Which of today’s generations is the worst off economically? Look around and you’ll find countless arguments for each one. Boomers, we hear, will never retire. Xers are underwater on their mortgages. Millennials are buried in student debt and unable to start their careers.
Experts have been making these worst-case arguments in succession ever since overall productivity and wage growth in the U.S. economy sharply decelerated around 1973—their rhetorical intensity rising during each cyclical downturn. In the mid-1980s, a dark cloud appeared over the economic future of young Boomers: Beneath that Beemer-and-Sharper Image exterior, these yuppies were in trouble. Then, in the mid-1990s, people began lamenting the hopeless “buster” future of Generation X—a topic I discussed back in 1993. Post-Great Recession, the familiar refrain has started up again, this time about Millennials.
To find out whether any of these claims are warranted, let’s look at the data. I’ll start with the most often-cited measure of U.S. living standards, the Census series for median family income in constant dollars.
Things don’t look great here. There’s been a flattening trend since the early 1970s, and recently, even a shallow decline. But does it really indicate that the young are worse off than the old? No. Unless, of course, the flat average trend balances steep lifecycledeclines for later-born Americans with ongoing lifecycle rises for earlier-born Americans.
Unfortunately for the young, that’s just what has happened. Below, I’ve rearranged the same Census data by birth cohort so we can see the underlying generational story.
This graph reveals that today’s younger generations really do face a troubled future. Every cohort through early-wave Boomers has seen upward jumps in their lifecycle income—all the way up until 2012. But every younger generation that has not yet reached age 60 has experienced no such progress. In fact, the 1955-64 birth-year cohort is the oldest group ever in this Census record to fall beneath an earlier cohort at the same phase of life. Later-born cohorts at younger ages have meanwhile been falling beneath first-wave Boomers for decades—in what amounts to a horrible traffic jam.
Now let’s examine living standards by another metric: wealth. The chart below shows the median real-dollar net worth of U.S. families.
This line certainly illustrates how the expansion of credit since the 1980s boosted household asset values over incomes for many years—and how everything came crashing down by 2010. But as with income, it’s impossible to locate any generational issue until you break the numbers down by age. Though we can’t do this as neatly with the Fed data as we did with the Census data, the following table tells a clear story.
Again, the generational contrasts are unambiguous—and even starker than they were for income. From 1983 to 2010, real median net worth nearly tripled for Americans over age 75 and doubled for Americans age 65 to 74. But it fell by 30 percent for Americans age 35 to 40. Reality bites, Gen Xers!
Why do younger cohorts, once again, lag so far behind in their median net worth trajectories? One obvious explanation is the inferior median income growth of younger cohorts: With less income, there’s less to save. Another is their rising degree of income inequality (since this causes median incomes to sink below average incomes).
Why is the impact on wealth even more exaggerated than the impact on income? Let me apply James Duesenberry’s relative income hypothesis and hypothesize that younger cohorts have saved at lower rates to the extent they’ve had trouble keeping up with the consumption of the cohort just ahead of them. Indeed, emerging research shows that savings rates differentially declined among nonaffluent households in the twenty years preceding 2008. Post-2008, with steep deleveraging among the nonaffluent, this differential has finally started to show up in a sharp rich-up versus poor-down divide in consumption.
The unusual shift in median net worth could also be linked to the timing of catastrophic asset-price declines. The exceptionally long “great moderation” preceding the 2008 crash has worked to the benefit of anyone retiring and cashing out just before that date—and to the detriment of younger cohorts, especially those with 10 to 30 years still ahead before retirement.
Generations do well or badly in the economy for a wide variety of reasons, many of them not obvious or even “economic” at all. Think of how generations are shaped in ways totally beyond their control—such as their aggregate number or their ethnic composition. They’re also shaped in ways they do, in some sense, collectively choose—such as their attitudes toward authority, family, or risk. Along the way, each generation redefines “the American Dream” according to its own vision.
The World War II-winning G.I. Generation came of age with D-Day and defined success in terms of a strong middle class and a “Great Society.” Many of their Boomer kids came of age with Woodstock and celebrated radically more individualistic and values-driven life goals. These differences aren’t mere cultural footnotes. They’ve driven huge changes over time in how much families save, how parents finance their homes or kids’ education, and how voters sway regulatory, tax, and fiscal policy.
In this series, we’ll examine how these choices and experiences have shaped economic outcomes for generations in the post-war era. In the next five parts, we’ll retell the stories of five successive generations: the G.I.s (born 1901-24); the Silent (born 1925-42); Boomers (born 1943-60); Generation X (born 1961-81); and Millennials (born 1982-2004). I’ll discuss how each generation was viewed by others; how it redefined the American Dream; how it tried to achieve that dream; and how it was helped or hurt along the way by external events.