The Black Hole of Generational Wealth

January 5, 2020

by Steve Stofka

As we begin this new decade, let’s look at some developing trends. In 2005, the wealth of the Boomer generation (1946-1964) finally surpassed that of their parents (Federal Reserve, 2019). This was the so-called Silent generation born in the years 1925-45. In 2005, each of those two generations owned a quarter of the nation’s wealth for a total of slightly more than half the nation’s wealth. There are about five generations that make up a human life span. Older generations have had more time to accumulate wealth, so this distribution of wealth among the two oldest generations was expected.

Turn the dial forward 14 years to 2019 and the distribution of wealth has changed significantly following the Financial Crisis. The median age of the Boomer generations is now 64 and they own 60% of the nation’s wealth. Even more remarkable is the 25% share of the country’s wealth owned by the oldest generation who are 75 years or older (Federal Reserve, 2017). The median wealth of those oldest households is greater than that of the Boomers.

What happened? Most of that wealth is in real estate. Following the financial crisis, asset prices have recovered. Housing prices have risen sharply on both coasts where most of the country’s population lives. Between the 2013 and 2016 Surveys of Consumer Finances, the median net wealth of the 75+ generation increased 32% while the oldest of the Boomer generation aged 65-74 had a 6% decline.

As these oldest Americans die, their wealth will pass to younger generations but most of it will presumably pass to their immediate heirs, the Boomers. Within five to ten years, the Boomers – less than 25% of the population – will own 70% or more of the nation’s wealth.

The Consumer Survey data shows that approximately 80% of that 70% will be owned by 10% of the Boomers (Federal Reserve, 2017, Figure B). A small percentage of old people will control a majority of the wealth in the country. Wealth buys political influence to protect that wealth. Younger generations have a greater number of votes but have not exercised that vote power in the same percentages as older people. Will the concentration of wealth prod younger people into exercising their power at the ballot box? Older and wealthier Americans have political alliances that give them more electoral power than their vote numbers. In this coming decade younger Americans will have to come out in overwhelming numbers on election days to overcome the power of those alliances. Will we see a generational revolution this decade?

The strength – and weakness – of older people is their predictability. They will counter proposals for fairer wealth distribution with familiar arguments. “These younger people want something for nothing” has been an effective counterargument for several decades. “These policy proposals are socialist and un-American” is another effective ad campaign against policy changes. “How will we pay for this? Higher taxes and less money for working people” is another strategic counterargument that attracts moderate and conservative voters.

The past decade has been historic. We ended the “aughts” or 2000s with the election of a black American for president and the worst financial crisis since the Great Depression. We ended this decade with the impeachment of President Trump. Like President Clinton who was impeached in 1998, both men enjoyed robust economic growth, historically high stock and housing market prices during their terms. Economic well being did not insulate either president from impeachment by the opposite party. Get ready for the next decade. I’m betting that economic disparity and political friction create a maelstrom that makes the past two decades look tame.

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Notes:

Federal Reserve. (2019, December 23). Distribution of Household Wealth in the U.S. since 1989: Wealth By Generation. [Web page]. Retrieved from https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:120;series:Net%20worth;demographic:generation;population:all;units:levels

Federal Reserve. (2017, September). Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances: Table 2. Family median and mean net worth, by selected characteristics of families, 2013 and 2016 surveys. [Web page]. Retrieved from https://www.federalreserve.gov/publications/2017-September-changes-in-us-family-finances-from-2013-to-2016.htm#xtable2-familymedianandmeannetworthb-c9084a05

Photo by Arnaud Jaegers on Unsplash

2 thoughts on “The Black Hole of Generational Wealth

  1. Siobhan Stofka says:

    important to note as well that the generational wealth you speak of is really only afforded to white people. There is little/no generational wealth for most black and brown families. It’s a big reason why reparations are in the political conversation lately, at least among true progressives.

    Xoxo

    >

    Like

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