New research suggests people born in this decade had wealth levels 34% below where they should have been
For most people, the path toward retirement starts with them having little wealth and building it up throughout their working life. That wealth reaches a peak around retirement age, after which comes the so-called decumulation phase. But one generation could be trudging along a more challenging path.
A new study by the Federal Reserve Bank of St. Louis has found that Americans born in the ‘80s “are at substantial risk of accumulating less wealth over their life spans than the members of previous generations,” reported the Wall Street Journal.
Aside from having 2016 wealth levels 34% below where they would have been had the crisis not happened, the typical 1980s family was found to have “actually lost ground in relative terms between 2010 and 2016” as all older cohorts saw rapid increases in asset values.
In contrast, those born in the 1970s had wealth levels that were 18% lower than they should have been, while people from the 1960s suffered a comparatively tame 11% shortfall. Meanwhile, the typical household led by someone born between 1930 and 1959 actually had higher wealth levels than they would have absent the crisis.
The study shows the impact a bad economy could have on someone’s financial progress. In the case of the 1980s cohort, the recession of the late 2000s coincided with the beginning of their working lives; that meant they started the accumulation phase during “a time of troubled investment markets, high unemployment and persistently weak wage gains”.
Because of that, said the St. Louis Fed, these households got saddled with debt that wasn’t “productive”. Rather than taking on mortgages and getting on the path to full homeownership, they had to take on auto, credit-card and student debt.
Of course, it may be just take a little more time for the 1980s generation to catch up on their retirement goals. The report’s authors noted that high education levels among the group could mean that the “income and wealth trajectories of this generation will be steeper than those of earlier generations, allowing many families to achieve their wealth goals in the end”.
