Saving for the future has never been a strength for baby boomers and their millennial offspring even though they are better educated than previous generations.
That was a finding of a new report by the Federal Reserve Bank of St. Louis titled “The Demographics of Wealth: How Age, Education and Race Separate Thrivers from Strugglers in Today’s Economy.” In the study, the third in a series, William Emmons and Bryan Noeth with the St. Louis Fed’s Center for Household Financial Stability examined the effects of age and birth year on families’ ability to accumulate wealth. Unless younger generations increase their savings habits and get spending under control to be more like older Americans they will be unable to acquire much wealth and certainly retirement will be a struggle.
The series is based on an analysis of data from 1989 to 2013 through the Federal Reserve’s Survey of Consumer Finances, involving more than 40,000 families. Researchers determined whether persons were young, middle-age or old and how birth year cohorts compared. Comparisons were made from “the greatest (World War II) generation” to millennials.
The study found that young and middle-age families today have less wealth than their counterparts of a quarter-century ago. Older families today also have more wealth than their counterparts 25 years ago.
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The result is a widening wealth gap between older families and both middle-aged and millennial families, the report said.
Race also appears to be a contributing factor with younger American families being more racially and ethnically diverse than ever before. That also raises concerns that discrimination, racial profiling and white privilege may be affecting the education, housing, health care and job options for young black and Latino families.
A prepared release said: “The median wealth of a young family (those with a head of household younger than 40) dropped more than 28 percent between 1989 and 2013, from $20,000 to $14,000. Similarly, the median wealth of a middle-aged family (age 40-61) in 2013 was 31 percent lower than in 1989, dropping from $154,000 to $106,000. However, the median wealth of old families (age 62 and older) rose 40 percent between 1989 and 2013, from $150,000 to $210,000. (All figures are adjusted for inflation.)
“Lack of education is not to blame for younger families’ faring worse financially, given that each generation is better educated than the previous. However, younger families could be losing ground, in part, because they represent a more racially and ethnically diverse group than previous generations. Emmons and Noeth showed in their first essay in this series that non-Hispanic blacks and Hispanics of any race were less likely to thrive financially than were non-Hispanic whites and Asians.”
Other findings: There were far fewer people born from 1925 to 1944 because of the Great Depression. It’s called the “silent generation.” People in that era acquired more wealth than family heads born before or later.
“For the opposite reason, baby boomers fared worse in wealth and income because there are so many of them; they’ve had to compete more for jobs, housing and investment opportunities that have those from generations smaller in number,” the report said.
Since 1989, older families have maintained the strongest balance sheets in safe amounts of liquid assets, broad diversification and low debt. Since 1992, older families have earned stronger financial-health scores. They weathered the Great Recession better than baby boomers and millennials.
The report advises that younger families consider the timing of homeownership so that it’s an asset and not a financial burden, manage their resources more like older people, set up and maintain an emergency fund, build a diversified portfolio of assets, keep debt to a minimum, save regularly and pay bills on time.