Intergenerational Wealth Gap Widens, Younger Generations Poised to Mirror Boomers' Financial Trajectory

New research highlights a significant and expanding divergence in net worth between older and younger Americans, with those over 75 years old holding substantially more wealth than individuals under 35. However, economists suggest that current younger generations may eventually accumulate wealth in a manner similar to their older counterparts.

According to a recent tweet from the Manhattan Institute, economist Allison Schrager explains this widening gap and posits that "the young will resemble the old over time." This perspective comes amidst ongoing discussions about wealth inequality and its generational implications.

Edward Wolff, an economist at New York University whose research is cited in Schrager's work, has extensively documented this trend. His findings indicate a persistent and growing disparity in net worth, with the wealthiest segments of the population, often older cohorts, increasing their share of overall wealth. For instance, the share of wealth held by the top 1% increased from 32.1% in 2001 to 35.5% in 2013, while the bottom 50% saw their share fall from 2.8% to 1.1% in the same period, according to his analysis of Survey of Consumer Finances data.

Wolff's research further reveals that while median wealth plummeted by 44% between 2007 and 2010 due to the Great Recession, it remained significantly below its 2007 peak even by 2016. In contrast, mean wealth fully recovered by 2016, indicating a more robust recovery for the wealthiest. Younger households, particularly those under 35, experienced substantial declines in their relative net worth during this period, largely due to high leverage and a concentration of assets in housing, which was heavily impacted by the recession.

Despite these current disparities, the long-term view suggests a potential convergence. Factors such as life-cycle wealth accumulation, where individuals typically build assets over their careers, and the eventual transfer of intergenerational wealth, are expected to play a role in younger generations eventually achieving similar financial standing to older ones. This is supported by historical patterns where wealth tends to increase with age.

The Manhattan Institute's communication emphasizes that while the current wealth gap is stark, the economic trajectory for younger generations might not be as bleak as it appears in the short term, as they are expected to follow a similar wealth accumulation path to previous generations.