.
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