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The Oldest President Ever Will Confront a Generational Wealth Gap

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The Oldest President Ever Will Confront a Generational Wealth Gap

  • Americans under 35 are 23% poorer than three decades ago
  • Low interest rates widen wealth gap, Deutsche Bank says
Joe Biden Campaigns In Western Pennsylvania One Day Before Election

Photographer: Drew Angerer/Getty Images

Joe Biden wasn’t the candidate of choice for young Americans in the Democratic primaries, but they overwhelmingly supported him in the general election.

Now their economic futures rest in the hands of the president-elect, who will be the oldest person ever to serve in that office when he takes over on Jan. 20. Former President Ronald Reagan, the previous record holder, was a few weeks away from his 78th birthday when he left office in 1989; Biden turned 78 on Friday.

Biden inherits responsibility for a group of Americans in their 20s and 30s who have been knocked down by the economic trends of the last couple of decades, including rising housing and health-care costs and record levels of student debt. Now the Covid-19 recession is hitting young Americans hardest, putting a disproportionate number of Millennials — and their younger siblings in Generation Z — out of work.

Young people weren’t catching up with older generations even before the pandemic, when the U.S. economy was strong. In fact, the wealth gap between the generations has steadily widened since the 1990s.

Young Adults’ Shrinking Wealth

A strong economy failed to lift the average net worth of households under 35

Source: Federal Reserve Survey of Consumer Finances, in 2019 dollars

The gulf between the generations has the potential to lead to radical change in society once new generations come into power, according to Deutsche Bank AG strategists.

“When they do, all indications are that they will enact policies that not only forcibly redistribute in blunt ways, but also upend the very foundations of capitalism,” Deutsche Bank’s Jim Reid and Luke Templeman wrote in the report, “To Save Capitalism, We Must Help the Young.”

While Biden wasn’t young voters’ top choice in the Democratic primaries, he ended up winning 18-to-29-year-olds by 24 percentage points, 5 better than 2016 nominee Hillary Clinton, according to a Brookings Institution analysis of exit polls. The president-elect lost voters 45 and over. He has sought to show that he understands what younger generations are experiencing.

“For all the young people who have known only an America of rising inequity and shrinking opportunity, they deserve to experience America’s promise in full,” Biden said when he accepted the party nomination in August.

Biden has emphasized economic proposals that include cutting middle-class taxes while raising levies on the wealthy, giving more power to unions, expanding access to health insurance, and creating jobs with investments in upgrading infrastructure and fighting climate change. His ability to implement those plans may depend on whether Democrats control the U.S. Senate after two Georgia run-off elections in January.

House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer were scheduled to meet in person on Friday with Biden and Vice President-elect Kamala Harris in Wilmington, Delaware.

Here’s a look at what he’s facing:

Young & Underworked

U.S. youth underemployment remains significantly higher than overall rate

Source: Bureau of Labor Statistics, Bloomberg calculations

Note: Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force (U-6), unseasonably adjusted

Baby Boomers — a huge generation only surpassed in size by Millennials last year — have done very well on average. Adjusted for inflation, the median American household 55 and over has gotten richer since the end of the 1980s, according to the latest Survey of Consumer Finances, while typical households in younger age groups have gotten poorer in the last three decades.

A few young tech billionaires can’t make up for declining fortunes of Millennials and Gen Z. The average household headed by someone under 35 was worth $76,340 last year, the Fed’s survey shows, down from an inflation-adjusted $81,050 in 2016.

The long-term trends are even more troubling. Even as Americans collectively nearly doubled their net worth from 1989 to 2019, those under 35 lost 23%, or an average of $22,760, compared with the same age group 30 years ago.

A Poor Start to Adulthood

Median net worth has dropped for Americans younger than 55 since 1989

Source: Federal Reserve's Survey of Consumer Finances, in 2019 dollars

One factor holding back younger generations is debt, especially the pile of student loans many have accumulated. Young people need to pay much more for college and university than previous generations did, Deutsche Bank’s Reid and Templeman point out, at the same time that “they increasingly require more education than their parents did to do the same jobs.”

A key early question for Biden is how to handle the issue of student debt. Some Democrats, including Schumer and Massachusetts Senator Elizabeth Warren, have urged the next president to cancel up to $50,000 of student debt via executive order. Biden hasn’t committed to that, but he does support canceling $10,000 in student debt, as proposed in the House-passed HEROES Act.

Generation Debt

The share of Americans holding student debt has soared since the late 1980s

Source: Federal Reserve Survey of Consumer Finances

Student loans aren’t just a problem for those fresh out of college. As the price of education has soared and student debt became harder to dispose of in bankruptcy, the debt is lingering. Older adults have seen their educational loans rise faster than young people have. Borrowers age 35 to 49 hold the most debt of any age group.

Burdens

Brunt of recent student loan debt loads placed on older Americans

Source: National Student Loan Data System

People under 50 are still far more likely to hold student debt, but the older adults who have educational loans owe more money. Three years ago, the average borrower age 24 and younger owed $15,427. Last quarter, people in that same cohort owed about $400 less. Meanwhile, Americans approaching retirement age (age 50 to 61) owed, on average, close to $42,000 — an additional $7,323 from the third quarter of 2017.

A key driver of the widening wealth gap is low interest rates, the Deutsche Bank strategists say, which boost the value of stocks and other assets that older generations own. Rising home prices have also multiplied the wealth of the old while preventing young people from buying real estate — or even from moving out of their parents’ basements.

Failure to Launch

Share of U.S. 25-to-34-year-olds living with their parents

Source: Deutsche Bank

Low interest rates should also be good news for debtors, but young people disproportionately hold unsecured debt, like student loans and credit card debt, that charges higher rates and is less sensitive to Fed rate cuts. Older Americans, meanwhile, are more likely to have secured debt, like home mortgages and auto loans, whose rates have fallen sharply.

On the Hook

Younger Americans generally face debt with much higher interest rates

Source: New York Fed Consumer Credit Panel/Equifax, Bloomberg calculations

Note: Secured debt includes auto loans, mortgages, HELOC; non-secured credit card, student loans, other

Reid and Templeman suggest lawmakers try to narrow the economic gulf between the generations with policies that boost homebuilding and subsidize higher education, while paying for it by raising taxes on capital gains rather than on work.

Before Biden can do any of that, he must stop the damage still being done by Covid-19. The arrival of the virus in the spring sent unemployment soaring among all Americans but especially among those under 35. While the economy has recovered since then, the virus’ resurgence threatens that progress.

“We’re going into a very dark winter,” Biden said Monday. “Things are going to get much tougher before they get easier. And that requires sparing no effort to fight Covid so that we can open our businesses safely, resume our lives and put this pandemic behind us.”

— With assistance by Jennifer Epstein

(Updates with Biden meeting in 10th paragraph)