Younger Generations Struggle to Accumulate Wealth

Traditionally, each generation is typically wealthier than the previous one at any given age.

This is not so with younger generations, according to an Urban Institute report. Younger cohorts’ average wealth is no longer outpacing older cohorts. If these generations cannot accumulate wealth, they will be less able to support themselves when they eventually retire, the report states.  

The Urban Institute’s research finds that as a group, older Americans fared relatively well during the financial crisis. Older generations are likely to have a larger share of their portfolio, including their retirement accounts, in recovered assets (such as stocks) and appreciated assets (such as bonds). Adults born before 1952 are also more likely to hold annuities from defined benefit pension plans and Social Security, whose values increase when interest rates fall. Younger generations mostly have defined contribution retirement plans and are less likely to hold annuities.  

But, the report notes the young, on average, were falling behind even before the recession. Factors likely include their reduced job prospects, lower employment rate and lack of educational attainment that was higher than previous generations.  

The Urban Institute suggests the decline in the attention given to the young in government budgets should raise some concern. The federal government spends hundreds of billions of dollars each year to support long-term asset development, such as home ownership via the mortgage interest deduction and retirement savings via preferential tax treatment of money saved in 401(k) and other retirement accounts. These subsidies primarily go to high-income families, the report contends. “A greater sharing of those benefits with the young likely would improve both their lifetime accumulation of wealth and the economic well-being of the nation as a whole,” the report concludes.  

The report, “Lost Generations: Building Wealth among Young Generations,” is here.