The wealth gap between young and old people
washingtonpost.com
washingtonpost.com
What that graph shows is what families were worth over a 14 year periods for a bunch of cohorts. And the data makes... a pretty smooth graph. There's lots of overlap and no obvious discontinuities, and no reason at all to think that there's any change in trend over time.
The only apparent effect that even possibly shows that younger people are worse off comes in the last two data points of each young person's line. But that's a totally obvious artifact, because that's the 2008 recession, which was the worst event of the 1989-2013 period graphed. (The 2000 dot-com bust was not nearly as huge.) EVERYONE'S line goes down at that time, including the oldest cohorts.
If the graph had more data, and showed what the 1901 cohort were like at age 31 (in the throes of the Great Depression), it would almost certainly be obvious that those 2008-driven dips aren't especially bad, comparatively. And yet, that's the old-person generation that is supposed to be the envy of the young.
This is just terrible interpretation of some unsurprising data.
[1] https://img.washingtonpost.com/wp-apps/imrs.php?src=https://...
They're both terrible at saving, their combined income was never over 50% of what I'm currently making, yet they have both been retired and comfortably living off these "investments" for 20+ years now.
I, on the other hand, am just hoping that I can move to part-time work somewhere in my 60's. I'm hopeful, but it means keeping my current income levels for another 20 or so years, and avoiding any major health or other emergencies.
http://www.ers.usda.gov/media/873616/farmrealestatevalues.pd...
What's the rising tide that floats all boats these days? It's not the stock market, it's not real estate, and it's not startups. I can't think of anything that keeps going up, except perhaps for inflation.
For millenials, we are stuck in a market where you got to pony up 1.5 mil to buy a family sized house.
Maybe the market will just keep going and going. But I don't think our economy can support that sort of thing. At least not the extremes that happened since the 70s.
I really feel sorry for people who are merely middle class or not in a marriage where both people have professional level incomes, I just don't know how they can afford anything reasonable in this market. And personally, I thought I'd do the smart thing, rent and live modestly and invest the difference - after all, minimizing your housing expenses by living in 700 sq ft instead of 2500 sq feet should be the financially wise thing to do, right? As it turns out, no, that was EXACTLY the wrong thing to do....the right thing to do was borrow absolutely as much money as possible, and buy as much house as you could afford - anyone who did that is laughing all the way to the bank.
As for retirement for me, I am slowly coming to the realization that I will never be able to retire, ever, whereas my parents retired in their mid 50's.
In the west, we have a situation which is just like we had in the middle ages when peasants had to pay their lords commission to work on their own farms (because the land technically belonged to the barons, knights, dukes, kings...). Except in the middle ages, work was based on manual labour and that didn't help any of the peasants to 'grow' intellectually - In fact, only high-society had the time to cultivate their intellect.
In today's society - Now that a lot of jobs are highly specialised and increasingly technical - By working, today's peasant class is accumulating highly specialised intellect. For the first time in history, we have a case where the lower class 'the scum' of society is becoming more intelligent than the high class of society (though not necessarily wiser - In that case, I would suggest the opposite).
I think that's why this idea of 'disruption' is so critical - Disruption is a mechanism which allows the younger generation to acquire wealth from older generations. Older generations have a collective monopoly (lock-in) on the world's wealth, disruption is about pulling the rug from under them one industry at a time.
http://www.economist.com/blogs/freeexchange/2015/04/land-val...
My prediction/hope is that the stereotype of millenials as relatively happy socialites will end up reversing, with them falling in with us burn-it-to-the-ground X'ers once they are old enough to realize how screwed they are.
There will have to be a number of cut-backs in retirement benefits for future retirees, including means-testing, removing the maximum wage for Social Security contributions, and higher Medicare premiums.
This sounds like a great idea to me. It's absurd that only the first $118,500 of earnings are subject to to social security tax, and it means that our tax structure is much less progressive than it appears at first glance (which is one reason certain people strenuously avoid talking about any taxes except Federal Income Taxes).
Ahh! So the question is, at what point will Millenials (myself included, at the older end of the spectrum at 32) say "f* it" when we're paying Europe-level taxes with third world country benefits
* Single-payer Medicare for retires, expensive private insurance for everyone else
* Social security essentially becomes a basic income for retirees, as its not an account that can be depleted but an entitlement until death, supported by younger workers with terrible job prospects and long hours at low pay
Maybe the problem is that no one saves enough anymore, but that's because no one makes enough to save because most new income/wealth is kept by the very top wealth bracket.
Subtract all of this from your income and look at most of Western Europe and you'll see we pay roughly the same overall.
I agree most people don't save enough. Part of it is people buy a lot of things they don't really need but "deserve" and the other is as you said.
Note that this graph doesn't include VAT which can be 15%+ in the EU.
[1]http://www.economist.com/blogs/graphicdetail/2012/10/focus-4
It also sounds like it doesn't count state and local income taxes, nor property taxes or any of the many other taxes we have the privilege of paying.
The conclusion may well be correct, but the data presented doesn't seem to be nearly complete enough to support it.
Employer contributions don't come out of your paycheck though; for the business, its a cost of doing business.
Other benefits (company car, apartment, fuel etc.) are subject to employee's income tax beyond a certain threshold.
Edit: Taking a step back, there is simply a fundamental difference between taxes and payments to social security / different insurances.
I think the "fundamental difference" is key. I don't ultimately see any real difference between taking 12.4% of my pay (under $118,500) for Social Security, and taking a variable percentage of my pay for government operations in general. It's money, based on a percentage of what I earn, that goes to the government, i.e. an income tax.
If you remove the cap on contribution and/or means test the receipt then that pretense is gone. Politically, it becomes explicitly a welfare system for people that did not save for retirement and penalizes those that do save. Once Social Security is perceived as "unearned" it becomes an acceptable target for reduction or elimination to the population at large.
Social Security is in fact a welfare tax and no one is entitled to receive it (see: https://en.wikipedia.org/wiki/Flemming_v._Nestor) but its political viability is dependent on the popular perception to the contrary.
Well, its a monotonically increasing function of your contributions, but its not proportional to them, because of the bend points.
> If you remove the cap on contribution and/or means test the receipt then that pretense is gone.
Means testing might arguably do that in theory (except that it empirically doesn't in practice, as SS is, in fact, already means-tested via the rules for taxability), but how does removing the contribution cap so long as further contributions above the old cap still contribute to the benefit calculation?
Perhaps our poor situation is just so obvious that, instead of mostly complaining, we're mostly fully resigned or preoccupied with fixing things in our own way. We are more Hero generation than Nomad, after all (https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generatio...).
I've felt millenials are the generation that feels the most helpless. Gen-X felt like they were promised something awesome and then screwed out of it. Millenials feel like they've got no chance to compete, so they don't expect it.
Gen-X resented the fact that they had to try so hard to win the rat race. Millenials know they have no hope of winning or even finishing, so the best they can hope for is to make the race more tolerable.
It's why you see things about how Millenials are more interested in comfort and work-life balance than straight up salary. Unlike the boomers who expected to work for a while and then retire on a nice nest-egg, and the Gen-Xers who struggled to meet an ever elusive goal of retirement, millenials don't have any expectation of retirement through normal means. They figure they're working forever, so they might as well get comfortable.
I mean, years ago I talked to gen-x'ers and there was a lot of dissatisfaction and a feeling of a loss of control and opportunities, but a lot of people who gave up on their dreams and settled for a job that they hate with a pension.
But with millenials, they're happy if they can take their 6 figure student loans and find any job at all, and a pension is a bizarre concept from a foreign world. They can't really hope to retire in the traditional sense, it's more like playing the lottery. There are some enterprising people who might make start-ups to try to get rich, but it's either get-rich or get-by, there's no sort of middle-class accumulation of wealth and a nice retirement at 65 any more. It's win big and buy a jet or eat spaghetti at home and avoid debt.
So if you have two jobs to choose from, neither with a salary that makes an early retirement seem a reality, and one makes life a little bit more tolerable, your decision is between a life spent (at least partially) working a more tolerable job, or a life spent working a less tolerable job. So you opt for the job that pays a bit less but gives you more leeway for work-life balance. Boomers see that as an irresponsible happy-go-lucky delay of retirement, while millenials feel that that retirement idea is not really feasible, and if you're going to be working forever, you might as well enjoy it. Gen-X kind of got stuck in the middle where they end up trying to work really hard at something they hate for the chance to get that retirement but keep getting the rug pulled out.
It's kind of like 3 people doing the limbo. The boomer plays, kind of bends a bit at the knees, leans his head back and gets under the stick. The Gen-X plays and when he first sees the bar it's nice and high, but as he gets closer and starts to go under the bar it keeps kind of getting lowered, so he keeps bending and contorting and struggling to get under the bar eventually. It hurts, but they still have hope they can get under it. The millenial looks at the bar, sitting ankle high and says fuck it and just decides to make the best of it on this side of the bar.
Then the boomers hear about the x'ers struggle and say just bend your knees and lean your head back, it's not so hard, nobody had trouble with it in our day and we didn't even go to college. Then the boomers hear about the millenials not even bothering to try to get under the bar and say "they're just fooling around, they aren't thinking about their future, they're never going to get under that bar unless they stop fooling around and try."
But the fact that the bar has moved is so often ignored. We're just all asked to bend further, and then blamed for not doing the impossible. The biggest difference between millenials and x'ers is that he millenials ARE aware of it, and that's why they can seem to be happy-go-lucky and less serious.
It's easy to motivate you to work hard when you might feel like you can retire early and live in comfort. It's a lot harder to motivate you to sacrifice a lot to work hard when it feels like there will be no end to that work, ever.
X'ers just got screwed because they got caught in the transition between easy future and no future.
Expanded consumer credit, and it's appurtenant high interest rate cost, would tend to keep young people less wealthy towards the last half of last century. As credit card debt skyrocketed, savings rates plummeted from almost 11% in 1982, to 1.5% in 2007 [0].
Similarly, the power of 401(k) investing is really only coming into it's own in the last decade or so, since 401(k) accounts have had 30 years to mature, total retirement assets now total well over $3 Trillion nationally.[1]
[0] http://www.americanhistoryusa.com/give-me-liberty-or-give-me...
And college loans are just taxation by the back door - with the difference that instead of a graduate tax paid to the government, you pay a loan "tax" to the shareholders of the loan fund.
In fact, taxation is increasingly privatised. Instead of paying taxes to government you pay a profit-surcharge on almost everything. This goes to corporate shareholders but provides little or no returned value.
The result is that trillions of dollars are rotting uselessly in offshore tax havens, when they could have been invested in future economic development. And spending power has been suppressed, when it could have been driving the economy from the other end.
If you look at median income levels, they have grown substantially over the last 30 years.
I agree. What I'm saying is that average income might not have risen, but median income has. To suggest wages in general have stagnated isn't true.
That's exactly reversed; adjusted for inflation, the average (mean) income has risen, the median has not.
This is false.
http://www.economist.com/blogs/freeexchange/2013/09/incomes
http://www.epi.org/publication/charting-wage-stagnation/
http://www.pewresearch.org/fact-tank/2014/10/09/for-most-wor...
http://www.npr.org/sections/money/2013/09/17/223374331/the-s...
http://www.washingtonpost.com/blogs/wonkblog/wp/2012/07/31/w...
Right; I'm arguing that non-monetary compensation in no way has contributed in an amount adequate enough to compensate for the stagnation/backslide of wages. Wages have stagnated, full stop.
Total compensation, which adds these benefits to wages and salaries, shows that earnings have actually increased more than 45 percent since 1964.[1]
[1]http://www.cnbc.com/2014/01/29/-wage-stagnationcommentary.ht...
You have mean and median reversed. Mean inflation adjusted income has increased substantially, median inflation-adjusted income has declined. That's because the distribution of income has become more concentrated.
Either or both of those behaviors reduces the amount available to save and invest, which goes directly against growing wealth. It is really important to start saving and investing early, and that is when this behavior can cause the most harm. Averaging over the population, credit card debt is a drag on savings and reduces wealth. Since credit card debt has expanded into such a large number over the last 40 years or so, it has a more pronounced effect on younger persons.
I don't mean to SHOCK you, but did you know there's a massive age gap between young and old people? Also, an experience gap. Something Must Be Done About This!
I still remember how hard it was to build up enough credit to move beyond prepaid cellphones.
If young people want to increase their chances of being wealthy, one strategy is to emulate the behavior of older people: keeping an emergency fund, paying down debt, avoiding high-cost credit, and putting money into higher-returning investments
Younger generation is permanently hosed.
What this article fails to mention is all the privatization and regulations that have caused capital misallocation and favored certain classes of people.
So the older you are the more time you have had to grow wealth. The younger you are the less time you have had. This is then forcibly tied into median family income?
this is huffington post tier article.
What is with the media and this strange concept of "young people" now being the 28-40 age bracket? Back in my day, "young people" meant 8-18 year olds.
This isn't the only article making this bizarre wordplay. One of the previous USDS "submarine" articles referred to "young people" on a team as the members who were over 28.
Is that irresponsible of them? Sure! But how were they supposed to learn if they couldn't get a job and make some of their own money?
Maybe there are good reasons for this, maybe not, but it's not just a restatement of the obvious.
While I agree that's not a stunning insight, I don't think the author should be punished for stating the clearest conclusion of a graph before talking more about it.