Typically, young families start with very little wealth and accumulate more as they age. Thus, a gap between the wealth levels of young and old families is to be expected. However, that gap has widened considerably over the past few decades.
Researchers from the St. Louis Fed’s Center for Household Financial Stability released the final essay in their “Demographics of Wealth” series, with this essay focusing on age, birth years, income and wealth. Senior Economic Adviser William Emmons and Lead Policy Analyst Bryan Noeth used data from the Federal Reserve’s Survey of Consumer Finances (SCF) for the period 1989-2013.1
In general, a family’s2 income started at a low level when young, peaked in middle age, then declined in old age. More specifically, income rose rapidly in percentage terms during a typical family’s 20s. The rate of growth continued, albeit more slowly, throughout the family’s 30s and 40s before peaking around age 50. It plateaued until the family’s early 60s, when it began to decline.
However, a shift has occurred. Old families had the lowest median incomes during the period studied, but this group was the only one to see a net increase. In 1989, the median income of old families was 61.3 percent of the median for all families. By 2013, the median income of old families had risen to 83.0 percent of the median for all families. Median incomes for both young and middle-aged families declined slightly, relative to the overall median income.
Like income, a typical family’s wealth (or net worth) increased for families as they moved from being young through middle-age to being old. Unlike income, wealth tended to level off or perhaps slightly decline after a family reached age 60, rather than decline significantly.
The fact that old families have more wealth than younger families may seem intuitive, but what may be surprising is that the gap between these groups has been widening. The median wealth of old families rose from just under $150,000 in 1989 to about $210,000 in 2013, an increase of about 40 percent. On the other hand, the median wealth of a middle-aged family declined about 31 percent (from $154,000 to $106,000) over the same period. The median wealth of a young family dropped 28 percent from $20,000 to just over $14,000.
The Great Recession played a role in the widening gap. The median wealth of old families dropped 16.7 percent from 2007 to 2013. However, young and middle-aged families experienced much larger drops, with wealth declining 35.5 percent and 47.3 percent, respectively, over the same period.
While the Great Recession may have helped widen the gap between old families and everyone else regarding wealth, it wasn’t the sole reason. The authors noted that old families had generally fared better than young or middle-aged families even through 2007, prior to the recession. They wrote, “Developments reflected in the 2010 and 2013 SCF data accentuated the longer-term trends.”
1 All figures are adjusted for inflation.
2 A family’s age is defined by the age of the head of household. Young families were those under age 40; middle-aged families were those between ages 40 and 61; and old families were those older than age 62.