US wealth gap between young and old is widest ever

HOPE YEN

Asso­ci­ated Press

WASHINGTON — The wealth gap between younger and older Amer­i­cans has stretched to the widest on record, wors­ened by a pro­longed eco­nomic down­turn that has wiped out job oppor­tu­ni­ties for young adults and sad­dled them with hous­ing and col­lege debt.

The typ­i­cal U.S. house­hold headed by a per­son age 65 or older has a net worth 47 times greater than a house­hold headed by some­one under 35, accord­ing to an analy­sis of cen­sus data released Monday.

While peo­ple typ­i­cally accu­mu­late assets as they age, this wealth gap is now more than dou­ble what it was in 2005 and nearly five times the 10-to-1 dis­par­ity a quarter-century ago, after adjust­ing for inflation.

The analy­sis reflects the impact of the eco­nomic down­turn, which has hit young adults par­tic­u­larly hard. More are pur­su­ing col­lege or advanced degrees, tak­ing on debt as they wait for the job mar­ket to recover. Oth­ers are strug­gling to pay mort­gage costs on homes now worth less than when they were bought in the hous­ing boom.

The report, com­ing out before the Nov. 23 dead­line for a spe­cial con­gres­sional com­mit­tee to pro­pose $1.2 tril­lion in bud­get cuts over 10 years, casts a spot­light on a gov­ern­ment safety net that has buoyed older Amer­i­cans on Social Secu­rity and Medicare amid wider cuts to edu­ca­tion and other pro­grams, includ­ing cash assis­tance for poor families.

“It makes us won­der whether the extra­or­di­nary amount of resources we spend on retirees and their health care should be at least par­tially real­lo­cated to those who are hurt­ing worse than them,” said Harry Holzer, a labor econ­o­mist and pub­lic pol­icy pro­fes­sor at George­town Uni­ver­sity who called the mag­ni­tude of the wealth gap “striking.”

The median net worth of house­holds headed by some­one 65 or older was $170,494. That is 42 per­cent more than in 1984, when the Cen­sus Bureau first began mea­sur­ing wealth bro­ken down by age. The median net worth for the younger-age house­holds was $3,662, down by 68 per­cent from a quarter-century ago, accord­ing to the analy­sis by the Pew Research Center.

Net worth includes the value of a person’s home, pos­ses­sions and sav­ings accu­mu­lated over the years, includ­ing stocks, bank accounts, real estate, cars, boats or other prop­erty, minus any debt such as mort­gages, col­lege loans and credit card bills. Older Amer­i­cans tend to hold more net worth because they are more likely to have paid off their mort­gages and built up more sav­ings from salary, stocks and other invest­ments over time. The median is the mid­point, and thus refers to a typ­i­cal household.

The 47-to-1 wealth gap between old and young is believed by demog­ra­phers to be the high­est ever, even pre­dat­ing gov­ern­ment records.

In all, 37 per­cent of younger-age house­holds have a net worth of zero or less, nearly dou­ble the share in 1984. But among house­holds headed by a per­son 65 or older, the per­cent­age in that cat­e­gory has been largely unchanged at 8 percent.

While the wealth gap has been widen­ing grad­u­ally due to delayed mar­riage and increases in sin­gle par­ent­ing among young adults, the hous­ing bust and reces­sion have made it sig­nif­i­cantly worse.

For young adults, the main asset is their home. Their hous­ing wealth dropped 31 per­cent from 1984, the result of increased debt and falling home val­ues. In con­trast, Amer­i­cans 65 or older were more likely to have bought homes long before the hous­ing boom and thus saw a 57 per­cent gain in hous­ing wealth even after the bust.

Older Amer­i­cans are stay­ing in jobs longer, while young adults now face the high­est unem­ploy­ment since World War II. As a result, the median income of older-age house­holds since 1967 has grown at four times the rate of those headed by the under-35 age group.

Social Secu­rity ben­e­fits account for 55 per­cent of the annual income for older-age house­holds, unchanged since 1984. The retire­ment ben­e­fits, which are indexed for infla­tion, have been a con­sis­tent source of income even as safety-net ben­e­fits for other groups such as low-income stu­dents have failed to keep up with ris­ing costs or begun to fray. The con­gres­sional super­com­mit­tee that is propos­ing bud­get cuts has been review­ing whether to trim col­lege aid pro­grams, such as by restrict­ing eli­gi­bil­ity or charg­ing stu­dents inter­est on loans while they are still in school.

Shel­don Danziger, a Uni­ver­sity of Michi­gan pub­lic pol­icy pro­fes­sor who spe­cial­izes in poverty, noted sky­rock­et­ing col­lege tuition costs, which come as many strapped state gov­ern­ments cut sup­port for pub­lic uni­ver­si­ties. Fed­eral spend­ing on Pell Grants to low-income stu­dents has risen some­what, but cov­ers a dimin­ish­ing share of the actual cost of attend­ing college.

“The elderly have a com­pre­hen­sive safety net that most adults, espe­cially young adults, lack,” Danziger said.

Paul Tay­lor, direc­tor of Pew Social & Demo­graphic Trends and co-author of the analy­sis, said the report shows that today’s young adults are start­ing out in life in a very tough eco­nomic posi­tion. “If this pat­tern con­tin­ues, it will call into ques­tion one of the most basic tenets of the Amer­i­can Dream — the idea that each gen­er­a­tion does bet­ter than the one that came before,” he said.

Other find­ings:

• House­holds headed by some­one under age 35 had their median net worth reduced by 27 per­cent in 2009 as a result of unse­cured lia­bil­i­ties, mostly a com­bi­na­tion of credit card debt and stu­dent loans. No other age group had any­where near that level of unse­cured lia­bil­ity act­ing as a drag on net worth; the next clos­est was the 35–44 age group, at 10 percent.
• Wealth inequal­ity is increas­ing within all age groups. Among the younger-age house­holds, those liv­ing in debt have grown the fastest while the share of house­holds with net worth of at least $250,000 edged up slightly to 2 per­cent. Among the older-age house­holds, the share of house­holds worth at least $250,000 rose to 20 per­cent from 8 per­cent in 1984; those liv­ing in debt were largely unchanged at 8 percent.

On Mon­day, the Cen­sus Bureau planned to release new 2010 fig­ures that will show a big increase in poverty for Amer­i­cans 65 or older due to ris­ing out-of-pocket med­ical expenses. Cur­rently, about 9 per­cent of older Amer­i­cans fall below the poverty line, based on the offi­cial def­i­n­i­tion put out in Sep­tem­ber, but that num­ber did not fac­tor in every­day costs such as health care and commuting.

The new sup­ple­men­tal fig­ures will show poverty to be higher than pre­vi­ously known for sev­eral groups, although they may not fully reflect longer-term changes. For instance, a recent work­ing paper by the National Bureau of Eco­nomic Research found that U.S. spend­ing on the safety net from 1984 to 2004 shifted notably toward pro­grams ben­e­fit­ing the near-poor rather than the extreme poor and to the elderly rather than younger adults. That trend, which has con­tin­ued since 2004, has led to faster increases in poverty over time for some of the under­served groups.

Robert Mof­fitt, a pro­fes­sor of eco­nom­ics at Johns Hop­kins Uni­ver­sity and co-author the paper, cited a series of cuts in gov­ern­ment pro­grams since 1984 for the need­i­est, includ­ing wel­fare pay­ments to sin­gle par­ents and the unem­ployed under the Tem­po­rary Assis­tance for Needy Fam­i­lies pro­gram, while Social Secu­rity and Medicare have either been expanded or remained constant.

“Over time, even under a revised poverty mea­sure, the elderly have done bet­ter,” he said.

Posted by AP News on Nov 7 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.