Generations: the best way to understand wealth concentration?

Greetings, and welcome to the AgeLab’s new website, complete with a brand-spankin’-new blog, which we will update steadily in the weeks and months to come. To kick off my own series of posts, I wanted to dive into a deceptively complex issue of major import for the future of wealth in the US.

One question that’s recently been vexing a ton of people—especially the chattering classes on social media and opinion pages—concerns generational fairness. That is: Are younger generations really lagging behind Boomers in terms of opportunity and wealth accumulation?

My question is about this question. When we think about who, in the coming decades, will be able to afford things like retirement, caregiving, housing, and higher education, it’s worth considering whether generational fairness is the right framing. Could there be a better way to think through the forces shaping our financial futures?

Here’s a chart from 2019 that seems to get rediscovered on social media every few months. It presents the national wealth share held by Millennials, Gen-X’ers and Boomers, organized not by calendar year, but rather by each cohort’s median age at different points in their lives, which allows you to compare these generations head to head. At first glance, it does seem like the Boomers benefited from something—some special economic sauce—that has vanished over time.

This graph explains... a lotpic.twitter.com/ZlqiCoJHbd

— Charlotte Alter (@CharlotteAlter) August 27, 2021

Gray Kimbrough, an economist at American University and the original source of the graph, blames the generational difference in part on slowing economic growth rates. (He also argues that Boomers have “locked in” wealth gains over time—by opposing new housing construction, for instance.)

I keep returning to this graph. Permanently lower rates of US economic growth after 1999 mean that all millennial cohorts have experienced lower growth in their early adult years than almost any cohorts in previous generations. pic.twitter.com/XSFEgPHbVE

— Gray Kimbrough (@graykimbrough) August 28, 2021

But others argue that things are actually a little more complicated. Dividing the US population up like this—into huge, generation-sized chunks—might be helpful for thinking through certain issues, such as the power wielded by age cohorts in political economy terms. But what this generation-based analysis doesn’t do well is tell you much about individual wealth—because, it turns out, the generations are not equally sized. In fact, as the University of Central Arkansas economist Jeremy Horpedahl points out, there are simply more Boomers than Millennials (and far more Boomers than Gen-X’ers). When you look at the same wealth numbers again, this time presented per capita and adjusted for inflation (more on that in a minute), you see all three generations on remarkably similar wealth-accumulation trajectories. In this new view, an important factor influencing individual wealth appears to be the simple fact of age. Generalizing across the US population, the older you are, the more time you’ve had to save and invest, the wealthier you are as a result.

Are Millennials much poorer than prior generations were at the same age? A viral chart appears to show this, but it looks at the share of national wealth going to each generation

What if we put it in per capita terms? A very different picture!https://t.co/aM7LIm7XIa pic.twitter.com/8PXTVeMa0h

— Jeremy Horpedahl 🍞🔕 (@jmhorp) September 1, 2021

(Horpedahl dives into this here in greater detail: https://economistwritingeveryday.com/2021/09/01/who-is-the-wealthiest-generation/)

So that’s settled, right? The generations are on an equal footing after all?

Not so fast. For one thing, there’s the question of how you adjust for inflation. Economists determine the rate of inflation by watching how fast the prices of a broad slew of goods and services is rising. (In fact, there are literally people whose job it is to help determine the Consumer Price Index (CPI), the standard measure of inflation, by going to physical stores and checking how certain prices change over time.) But how do you choose which items to include in an inflation index? The CPI, for instance, doesn’t reflect changes in housing prices, which have gone through the roof since the 80s. (Or have they, relative to the time we spend working? Again: scratch the surface and things get more complicated.)

On his own Twitter timeline, Kimbrough responded by pointing out that wealth-relative-to-the-price-of-consumer-goods isn’t the only measure of Boomers’ economic advantage. For instance, they are also far more likely than their successors to draw monthly pensions.

The argument about which generation (if any) had it worst continues, and will continue. But while the topic of generational fairness may be compelling (and, indeed, well worth continuing to investigate), it may also be functioning in the popular discourse as a bit—just a bit—of a red herring.

The fact is, money doesn’t die when we do. It either gets spent; taxed; or passed along, usually within families. Similarly, eldercare responsibilities—including the major financial hit both caregivers and care recipients often take—flow vertically, connecting the generations, usually via families.

As a result, while it’s certainly possible to hold a good-faith debate about how bad different generations have had it, there is simply no debate to be had about whether real disparities of wealth and opportunity exist within generations. They do exist, and if anything, the current intergenerational wealth gap may be hiding some of the future’s intragenerational inequality, by forestalling some of the wealth (and liability) transfers that Millennials and Gen Z will inherit from their parents.

And those transfers will be huge. As the “Great Wealth Transfer,” is it’s become known, takes place, Boomers will bequeath to their offspring a sum on the order of several dozen trillion dollars (what a phrase!)—depending whose estimate you trust. Other Boomers, meanwhile, will hand down negative wealth to their children, in the form of eldercare and healthcare costs, as well as intensive eldercare responsibilities that may harm their children’s ability to earn. When the Boomers’ unevenly distributed collection of positive and negative wealth is handed to their kids, Millennial and Gen-Z wealth will become even more concentrated. As Eric Levitz writes in New York’s Intelligencer vertical, the great transfer will be “wildly regressive.” He points to a recent (pre-pandemic) Federal Reserve study, which found that Americans in the top income decile are twiceas likely to receive an inheritance than those in the bottom half.

Racial wealth disparities, too, stand to be exacerbated by the Great Wealth Transfer, as yet another Fed study, this one out of St. Louis, reveals. While White Millennials made major strides in the past five years towards catching up with their parents’ wealth at the same age, Black Millennials’ trajectories actually lagged further behind, compared with both with their White contemporaries as well as Black Boomers. The set of non-college-educated Millennials also fell behind.

It’s facts like these that have Levitz and others wondering if the cold, intergenerational conflict that has been playing out in articles and social media may at some point give way to a hotter, intragenerational one. To be sure, intragenerational wealth concentration will still contain a decidedly intergenerational component, since it will be decided in part by transfers. It’s clear, then, that a generational analysis adds somethingvaluable to the conversation about the future of wealth and opportunity in the US. It’s just that focusing solely on the role of generations seems reductive. It’s not that the generations aren’t implicated; it’s just that when you zoom out and take in all the other factors involved, a far larger picture begins to appear.