Pew Report on Young-Old Wealth Gap is Misleading and Divisive; Could Fuel Intergenerational Class War
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A new study purporting to show that older households are doing much better than younger ones in terms of wealth and income threatens to spark an intergenerational class war, pitting Americans of different ages – people who have all been devastated by the crash caused by Wall Street's recklessness -- against one another. But there are serious flaws in how the research is being interpreted.
The analysis, by Pew Research, is being spun as evidence that the government “spends too much” on the elderly while leaving younger Americans hanging out to dry. It's already becoming another weapon in the corporate right's long-running battle against Social Security.
There's no doubt that this economy is especially grim for young people. Unemployment among young adults continues to hover around 18 percent, and a report by the Federal Reserve found that full-time undergraduate students are borrowing 63 percent more for school than they did a decade ago. (Outstanding student-loan debt broke the trillion-dollar mark for the first time this year.) Young people have few prospects for decent jobs. This bleak situation is clearly a driving factor behind the emergence of the Occupy Wall Street movement; studies suggest that the “occupiers” skew young, don't have a lot of income and suffer from a much higher rate of unemployment than the country as a whole.
The Pew study's main finding is that, “in 2009, households headed by adults ages 65 and older possessed 42% more median net worth (assets minus debt)" than they did in 1984, but that trend was reversed in younger households. In 2009, “households headed by adults younger than 35 had 68% less wealth than households of their same-aged counterparts had in 1984."
As a result, whereas older families had 10 times the accumulated wealth of those headed by people under 35 back in 1984, that ratio has now risen to 47-to-1. The authors acknowledge that people accumulate wealth as they get older, and that young people didn't have a lot of it back in 1984, but economist Dean Baker told AlterNet that this fact renders the finding little more than a bit of trivia. “The idea of using a ratio is really problematic in this context,” he said. “Young people have no wealth. They had no wealth in 1984 and they have no wealth now. The fact that the ratio of the wealth of older households to younger households has increased hugely tells us almost nothing.”
It tells us even less because, as Baker noted, the study contains a serious flaw. Back in the 1980s, traditional, employer-managed pensions were the primary means of saving for retirement in the United States, but during the intervening years there was a huge shift toward 401(k)s (and similar accounts), which now represent over 80 percent of private retirement savings. Traditional pensions weren’t counted as part of a household’s net-worth, but 401(k)s are. So comparing the wealth of older households that didn’t include their nest-eggs in 1984 to those in 2009 which count the money people have socked away as part of their net worth is like comparing apples to oranges.
“It’s incredibly dishonest that the Pew study didn’t mention the impact of the switch from defined benefit pensions to defined contribution plans,” Baker said.
What’s more, 1984 was a very different point in the business cycle than 2009. Back then we were in the second year of a robust recovery following the 1981-'82 recession, with real economic growth of over 7 percent and an unemployment rate that was under 8 percent and falling rapidly. The recent crash officially ended halfway through 2009, giving way to an anemic recovery. Economic growth for the year was negative, and unemployment for the year stood more or less steady at 9.3 percent.