Reading my local paper I was struck by the headline, “Wealth gap hits record levels” by Hope Yen.  The secondary headline “Divide between younger and older adults widens as lengthy downturns erodes net worth of those under 35” also raised my curiosity.  In both cases I did not find either statement unusual.  Why would there not be a gap in net worth between people 65 and older and people under 35?

The article further states that there is a 47-1 gap between the old and the young, and states it is the highest ever recorded.  The article cites that the median net worth of a household headed by a person 65 or older is $170,494 and that the median net worth of  households with people under 35 is just $3,662.  I really just want to say – Yea – So what’s your point?
I am more or less astounded that anyone would find this remarkable. All of my life experience indicates that there should be a substantial gap in net worth between the ages under 35 and those 65 and older.

Yea-So what’s your point?

I mean, after all wouldn’t it make logical sense for someone who has worked 40 or 50 years longer to have accumulated much more net worth?  In fact the statistic of the gap in the relative net worth of 47 times actually seems low to me – I will tell you why.  I am starting to knock on the door of the upper age quoted in the article.  From my own history, I had no where near the net worth when I was 35 or younger that I have today. Nor would I have expected it.  Let’s take a look at why that might be – shall we?
When I was 35 and younger, I did not earn anywhere near as much as I have during the period after 35, nor should I.  When I was under 35, I was learning my trade, earning my stripes, gaining experiences that helped me make fewer mistakes and become more valuable.  In those years I was just starting out.  For part of that period, I was renting a home, then later purchasing one.  As such, I was not yet rapidly building equity.  When I did purchase a home I had to buy stuff to put in it; so instead of building net worth I was spending money.
In the years under 35, I was also living a more – I can live forever and worry about retirement after I do and get all the things I want – lifestyle.  I guess you could say, I was less responsible with my money.  Also, this is the period that we go from spending money to attract mates and practice the art of procreation to actually procreating.  For those of us who have both practiced procreating and then later actually procreated, I think we can all attest to the fact that both of those things cost money – sometimes a lot of money.  These costs significantly reduce what we can save and therefore our net worth.

From the age of first procreation to the age of 35, the actual procreants got older and the worry of looming higher education cost came home to roost.  So not only did I have the expense of  increasingly ravenous, and growing children to contend with, I had the resulting increases in costs to go along with said children.  So increasing net worth was still not that much of a viable option.
So you see, maybe I am not typical, maybe I was just irresponsible, maybe it is simply my generation, but I don’t see how at the age of 35 and younger one would even begin to have the net worth of someone in 65 or older.  Another factor for the younger households among us is that the percentage of inherited wealth likely does not befall them until they break the 35 year barrier.  Since the average life span for a person in the U.S. has been between 73 and 83 years old throughout my life time, I would have typically been between 47 and 58 when I received an inheritance assuming that a.) my parents had me as their first born at the age of 25 and they lived the average lifespan.  Even if I was second born and my parents had a 5 years gap between their children,  I would have been over 40 before I received an inheritance. And to push the statistic one more level, If I was third born with another 5 year gap I would have been 37 upon receipt of inheritance.  So Inherited wealth, which can add to net worth, and should from my point of view, would not arrive till after the age of 35 years old.
I put together the above chart, simply to see how much a person would have to save each year from the age of 18 in order to achieve the 47 times multiple quoted in the article.  I used the number of periods to earn the multiple as 47 more for convenience than anything else.  I also chose it because it is exactly 47 years from 18 to 65 years of age.  I could not forgo the irony of the calculation.  You will see, that it is very possible for one to achieve this net worth from simple savings of $2450.85 cents per year at an annual interest rate of 1.5% alone.  Forget appreciation in home ownership, forget increasing value and salary in the workplace, forget lowering of cost as children grow and move on, forget inheritance, forget any other factor that could affect the rate of appreciation of net worth as one ages.
The point of the article seem to be saying there is some base inequity between the older generations and the younger generations.  Perhaps, it is laying the groundwork for elimination of social security and medicare because after all older people have had lifetimes to accumulate their wealth and the younger, under 35 have not – but they will won’t they? The article states, that it is the result of the economic downturn that the multiple has arrived at its worst in history.  But I simply do not believe that statement.  I want to see some indication of what the historical period of record is.  I suspect we will find that this measure is a relatively new one and its history does not go back that far.
The author states that Social Security accounts for 55 percent of the income of people 65 and older.  Duh – what would you expect to see as many over 65 are retired and rely now on Social Security, retirement, savings,  and pensions to pay their expenses.  And this measure they are arguing is NOT earnings, it is net worth –  apples and oranges.
In the article the author cites, Sheldon Danzinger, a University of Michigan public policy professor, who says,

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

Again, I hope this was not some government funded study to come up with yet another “Duh” moment.
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.”

Tell that to those who suffered growing up during the great depression.  I am sure they felt the same way.  The realty is that many generations have not done as well as the previous generation.  The history we learned in school simply ignored many of these facts.  Our history was written to drive the concept of American Exceptional-ism.   So these historical pronouncements often are based less on facts than perception.

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

We have been preaching, some would say irresponsibly, buy on credit since the 1970s.  We have spent much of the past two decades allowing banks to market credit cards to students in college.  We have been stimulating everyone to go to college ignoring the very visible unintended consequences of a reducing labor pool, lowering income level for college graduates, and massive education debt load upon starting their early life.  Adding insult to injury, or stupidity upon ignorance, our own government practically has forced these individuals to purchase homes in those formative years where they could have perhaps saved a small bit, maybe $2,500.00 per year.  Instead, our government manipulated the market using Fannie and Freddy, stimulated the myth of viable ownership with steadily increasing money supply, and in some cases, forced banks to lend to these young people who were really not yet ready to assume such debts.
So what now?  Along with the class war Occupy Wall Street, you know the 99% against the 1% crowds, who are angry with the people who make large amounts of money through the form of legal gambling called the stock market and who are angry with banks for now wanting to collect on those student loans and mortgages they can’t or don’t want to pay back – will we have another group wage “age war”?  Will we see a new slogan the 27% (those under 35) vs the 12.3%(those 65 and older).
So what is the point of this article?  Is it to amplify a point of how capitalism doesn’t work?  Well it fails there because clearly it has worked for the elderly.  Is it to make the point that it won’t work any more?  Again it fails when you look at the gains simple savings will yield over time.  Is it to make the point that the young have it so tough?  Tell that to the people who grew up in the late 70s and 80s when mortgage interest rates were 14% and 16%!
Perhaps it is time to really look at the lessons from this study.  They are not how inequitable the world is and how unfair it is for the coming generations.  The lessons are imbedded in undoing some of the things that have caused the current problems.  Instead of preaching how all Americans should spend more, and use their credit card more, perhaps we need our government to start to preach austerity for the average citizen!  Perhaps, we should correctly instruct our youth on the real history of America.  You know they still may see America as a great nation!  Perhaps, we should once again tell our youth they need to save and become responsible for their retirement years.  That relying on the government to collect a dollar in taxes that will ultimately end up as less than 30 cents of benefits for them in the future is not a good formula. Perhaps, we need to eliminate the death tax so that what people save and gain in their net worth can actually go to help benefit their procreants – you know their children, their heirs and assigns – the ones who are now worrying so much about their future!
Whatever the point of this article, I submit it is not good for America, unless it was written to point out the fundamental systemic problems and address them in some way other than promoting more income redistribution, and more entitlements for all.  The approach seemingly inherent in this article will not be good for We – the People of America. Of course, maybe I am just reading it wrong. Then again maybe not!
Post a comment if you agree or disagree!  As I am declared a Mugwump, I hear both sides.  I try to decide what I think is best – not what any party tells me.  So tell me what you think!