The Saeculum Decoded
A Blog by Neil Howe
Jun 122012

Every three years (or so), the Fed’s Survey of Consumer Finances releases a report on “Changes in U.S. Family Finances.”  It’s a goldmine of information on how families are doing financially—specifically, how their assets and liabilities and net worths are changing by various demographic categories.

Yesterday, the Fed released a new report for 2010, its first since 2007.

I anticipated that the news was unlikely to be good, given the carnage done to family financial assets and home prices during the recent Great Recession.  I suspected net worth would be down overall, and down the steepest for younger families.  I had already seen preliminary Fed estimates of 2009 data.  And I had already ruminated over the depressing Census 2010 report on income and poverty.

But I have to admit, I wasn’t prepared for results as bad as these.  Here’s the bottom line:

Net worth basically means the total assets–real and financial, including home–minus the total liabilities of every U.S. “family.”  (Though the Fed uses the word “family,” it really means households; a “family” can consist of only one person.)  In 2007, the median for all families was $126,000; in 2010, it was $77,300.  That’s a fall of 39 percent.

What happened?  The value of homes and financial assets (often in 401(k) retirement plans) crashed—and though the Dow has partially recovered, the prices of homes haven’t.  The middle 60 percent of the income distribution was hit hardest, percentagewise, for just this reason: Most of the lowest 20 percent don’t own homes, and for most of the highest 20 percent homes constitute a smaller share of their net worth.  The hardest hit region was the West (median net worth down 55 percent) mostly, again, for the same reason—homes.

Another interesting angle: The share of families with credit card debt is down, while the share with college debt is up.  For the first time ever, education loans make up a larger share of a family’s average debt than car loans—which is suggestive of where Millennials and their families are, and are not, making their investments.

But what I want to draw real attention to is the differing trends by age.  Gen-Xers and late-wave Boomers between the ages of 35 and 54 (down by 54 and 40 percent) have been hit by far the hardest.  They bought late into the real-estate market, they borrowed most against the value of their homes, and they tended to buy in the newer, faster-growing,  and exurban regions where home prices crashed the most steeply after 2006.  They also (I suspect) tended to invest their assets aggressively, as most investment managers say young adults should.  Early-wave Boomers age 55-64 (down by 33 percent) have fared a bit better.  As for Millennials and late-wave Xers under age 35, their trend (down by 25 percent) doesn’t mean much since their net worth is still so small.

But now let’s look at families age 65 and over, a group dominated by the Silent Generation.  They have done much better (down by only 18 and 3 percent).  Most of the Silent traded down from their primary residence at or near the top of the housing boom.  Most sold or annuitized their financial assets at a much better moment in the history of the Dow.  Even if they didn’t, they are more likely than Boomers or Xers to be getting retirement checks from DB (defined-benefit) corporate or government plans that are unaffected by the market.  And even if they couldn’t or wouldn’t retire, they have been less likely to lose their jobs: 65+ Americans are the only age bracket whose employment-to-population ratio has risen continuously through the recent recession.

The new Fed study looks at income as well as net worth.  Its verdict is the same as that of the annual Census reports (cited earlier): The age 65-74 and 75+ age brackets are the only ones to experience rising real median incomes between 2007 and 2010.  Families in every younger age bracket experienced substantial declines.

OK, you might say: We’re only talking about the last three years.  Things go up and down.  Maybe this is just Brownian motion.

No, it’s not.  It’s all part of a much longer trend.  Let me now show the results going all the way back to the earliest Fed reports—that is, going back to 1983, and updating everything into inflation-adjusted 2010 dollars.

As you can see, the real median net worth of every age bracket under age 55 was better off back in the early Reagan years than it is today.  (Remarkably, the situation for age brackets under age 45 never improved much after 1983.)  Over age 65, things are much better today than at any time before 2004.  And in 2010, for the first time ever, the age 75+ bracket is actually the best off of any adult age bracket.  Back in the early 1960s, by most accounts, it was the worst off.

Now let me restate these results in a fashion that makes the generational point a bit clearer.  In the following table, I express the median net worth of each bracket as a percent of the median net worth of 35-to-44 year-olds in that year.  Take a look:

Here’s the take-away.  Back in the early 1980s, when the 35-to-55 age brackets were dominated by the Silent Generation, people that age were roughly on par with the household net worth of the elderly.  Interestingly, a 50-year-old family was 39 percent wealthier than a 75+ family.  The Silent, in short, were doing pretty well—as they continued to do relative to other generations as they grew older.  Today, a 50-year-old family is 54 percent poorer than a 75+ family.

Today’s headlines on the Fed report say the median net worth of all families has fallen to 1992 values.  Which is true, averaged across all families.  But it is also true that today’s young families are doing much worse than like-aged families in 1992—and that today’s senior families are doing much better.

All of this, by the way, was long-ago predicted.  Back in 1987, the eminent demographer Richard Easterlin wrote Birth and Fortune, a book in which he tried to explain why Americans born from the late-1920s to the early 1940s (the Silent Generation) had always done so well in the economy relative to the generations that came before and after them.  Easterlin noted that one of the most remarkable features of the 1950s and early 1960s was how the typical young man at 30 could earn more than the average wage for all working men—and could certainly live better than most “retired” elders of that era.  He also noted that since the late 1970s, the economic conditions facing young late-wave Boomers had become much tougher.  Easterlin called the Silent the “Fortunate” or “Lucky” Generation, and attributed their high incomes to their relatively small numbers—pointing out that they were the product of the “birth dearth” of the Great Depression.

Bill Strauss and I always thought that the explanation lay somewhat deeper than just demography and was connected to their location in history and their archetype.  The Silent were socialized early in life to get ahead by following the rules in a fresh-built system that actually rewarded rule-followers.  This they did, and it worked.  A good Silent joke (popularized by Woody Allen) is that 80 percent of life is just showing up.  I know very few Gen-Xers who think this is true—or even funny.

In case you’re interested, here’s what Bill and I wrote about the economic future of the Silent back in our first book, Generations, published in 1991:

No American generation has ever entered old age better equipped than the Silent.  Today’s sixtyish men and women stand at the wealthier edge of America’s wealthiest-ever generation, poised to take full advantage of the generous G.I.-built old-age entitlement programs.  Armies of merchandisers and seniors-only condo salesmen will pounce on these new young-oldsters as they complete a stunning two-generation rags-to-riches transformation of American elderhood.  Where the 1950s-era elder Lost watched their offspring whiz past them in economic life, the 1990s-era elder Silent will tower over the living standards of their children.  In 1960, 35-year-olds typically lived in bigger houses and drove better cars than their 65-year-old parents.  In the year 2000, the opposite will be the case.

Now let me contrast this to what we predicted back then about the future of Gen-Xers:

Sometime around the year 2010, Xers will hit a hangover mood like that of the Lost in the early 1930s and the Liberty in the late 1760s: a feeling of personal exhaustion mixed with a new public seriousness.  The members of this forty- and fiftyish generation will fan out across an unusually wide distribution of personal outcomes, reminiscent of a night at the bingo table.  A few will be wildly successful, others totally ruined, and the largest number will have lost a little ground since the days of Boomer midlife.

Going back to these 21-year-old passages is so much fun!  Let’s not stop here.  Consider the following remarks, especially what we predicted back then about the intense protectiveness of Gen-X parents.  (Anyone catch the “Are You Mom Enough?Time Magazine cover last week—pitched to a whole generation of attachment parents?)  Here they are:

Gen-Xers will make near-perfect fifty-year-olds.  On the one hand, they will be nobody’s fools.  If you really need something done, and you don’t especially mind how it’s done, these will be the guys to hire.  On the other hand, they will be nice to be around.  More experienced than their elders in the stark reality of pleasure and pain, Xers will have that Twainlike twinkle in the eye, that Trumanesque capacity to distinguish between mistakes that matter and those that don’t.  In business, they will excel at cunning, flexibility, and deft timing–a far cry from the ponderous, principles-first Boomer style.  In sports, the combination of Xer coaches and Millennial players may well produce a new golden era of teamwork and civic adulation.  In the military, Xers will blossom into the kind of generals young Millennial soldiers would follow off a cliff.  Their leading politicians may strike old Boomers as affable, sensible, quick on their feet–and more inclined to make deals than to argue about abstractions.

In the early 21st century, Gen-Xers will make their most enduring mark on the national culture.  Their now-mature keenness of observation and their capacity to step outside themselves will kick off exciting innovations in literature and filmmaking.  They may become the best on-screen generation since the Lost.  As parents of growing children, they will by now be too affectionate, too physical–too eager to prevent teenagers from suffering the same overdose of reality they will recall from their own youth.  In so doing, Xers will tip the scales toward overprotection of children–much as the Liberty did in the 1780s, the Gilded in the 1860s and the Lost in the 1930s.  Midlife parents (mothers especially) may hear themselves criticized by Millennials for “momming” a pliant new generation of Adaptives.

Enough wild digression.  Let’s get back to the main point of this posting.  Just-released Fed data confirms what we have always known about likely economic trajectory of today’s generations: Through the Third Turning and into the initial stages of the Fourth, the Silent will prosper, Boomers will cope with declining expectations, and Gen-Xers will get hammered.

Thoughout history, we have argued, inequality both by class and by age reaches its apogee entering the Crisis era.  Indeed, part of the historical purpose of the Crisis is tear down dysfunctional institutions, vacate positions of entitlement and privilege, rectify the inequality, and create a tabula rasa on which the rising generation can build something new.

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  • JPT

    It is interesting that the last 80 years has been all about creating and expanding benefits for retirees, and now we’re faced with the insolvency of Social Security and Medicare. I think you mentioned the problem of entitlements long ago as well. I can attest to the fact that older people are doing much better financially than younger people today. The thing about that situation is that it makes the future look a lot bleaker than it would if it was reversed.

  • I think your quote from Generations about Gen X is truly brilliant:

    “Gen-Xers will make near-perfect fifty-year-olds.  On the one hand, they will be nobody’s fools.  If you really need something done, and you don’t especially mind how it’s done, these will be the guys to hire.  On the other hand, they will be nice to be around.  More experienced than their elders in the stark reality of pleasure and pain, Xers will have that Twainlike twinkle in the eye, that Trumanesque capacity to distinguish between mistakes that matter and those that don’t.  In business, they will excel at cunning, flexibility, and deft timing–a far cry from the ponderous, principles-first Boomer style. ”

    This passage describes me and so many of my Gen-X counterparts in business incredibly well. I particularly enjoy the comment about seeing critical path (mistakes that matter and those that don’t) which I see as a core competency of many Gen X’ers in business. As I approach the 50-year-old mark I am seeing myself called upon more regularly as a mentor to Millennials entering business. I am not sure yet whether they will value my insights into my approach to navigating organizations and situations (which is very X-style) or if there will be other things of value that I can pass on more easily…

  • Just a couple more years here and I’ll be perfect!

  • CAH

    Did you see this op-ed in the Washington Post, “Baby boomers had better embrace change”? 

  • Guest

    Since Xers got screwed as children, and get to look forward to getting screwed in old age, why should they bother? Why should they pick up the slack and make it work for a new generation of retards who only have to show up to prosper? What if they chose not to rise to the occasion? Who could blame them? Certainly not a Boomer.

  • kelly_mhs

    It will be interesting to see if this part of your theory plays out once the Homelanders start entering the workforce and if the “richest generation” shifts from the old back to the young again (much like you’ve mention that the “poorest generation” went straight from the Lost to the Xers). Even for the “neutral” generations in terms of wealth (the Prophets and Heroes) it’s a gradual shift across those cohorts (like you’ve said late-wave Boomers are worse off than early-wave ones, and early Millennials like me are not much better off than the Xers). Also as your post said, those 70+ are employed more than before the Silents occupied it while much of the core workforce (Boomers/Xers/early Millennials, who in many cases need the job the most) are being passed over. Here we may already be seeing signs of late Millennials and Homelanders being better off than their (mostly Xer) parents: Since the recession I’ve heard some complaints about how someone (in the core workforce bracket I described) who desperately needs the job being passed over for a teenager who still has the support of his/her parents; after reading your theory it may not be just a matter of them preferring someone inexperienced and cheaper, but a sign of improving financial futures for the “young-young” (as opposed to the “older-young” like me).

  • Neil once again your commentary is not only clear and concise, but well documented and prophetic.  Keep up the incredible leadership in this regard!

  • Steve B

    “If you really need something done, and you don’t especially mind how it’s done, these will be the guys to hire.”

    Reminds me of Obama and his drones.

  • jermsguy

    You have put into words what I have been living through. Well done.

  • Codgerelle

    More and more,  I hear people express a hunger for plain, garden-variety competence–which could be why the seniors are doing better in the job market than their younger counterparts.  Ever since the time-honored search for truth was abandoned in favor of a search for what will be believed, style has triumphed over substance with the result that mediocrity has become the norm.

  • Jay

    This really hits home to what I have noticed. A couple more aspects to contribute to this.  One is home prices.  We live in a society that punishes anyone who did not buy a home prior to 1975…and the fact you might have been a child or not even born yet is really no excuse.  Those who had homes purchased in the postwar years had relatively affordable houses with GI bills, etc. to cover the cost and got to sell them at high prices to younger folks who have expensive housing stock and fewer supports.  Second, and for me the most significant, is that the 1980s through the 2000s was what I call the “Golden Age of Investing,” where so many opportunities, from real estate and stocks to technology and other ventures were open for investment opportunities.  Someone investing wisely in the 1970s and 1980s with even modest start ups could end up doing really, really well.  Today, there is very little that doesn’t seem to be overvalued.  Clearly, some people are better at this than others.  Still, I find that Silents and older boomers who did well investing are sorta like the proverbial “self made man” who was born on third base and thinks he hit a triple.

  • This article is missing two factors.  The biggest factor in the weaking finances of the Gen-X is the availability of debt.  It isn’t just college debt.  Consumer debt (specifically credit card debt) has been a growing factor in our economy since 1990.  There are very few people from the 1950s who had a house loan with 2% down.  That isn’t homeownership is it rent.  Debt pushes consumption forward.  It is the economic equivalent of Whimpy who wanted a hamburger today.  Older workers simply didn’t have the option to destroy their own future.

    The other factor is Social Security.  In the 1950s for the first time, young workers didn’t have to care for parents.  On top of that, the benefits were so generous that these workers didn’t have to save as much for retirement.  Congress gave these workers dollars of benefits in exchange for dimes.  The difference has been paid by those working from 1984 to present not only in terms of increasing tax rates but an ever increasing wage base.

    • Both points are valid.  The G.I. and Silent Generations typically “paid off” their home mortgage by the time they retired.  Today’s Boomers are increasingly less likely to have paid off their mortgage by age 65.  Keep in mind too that these two older generations (Silent especially) were hugely assisted by the unexpected acceleration of inflation from the late 1960s to early 1980s–which essentially transferred vast wealth from (a few) creditors to (many) home-owning debtors via negative real interest rates.  Imagine paying a 4% mortgage in an era of 6% inflation.  Since Boomers and Xers have been buying homes, the creditors got even by jacking up their rates and then only lowering them with a lag as inflation subsided. The result: High real interest rates.

      As for Social Security, total FICA in 1960 was 6.0% on the first $4,800 of annual income.  Today (including Medicare) it’s 15.3% on the first $110,100 of annual income.

      • 3boys

        Hi Neil, I just ended up here because I was going through old clippings and came upon your Wash post article from 5 years ago (kids are alright). Interesting that that newspaper is now owned by a member of… how did you say it? “the dumbest generation?” That said, I clipped it because I agreed with it. Another clipping I have is from the Economist Sept. 9, 1995 titled “The hole in your future.”

        This article has a graph showing the net lifetime payments by age to government. This graphic is a lot more convincing than the last line of your reply above. I’m guessing you’ve seen it. It was put together by Alan Auerbach (Berkeley) to support his theories of generational accounting.

        Here is what the Economist article says: “A few years ago Mr Auerbach and his colleagues showed that, in 1989, a retired, 70-year old American man could expect net benefits from the government over his lifetime of $46,100. In contrast, a 25-year old man could expect to make net payments of $220,100.

        One thing I never see in any of the generation articles are the gen-Xers who are risk averse and unapologeticly frugal in the extreme. I mostly see this in the male Xer. In contrast to the easy-come-easy-go attitude of boomers these Xers live like they’ll never see another dollar of income, by cutting expenses down to nothing.

  • Hammered

    Frankly, a little bit of socialism might go a long way. Why give rich old people even more, when it could be put to better use elsewhere? Oh yeah, they vote.

  • Kelly

    I wrote about how the different saecular seasons that are encountered at different times of each generation’s careers affect how they pursue their careers and their financial success, which demonstrates how the saeculum favors Artist generations like the Silents and disfavors Nomad generations like the Xers in this regard:

  • The Silents took the money and ran……. !! They all hang out together on 3rd base,,, congratulating each other, on the Triples they all hit,,, No generation has gotten so much, for so little, in history….