Older, wiser and wealthier?

Lately we’ve been hearing a lot of about the income gap between the rich and the poor — or the “1 per cent versus the 99 per cent”, if you will. However, there’s one facet of the issue that doesn’t get so much attention: the wealth gap between generations is growing too, warns a new report.

It’s hardly shocking that most of us accumulate wealth throughout our lives. We have years to earn and save, we pay off mortgages and debts plus we have the power of market growth and compound interest working in our favour. It stands to reason that the households of older adults have a larger net worth than the households of younger adults.

But that’s not the problem here.

People of every generation want their children to have more than they do, but the proverbial buck seems to stop with the baby boomers, according to a new analysis from the Pew Research Center. The report looked at U.S. census data from 1984 and 2009 to see how certain age groups in the U.S. are faring now compared to their counterparts 25 years earlier. The report compared the median net worth (that is, assets minus liabilities) then and now of households based on the age of head of household (the person with the highest gross income).

The findings are good news if you’re an American over age 55. People in 55-64 age group had a 10 per cent higher net worth in 2009 than 55-64 year olds back in 1984 — $147,236 in 1984 versus $162,065.

It’s even better news if you’re aged 65 or over. This group saw a 42 per cent increase — a jump from $120,457 in 1984 to $170,494 in 2009.

What about younger generations? The news isn’t so good. Among people ages 45-54, there was a 10 per cent decrease in average net worth over time ($113,236 in 1984 versus $101,651 in 2009), and a 44 per cent decrease among people ages 35-44 ($71,118 versus $39,601).

However, the tail end of Generation X and the Millennials have it worse than their counterparts (the Baby Boomers) did 25 years ago. In 1984, the median net worth of a household headed by someone under age 35 was $11,251. In 2009, that number was just $3,662 — that’s a drop of 68 per cent.

Here’s another way of looking at those numbers: in 1984, the age-based wealth gap was about 10:1 in favour of adults age 65+ compared to people under age 35. In 2009, that ratio had swelled to 47:1.

So why do older adults have the advantage? Experts point to some key long-term economic trends, including:

– Changes in the structure of the labour market.

– Changes in the housing market. (Factors like the rise in housing costs and the housing bubble could play a role.)

– People are getting married later. (Many of those under 35 households are single adults who don’t accumulate savings the way couples do.)

– Older adults are working longer. (For example, more people are working longer than in the past and re-thinking “retirement”.)

– The ethnic make-up of the country. (It’s a complex issue, but there are considerable income gaps among various ethnic groups in the U.S., a factor which is influenced by immigration.)

Also, the report does point out that all age groups saw a drop in median net worth between 2005 and 2009, but younger adults seem to be on a decline since 1984 while older generations have experienced some ups and downs.

What the report doesn’t delve into are details on things like family type (the numbers are adjusted for a three-person household, but don’t account for large families or multi-generational households). Nor does it consider whether the “head of household” is a male or female — which could be important given the relative earning power of men and women and the increasing number of women in the workforce. (A factor included in Canadian measures.)

The report also doesn’t indicate what — if anything — we can do about this growing gap. It’s an important issue to be aware of, but solutions aren’t forthcoming.

Is there such a gap here in Canada? Unfortunately, a similar analysis hasn’t yet been done in this country, and the most recent reports on financial well being only go up to 2005 (the latest year for which census data is available). Needless to say, a lot has changed since then — and recent reports indicate that people are taking on more debt than ever before. (You can see the latest report on well being indicators on the Human Resources and Skills Development Canada website.)

While we share many characteristics with our neighbour to the south, there are enough differences that we can’t make direct comparisons. For instance, we have different systems for banking, taxes, post-secondary education and health care — not to mention higher costs on food and consumer goods. We haven’t been hit as hard by unemployment, and our housing market hasn’t seen the turbulence experienced in the U.S.

In the meantime, if you’ve ever thought that today’s youth have it harder than previous generations, this report may just prove you’re right.