Downturn takes heaviest toll on younger Americans

Nov. 6, 2011 at 5:31 PM ET

Charles Rex Arbogast / AP /
Protesters rally in Chicago on a national day of protests last week. The Occupy Wall Street protesters have mainly been younger people, who have been hit hard by the economic downturn, a new report shows

The lingering economic downturn is taking a toll on virtually everyone, but Americans under 35 are faring far worse than those over 65.

That's the finding of a new analysis of government data by the Pew Research Center, which found that older adults have enjoyed big financial gains -- in wealth, income and homeownership -- as households headed by those under 35 have lost ground.

The fortunes of young and old households have been diverging for decades. But the Pew report found the disparity cuts across a broad range of measures of economic well-being and has been amplified by the recession that began in 2007.

"If these patterns continue, it starts to call into question one of the most basic tenets of the American dream, which is that each generation does better than the one that came before it," said Paul Taylor, executive vice president of the Pew Research Center and co-author of the study.

The Pew Center's review of Census and other data found that households headed by those 65 or older had a median net worth of $170,494 in 2009 -- up 42 percent from 1984 after adjusting for inflation. Households headed by those under 35 had a median net worth of just $3,662 -- a drop of 68 percent.

Two forces stand out in explaining the stark divide. First, the collapse of the housing market hit younger households much harder and has left them in much worse shape. Homeownership rates for those 65 and older are higher in 2009 than in 1984; the rate for those under 35 has fallen during the same period.

Housing has also been a major source of older homeowners' wealth. Half of over-65 households bought their home before 1986, allowing them to ride the historic gains in home equity of the 1990s and early 2000s. Some two-thirds of older homeowners have paid off their mortgages.

"Younger adults are the most likely to have recently bought into the housing market," said Chris Wimer, associate director of the Stanford Center for the Study of Poverty and Inequality. "So they're the most likely to be underwater."

To be sure, not all older households escaped the housing bust. In the two years following the recession the median net worth of those aged 65-74 fell 14 percent -- to $206,000, according to Federal Reserve data. Those over 74 lost more than 20 percent. Those households will have a tougher time recouping those losses than their 20-something counterparts.

"They're not getting any time to recover," said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington think tank. "Older people who lost a lot of wealth with the collapse of the housing bubble are basically screwed."

Younger households also have lost ground on income growth compared to the generation that preceded them, a trend that has been exacerbated by the recession and jobless recovery.

In 2010, the median household income for older workers was 109 percent higher than the median income for that group in 1967. That is four times the rate of growth of median incomes for households headed by someone under 35. One big reason is that workers under 35 are having much harder time finding a job that pays well.  

"No one since the Great Depression has come into the workforce in situation like this," said Baker. "Almost by definition it's always going to hit younger people harder because they're the ones entering the labor force. If employers have a choice to hire someone or lay someone off, it's easier just not to hire."

As younger workers have a harder time getting traction, older workers are remaining in their jobs longer. In the mid-1980s only 10 percent of 65 and over were still in the workforce; that rose to 16 percent by 2009.

Some may have no choice but to keep working. But many older workers choose to.

"People when they turn 65 these days say, 'I've got a lot of years left,'" said Wimer. "They're working because they want to."

Younger households are also delaying marriage, which tends to correlate with rising economic mobility. But it's not clear whether the delay is a cause or effect. Some young adults may delaying marriage because they can't afford it. For others, the choice to delay marriage may be holding them back financially.

Younger households are also entering the workforce with much more student debt than the generations that preceded them. In a tough job market, many have dropped out of the labor force altogether. Some have returned to school to better their job prospects. Others have simply given up looking.   

For now, there appears to be little consensus about possible government solutions or political will to enact them. Fed Chairman Ben Bernanke told reporters last week that the best way to address the widening inequality in wealth and opportunity was to create jobs.

"It gives people opportunities," he said. "It gives people a chance to earn income, gain experience and to ultimately earn more. But that's an indirect approach that's really the only way the Fed can address inequality per se."

Congress and the White House, meanwhile, are locked in a deeply partisan struggle over economic policies and the budget. That debate includes the future of existing programs, including a payroll tax cut for workers and extended jobless benefits, that are set to expire at the end of the year.  

In the meantime, younger workers will have to fend for themselves.

"I think it's really worrisome," said Wimer. "There's a whole group of young disadvantaged, less skilled younger people who are not able to get a secure toehold into the economy and confidently be able to say they can achieve the American Dream."