Why boomers have more money than others

It is the richest of times, all apologies to Dickens, and it is the most unequal of times. The difference in wealth and income between the top 1% and the rest of America tends to get more attention, but one of the more striking wealth gaps is generational: Older Americans are far richer than young Americans.

The good news is that most Americans, of all ages, have never had more wealth. But estimates in new research from Edward Wolff, the economist at New York University who has long studied wealth in America, show a large and growing gap in net worth between Americans over age 75 and those under 35. No wonder everyone hates the Boomers.

Several economic trends have contributed to this divergence. One is the increase in stock ownership: In 1989, only 32% of Americans (of all ages) owned stock; by 2022, 58% did. This is in large part because 401(k)-type plans became more common and, according to the paper, displaced more liquid and less remunerative forms of saving such as checking accounts.

Boomers were the first generation to be offered 401(k)s at work when they were young, and they have contributed to their wealth in retirement. Because 401(k)s are cheaper for employers to offer than defined-benefit plans, more people have them, and more have retirement benefits, period. According to the paper, stocks as a share of Americans’ retirement portfolios more than doubled between 1983 and 2022, mostly because the market did so well — the S&P 500 has risen nearly 20-fold since 1989. It has been a good time to own stocks.

The other big change is the increase in home ownership. Between 1983 and 2022, it went up by 5.2 percentage points, to 67.4%. The paper estimates home ownership rates were flat for those under the age of 35, but older Americans became more likely to own their home. The homeownership rate of Americans aged 65 or older increased more than 7 percentage points. Meanwhile, as with equities, the value of real estate has increased since the 1980s. This is due in part to limited housing relative to a growing population, as well as to better, bigger homes with more amenities. Then again, mortgage debt also increased for all age groups, especially for young people attempting to buy their first home. This greater debt is contributing to the growing inequality between age groups.

Inequality is often called the major economic issue of our era. But when the inequality is between the young and old, or within a family, it may be less of a problem. For one, the olds did not necessarily get rich at the expense of the youngs. For another, this inequality may simply reflect an ownership society in which more people save for their retirement and own their homes. Such a world would be more unequal because older people have had more years to accumulate wealth and enjoy the benefits of compound returns.

To put it another way: The young people of today may yet have their time. There is certainly no guarantee that the next 40 years will be as prosperous as the last, but there are reasons to think it will. Some of the young may also inherit some of their elders’ money, too. There is, I acknowledge, a seductive zero-sum view of this wealth gap. It goes something like this: First, older people benefited from buying houses when they were cheaper (though mortgage rates were higher). But there is a finite supply of housing, and prices went up, pricing out younger buyers. Meanwhile, a lot of this wealth accumulation occurred as the government took on more debt to pay benefits or lower taxes, and that can’t continue as Social Security and Medicare costs mount. Younger Americans will have to pay all this debt, or it will weigh down the economy — either way, their dotage will be worse than the Boomers’.

Of course, the wealth gap does raise the question of why the elderly are the beneficiaries of so much government largesse. It is also worth noting that young people today may be worse off relative to older Americans than ever before. Nevertheless, today’s young people are better off, in absolute terms, than the young people of the past — notably the Boomers when they were young. Median and average net worth have increased over time for all age groups, especially in the last five years. These may be small comforts if your grandmother is pricing you out of your neighborhood. But it’s always important, in both economic and familial matters, to keep a sense of perspective.

Allison Schrager, Tribune News Service