Young Adults Lag In Wealth Building
Religion & Liberty Online

Young Adults Lag In Wealth Building

According to a new study by the Urban Institute, “when it comes to saving, owning a home, paring down debt, and growing a retirement nest egg, those under age 40 have stagnated as their parents’ generation accumulated.” Average household net worth, even after the ripples of “the Great Recession,” nearly doubled from 1983 to 2010, but not for those born after GenXers or Millennials (those born after 1970). In fact, the average inflation-adjusted wealth in 2010 for young adults was 7 percent below similarly aged individuals in 1983.

The report, titled “Lost Generations? Wealth Building among Young Americans,” tells this story:

As a society gets wealthier, children are typically richer than their parents, and each generation is typically wealthier than the previous one at any given age. For example, near wealth accumulation in their mid-50s to mid-60s, those born in 1943–51 are wealthier than those born in 1934–42, who are wealthier than those born in 1925–33. This pattern does not hold for the younger among us. People born starting in 1952 no longer find their wealth above the prior cohort by 2010. Nor is the most recent 1970–78 cohort’s average above prior cohorts. Younger cohorts’ average wealth is simply no longer outpacing older cohorts.

Looking at it another way, 65- to 73-year-olds today have far more wealth than 65-to-73-year-olds did in 1983. More generally, the net worth of those 47 and older is roughly double that of someone the same age 27 years earlier. Today’s adults in their mid-30s or younger — the prime time for career and family formation — benefited little from the doubling of the economy since the early 1980s and have accumulated no more wealth than their counterparts 25 years ago.

This should be troubling and alarming news for those who are supporting the expansion of government entitlement programs. The reasons to worry may seem counter-intuitive at first, but if those born after 1970 are lagging this far in wealth building they are likely to become dependent on the welfare state to care for them after retirement. The study warns that, “if current trends for younger generations are not reversed, within a few decades they become more dependent than older Americans today, especially in retirement, upon safety net programs less capable of providing basic support.”

The study points to potential causes of the wealth-building lag—the crash in the housing market, reduced employment prospects, lower employment rate, and lack of educational attainment that was higher than previous generations. The study concludes by suggesting that the way to possibly fix this trend is for the federal government to spend more money on programs that benefit children and youth.

Sometimes I wonder what makes reasonable people think that more government action and intervention is the solution to a problem precipitated by government intervention in the economy. I don’t get it. If wealth-building is a problem doesn’t it seem that wealth creation should be the solution? What would happen if we realized that the way to secure greater financial security for GenXers and Millennials in the future has nothing to do with the government spending more money on programs but rather the government doing what it takes to allow today’s young adults to create more wealth. This means we have to be serious about doing what it takes to remove whatever obstacles undermine the ability of entrepreneurs to do what they do best.

Anthony Bradley

Anthony B. Bradley, Ph.D., is distinguished research fellow at the Acton Institute and author of The Political Economy of Liberation: Thomas Sowell and James Cone on the Black Experience.