A close friend of mine and his wife recently bought their first home. Both have advanced degrees and impressive jobs. They’re in their late-20s and have been married for over a year. Homeownership was the logical next step in their lives.
Why is this story at all significant? After all, it sounds a lot like the standard American Dream. Or at least it was.
To understand why my friend is rapidly becoming the exception rather than the rule, we need to talk a little bit about economic inequality.
Wake of the Great Recession
Inequality has been a regular a headline topic since the Great Recession, to the point where it’s an acceptable punch line in popular culture. Thanks to Occupy Wall Street, we know about the top 1 percent. Thanks to Mitt Romney, we know about the bottom 47.
Scarcely a week goes by without some new report highlighting inequality rising in one dimension or another. Poverty is up. Middle class wages are stagnant. Bank executives received a gazillion dollars in bonuses.
By now we know the drill. The last few decades have witnessed an unprecedented shift in America’s financial fortunes to an economic oligarchy, much to the detriment of everyone else.
More and more Americans are noticing. New York City is about to elect its next mayor based almost entirely on a charismatic exposition of this narrative. Heck, Robert Reich is starring in a hit documentary.
Yet, the facts notwithstanding, there are those on the right who refuse to subscribe to this story. They blame America’s malaise on bloated government, inefficient taxation and moral failings.
The ideological impasse has created a surplus of rhetoric and a deficit of solutions. Then into the fray steps someone like Richard Burkhauser, a Cornell economist, who releases a rigorous study of inequality and finds that it’s…decreasing? So much for easy answers.
The secret to Burkhauser’s counterintuitive findings is his definition of income: consumption plus changes in net wealth. By this standard, the poorest Americans have seen their incomes grow the most, while the wealthy, whose portfolios took a beating during the recession, have made out the worst.
To be sure, Burkhauser’s approach, while theoretically sound, is empirically controversial. But less important than his conclusions are the questions his analysis raises. By challenging conventional wisdom, he highlights that an obsession with income inequality can obscure equally troubling economic trends.
The Home Versus College Dilemma
Inspired by Burkhauser’s research, I conducted my own analysis of the Survey of Consumer Finances, the triennial Federal Reserve study he used in his calculations. What I found simultaneously surprised me and confirmed what many in my generation instinctually know to be true: America has seen a massive transfer in wealth from younger Americans to older ones.
Consider the following facts:
Households headed by persons under 35 have a third less median wealth today than they did in 1989. By contrast, households headed by persons 65-74 have seen their net worth increase 58 percent. For those over 75, wealth is up 77 percent.
For the first time in history, families under 35 are more likely to have student loan debt than they are to have mortgages—meaning we’ve traded homes for degrees.
The rise in student indebtedness has not translated to higher relative wages. In fact, the trend has gone in the opposite direction. In 1989, households 65-74 had incomes that were about four-fifths of what those under 35 earned. Today, the relationship is exactly inverted: young families earn only 80 percent of what older families do.
These statistics make it clear why my friend is an outlier when it comes to financial security. He is one of his generation’s select few able to swim financially upstream. Prevailing economic currents are not easy to overcome.
The first step to a solution is recognizing the problem.
That’s exactly what I do in my recently released TCF issue brief, The Intergenerational Asset Grab. In it, you’ll find a discussion of the age dimension of economic inequality, its consequences and what we can do about it.