With President Obama’s speech in Osawatomie, Kansas channeling Teddy Roosevelt and decrying the growing economic inequality and lack of upward mobility in America, the issue has finally arrived at the center of this year’s campaign debates. While most discussions of this growing inequality focus on the gap between America’s poorest and richest citizens, a recent report by the Pew Foundation highlights how the same economic trends over the last two and a half decades have also widened the wealth gap between the oldest and youngest Americans to the highest levels in history.
In a time of great political unrest and economic anxiety, this inter-generational wealth gap has the potential to throw gasoline on an already white hot fire. Only by understanding the sources of this increasing disparity can the country develop policies that will help to close the gap and create a fairer, less economically stratified society.
Drawing on data provided by the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP), Pew documents the tectonic shifts that have occurred in households’ net worth based upon age between 1985 and 2009. During this time, the average net worth of households headed by those under 35 fell from $11,521 to just $3,662, a drop of 68%. During the same period, the net wealth of households, as measured by adding up the value of all assets owned minus liabilities such as mortgages or credit card debt associated with those assets, headed by those over 65 increased by 42%, from $120,457 to $170,494 (all figures are expressed in 2010 dollars).
Of course younger households have always been less wealthy than older ones, since the heads of those households haven’t had a lifetime to acquire wealth. In 1984, this effect of age on household wealth meant that senior citizen households had, on average, ten times the wealth of those headed by people younger than 35. However, the enormous generational shift in household wealth that occurred in the intervening twenty-five years meant that, by 2009, the net worth of senior citizen households was 47 times greater than younger households. The resulting disparities in economic well-being are reflected in each generation’s perception of its own economic situation.
Those Americans over 65 in 2009 are members of what generational historians call the Silent Generation. Only 25% of Silents expressed any dissatisfaction with their personal financial situation that year, a percentage that did not increase in the next two years of the Great Recession.
By contrast, 36% of people under 35 in 2009 – mostly members of the Millennial Generation – expressed dissatisfaction with their individual finances in 2009, a number that rose to 39% in 2011. But the biggest jump in dissatisfaction with personal finances between 2009 and 2011 occurred among the next older cohort, who are considered to be members of Generation X. In 2009, only 30% of Xers felt dissatisfied, a number that shot up to 42% in 2011. Finally, 32% of the Baby Boom generation, born from 1946 to 1964 and approaching their retirement years in 2009, were dissatisfied with their personal financial situation, a number that rose only to 39% by 2011.
One of the reasons behind this disparity of financial and economic concern among generations lies with the different impact the nation’s housing market has had on each generation between 1985 and 2009. The great housing price collapse that began in 2008 had little impact on Millennials, only 18% of whom currently own their own home. By comparison, 57% of Gen Xers own their own home. Three-fourths of them bought after 2000 when housing prices began to soar. As a result, about one in five members of Gen X now say their home mortgage is under water, with the balance owed greater than the value of the house. By comparison, only 13% of Boomers and a miniscule 4% of Silents, most of whom bought homes well before the crash, report having under water mortgages. In fact, if it weren’t for the overall rise in housing prices since 1984 that Silents were able to take advantage of, that generation’s net worth would have fallen by a third in the twenty-five years since, instead of rising by 42%. Clearly, to improve Gen X’s attitudes toward the economy and reduce the inter-generational wealth gap, something must be done to fix the nation’s housing market.
For older generations – Boomers facing retirement and Silents already enjoying their new life – housing is not an especially large concern. Retirement savings based on stock market valuations and/or interest rates and the certainty of pension payments are clearly a much bigger issue with these generations. Almost two-thirds of Boomers believe they may have to defer their retirement beyond 65 because of the decline in their savings and net worth, with about one in four now expecting to work until at least 70. While the stock market has almost fully recovered from the 2008 crash, for those counting on a more interest-oriented set of retirement payouts from bonds or CDs, years of rock bottom interest rates, designed by the Federal Reserve to stimulate the housing market and help the economy recover, have made these investments problematic at best. In some ways, economic policies that are designed to help Gen X with their housing challenges offer older generations scant comfort, and in certain instances actually exacerbate their concerns over their personal finances.
Millennials diminished sense of economic opportunity remains focused almost entirely on the job market. About two-thirds of Millennials are employed but only slightly half of those are working full-time. Almost two-thirds of Millennials without a job are looking for work. Unemployment among 16-24 year olds rose to 19.1% by the fourth quarter of 2009, a full eight points higher than in 2007 before the crash. For all other generations, unemployment has gone up on average by only 5 points during the same time period. It seems too obvious to be worth stating, but the best way to increase Millennials’ wealth is to create an economy where they can all find jobs.
Anxiety that the nation’s economy is only working for the wealthiest drives much of the overall feeling of fear, uncertainty and doubt that pervades the nation’s political debate. But an examination of household wealth suggests the remedy to this disease varies by generation.
Senior citizens turned out in record numbers in the 2010 election to decry the policies of the Obama administration, but it would appear from both the economic and attitudinal data that most of them are more interested in fighting to hang on to what they have or in resisting other societal changes than in expressing any dissatisfaction with their own personal financial situation. Boomers complain about what has happened to their plans for retirement, but it is hard to see how fixing entitlements by raising the retirement age, or cutting the overly generous pensions of public employees will do anything to impact their own retirement prospects directly. To really close the generational wealth gap, policies should be adopted which raise the economic well being of America’s two youngest generations, rather than focusing on those who are already relatively better off.
To bring up the least wealthy of the nation’s households to levels closer to those more fortunate would require taking much more aggressive steps than Washington has so far been willing to consider. This might require expanding the scope and size of government, something older generations especially are steadfastly resisting. This inter-generational debate over the nation’s “civic ethos,” driven by the differing economic circumstances of each generation, will be and ought to be the fundamental issue of the campaign – precisely where President Obama’s speech in Osawatomie, Kansas placed it.
America is about to enter a presidential campaign that promises to be filled with divisive rhetoric and sharp differences over which direction the nominees want to take the country. This will be the fourth time in American history that the country has been sharply divided over the question of what the size and scope of government should be. Each time the issue was propelled by vast differences in beliefs between generations that caused the country to experience long periods of Fear, Uncertainty and Doubt (FUD), before ultimately resolving the issue in accord with the ideas and beliefs of a new generation.
Every eighty years America engages in this rancorous, sometimes violent, debate about our civic ethos.
The first occurred during and after the Revolutionary War and resulted in the most fundamental documents of our democracy: the Declaration of Independence, the Constitution, and the Bill of Rights.
The second took place during the Civil War. The 13th, 14th, and 15th Amendments codified the outcome of that debate —- this time in favor of the federal government asserting its power over state laws when it came to fundamental questions of personal liberty and civil rights. It took the Civil War and a massive increase in Washington’s power to accomplish the end of slavery, although it would be another century until the rights of freedom and equality were fully extended to African-Americans.
And in the 1930s, the economic deprivations experienced by most Americans from the excesses of the Industrial Revolution, and the collapse of corporate capitalism, led to support for a “New Deal” for the forgotten man that placed the responsibility for economic growth and opportunity squarely on the federal government. The government demanded by the GI Generation (born 1901-1924) greatly surpassed the conventional views of earlier generations.
In each case, the resolution of these debates depended on the emergence of a rising, young civic-oriented generation that thought the nation’s dominant political belief system should contain a strong role for government, overturning the more conservative and limited-government views of the older generations then in power.
Now, as previously, the highly charged ideological arguments on both sides of the issue generate great agitation and anger among older generations, especially Baby Boomers, who have driven our political life towards ever wider polarization. As a result, the resolution of today’s debate over the nation’s civic ethos is not likely to come from older Americans who seem incapable of and unwilling to compromise their deeply held values and beliefs.
This time around, the largest generation in American history, Millennials, (born 1982- 2003), that will comprise more than one in three adult Americans by the end of this decade, are destined to play a decisive role in finding a consensus answer to this critical question. If the United States is to emerge from this most recent period of FUD, it will have to look to the newest civic-oriented generation, Millennials, for both the behavior and the ideas that will bridge the current ideological divide and spur the country into making the changes necessary to succeed in the future.
Millennials believe that collective action, most often at the local level, is the best way to solve national problems. Using social media, Millennials are organizing groups like the Roosevelt Institute’s Campus Network, to present a very different vision of America’s future. In this Millennialist future, the idea of top down solutions developed by experts in closed discussions will give way to bottom up, action-oriented movements. This will topple institutions as dramatically as Napster upended the recording industry, or the Arab Spring changed the Middle East. Just as their parents set the rules within which Millennials were free to exercise their creative energies when they were growing up, the new generation will continue to look to the federal government to set national goals or guidelines, as has long been the view of Boomer progressives. However, the way in which these guidelines are implemented will not be determined in remote and opaque bureaucracies, but by individuals in local communities across the country. In this way, Millennials will embrace progressive values, but with approaches that may be welcomed by many conservatives.
In the midst of the country’s current period of FUD, it is easy to despair that the nation will be unable to resolve its divisions and come to consensus about a new civic ethos. But throughout its history, when America has been equally fearful of the future, a new civic generation has risen to foster the necessary transition. In the end, this emerging generation served both itself and the country well. Now it is the Millennial Generation’s turn to serve the nation and move America to a less fearful and less divided future.