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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