3 Reasons Families Gain Wealth as They Age

August 13, 2015
old family balance sheets
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As we saw in an earlier blog post, families tend to increase their net worth as they age. Recent research shows that wealth is correlated with prudent balance-sheet management.

Researchers from the St. Louis Fed’s Center for Household Financial Stability recently released a study examining age, birth year and wealth.1 Senior Economic Adviser William Emmons and Lead Policy Analyst Bryan Noeth found that, as might be expected, a typical family’s wealth rises at a slowly decreasing rate from their early 20s until about age 60. After then, wealth seemed to remain flat or decline slightly.2

Balance Sheets

One aspect of wealth accumulation the authors examined was balance-sheet health. Emmons and Noeth noted: “Although there is no such thing as a perfect balance-sheet configuration or a one-size-fits-all set of prescriptions on how best to choose assets and liabilities, several principles of wealth accumulation and retention are reasonably clear.”

In particular, the authors noted three balance-sheet choices likely to support greater wealth accumulation.


Having adequate amounts of wealth in safe and liquid assets—checking and saving accounts, certificates of deposit, bonds and savings bonds—can help buffer against financial shocks. A lack of liquidity during difficult financial times can lead to high-cost borrowing, distressed-asset sales or costly default on debt and other obligations.

Emmons and Noeth found that the ratio of liquid assets to total assets was typically much higher for older families (those headed by someone 62 or older) than for middle-aged (those headed by someone 40-61) and younger (those headed by someone under 40) families. It should be noted that the ratios have declined for older families and risen for middle-aged and younger families in recent years. Thus, the gaps have narrowed.


When assets are largely concentrated in a single area, such as having most of a family’s wealth tied up in a home, a negative shock to that area could cause a significant decline in wealth. Diversifying assets can lead to greater wealth on average over time due to lower volatility for any given level of expected return on assets.

The authors found that older families typically have a much greater share of their assets invested in financial and business assets.3 In 2013, older families held 34.8 percent of their assets in financial and business assets. This was notably higher than the ratios for middle-aged (28.3 percent) and younger (18.5 percent) families.


Leverage (or the debt-to-assets ratio) is important for at least two reasons regarding wealth accumulation:

  • Borrowing can be expensive.
  • A high debt-to-assets ratio means greater risk from a negative shock, raising the prospect of insolvency and of costly default on debt or other obligations.

Emmons and Noeth found that older families had little or no debt throughout the period studied. However, the debt-to-assets ratio increased for both middle-aged (14.2 percent to 25.3 percent) and younger (34.4 percent to 44.9 percent) families from 1989 to 2013.

Which Comes First?

The authors’ analysis shows a correlation between prudent balance-sheet management and wealth as families age. However, the authors cannot identify causation for the correlation. They wrote, “Do the diversification and debt choices of middle-age and old families cause them to be wealthier, or does greater wealth cause or allow them to be better diversified and less leveraged?”

They posited that there are elements of two-way causation. Basically, the answer to both questions is “yes.” They concluded: “Nonetheless, an important question for future research is the extent to which young families might accumulate wealth more rapidly if their balance-sheet choices resembled those of old families more closely.”

Notes and References

1 This paper is part of a series called “The Demographics of Wealth” and examines American families’ balance sheets and financial behavior over time. The first two essays covered race, ethnicity and wealth and the role of education.

2 The data for the authors’ analysis come from the Federal Reserve’s Survey of Consumer Finances and cover the period 1989-2013.

3 Financial assets include all securities and accounts that can be turned into cash. Business assets include the value of all privately owned businesses minus its debts.

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This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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