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Pew Report on Young-Old Wealth Gap is Misleading and Divisive; Could Fuel Intergenerational Class War

Those gunning for Social Security are already using the study to divide the "other 99 percent."

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Most of the difference between older and younger families' net worths relates to housing wealth. Half of homeowners over 65 bought their homes before the run-up of the housing bubble began in the late 1990s, while many younger families with homes bought while the bubble was inflated and were badly hurt when it popped. Almost two-thirds of those over 65 who have a home own it free and clear with no mortgage.

So, stripping away the sensational headline numbers, what you get is that the median household headed by people 65 and over saw the values of their homes increase by about $50,000 over the past 25 years, but were able to accumulate little in the way of other assets. Somewhat buried in the study is the fact that when you exclude housing wealth, the median net worth of households headed by older Americans is a third lower today than it was back in 1984.

Another, longer-term factor in younger families' lack of wealth, note the authors, is that people are waiting longer to get married and are starting their careers later – “two markers of adulthood traditionally linked to income growth and wealth accumulation.”

The other finding, perhaps more dangerous in the hands of demagogues seeking to loot Social Security and shift more healthcare costs onto the elderly, is that while the incomes of households headed by people over 65 has risen by 109 percent since 1984, households headed by people under 35 have only seen their incomes increase by 27 percent – a dismal reflection of a stagnant middle-class.

The Associated Press – which has published several wildly dishonest hit-pieces on Social Security this year (see here and here) – quoted Georgetown University economist Harry Holzer saying, "It makes us wonder whether the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them." But the idea that older Americans are lucky ducks living the high life while younger people struggle is flat-out wrong. While it's true that without Social Security, the poverty rate among older Americans would be almost 50 percent, that's simply a sign of how successful the program has been.

People over 65 are still struggling badly in this economy. As I wrote back in May, studies show that one in three seniors can be classified as “economically insecure.” And according to the Census Bureau's new poverty metric – which does a better job factoring out-of-pocket healthcare costs – the elderly population has a poverty rate of almost 16 percent, close to double what it was using the Bureau's traditional methodology.

Almost all of that increase is due to out-of-pocket healthcare costs, a problem that would increase dramatically if Medicare were “reformed” because the “reforms” discussed in Washington do nothing to lower the cost of healthcare in the United States (costs that are growing more quickly in the private sector than in the Medicare system). They simply shift more of the burden onto the backs of seniors themselves. Social Security, meanwhile, remains solvent. The government doesn't “spend money” on these benefits, working people pay a tax dedicated to finance them.

The Pew study also notes that the percentage of Americans over 65 who are still working rose by 60 percent between 1984 and 2009. That correlates with a long-term decline in employer-provided retirement benefits. Our elderly are struggling to retire, which is anything but good news for people who have spent a lifetime in the labor market.

The authors of the Pew study write, “households headed by older adults have made dramatic gains relative to those headed by younger adults in their economic well-being over the past quarter of a century.” The key bit here is “relative to” -- older households in the middle of the pack have gained nothing over that period; they've simply treaded water. Their incomes have doubled and their wealth has increased by 40 percent during a period in which the size of the American economy doubled.