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St. Louis Fed Finds Younger Families on Track for Lower Wealth than Previous Generations


ST. LOUIS ― Younger families are more likely to be better educated and more diverse than those of previous generations, but unless they pick up some saving and spending habits from their elders, they’re not on track to acquire as much wealth. That’s according to a new report by the Federal Reserve Bank of St. Louis.

Authors William Emmons and Bryan Noeth, senior economic adviser and policy analyst at the St. Louis Fed’s Center for Household Financial Stability, examined the roles that age and birth year play in families’ ability to accumulate wealth. Their essay is the third in a series titled “The Demographics of Wealth: How Age, Education and Race Separate Thrivers from Strugglers in Today’s Economy.” The center’s series is based on an analysis of data collected between 1989 and 2013 through the Federal Reserve’s Survey of Consumer Finances’ more than 40,000 families were surveyed over that span of time.

For this essay, researchers looked at age in two ways: where a person stands in the life cycle (young, middle-aged or old) and how birth-year cohorts compare. The latter approach allowed some comparisons of generations, from “the greatest generation” to millennials. The data show that young and middle-aged families today have accumulated less wealth than their counterparts of a quarter-century ago. At the same time, old families today have more wealth than their counterparts of a quarter-century ago. The result is a widening wealth gap between the typical old family and both middle-aged and young families.

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.

Young families may be able to accumulate wealth faster if they manage their balance sheets more like older people do, according to findings in the latest essay. For example, they could 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.

Notably, the timing of homeownership may greatly affect young families’ ability to build wealth. “If a young family is willing to delay the purchase of a home, with its attendant debt burden, until they could afford a house with a significant down payment and still have enough money to invest in stocks and other assets with potentially high returns, it’s likely they would enjoy greater wealth later,” said Emmons.

Other key findings of the report:

  • Cohort effect: Family heads born about 1940 earned higher incomes and accumulated more wealth than family heads born before or later, holding constant a host of demographic, idiosyncratic and period-specific factors. That so-called silent generation (born 1925-1944) was relatively small because birth rates dropped during the Great Depression. 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.
  • Balance-sheet choices: Since 1989, old families have maintained the strongest balance sheets, measured as an adequate amount of safe and liquid assets, broad asset diversification and low debt.
  • Financial health: Since 1992, old families have earned stronger financial-health scores, representing better every-day financial decision-making.
  • The effects of time periods: Data show old families’ median income and median wealth withstood the economic and financial shocks of the Great Recession better than young and middle-aged median income and wealth. The researchers propose that the strong post-WW II economy was important especially to today’s old families during their working lives in generating strong incomes--even with less education than today’s young and middle-aged families.

To read the full age report and to watch a video summarizing the findings, visit The first two essays and videos, on how race/ethnicity and education are connected to wealth accumulation, also are available at that site.