Hang Tuff, Kids: Negative Household Worth Can Be a Sign of a Great Future


Mike Riggs flags below a new report from Pew showing that a massive gap has opened up between the net value of households headed by old people (65 years and older) and those run by young people (defined as people 34 years old and younger). Here's Pew's writeup and chart:

In 2009, households headed by adults ages 65 and older possessed 42% more median net worth than their counterparts had in 1984. By contrast, households headed by adults younger than 35 in 2009 had 68% less median net worth than their counterparts had in 1984. The typical oldest household had 47 times as much median net worth in 2009 as the typical youngest household, by far the highest gap in the 25 years that the government has been collecting such data.

Well, it just looks terrible for the kids these days, doesn't it?

Let's break it down in two ways.

First, about the old people: What the growth in net worth suggests (to me anyway) is that old people are doing pretty swell. That's a good thing, right? You work hard your whole life and you have money and time left over at the end. Hurray. Yet what this also shows is that redistribution programs that take money from the non-old and give to the old (e.g., Social Security, Medicare, various tax credits) are clearly not necessary in the ways they once might have been. When Medicare was passed, old people were more likely to be poor than the national average. That's not the case any more and it strongly argues for means-testing and limiting access to programs designed to alleviate penury among old people. And programs that never had any justification in need - I'm looking at you, Medicare Part D, the Prescription Drug Plan - should be scotched altogether.

What about the young folk these days? Things look bad for them but I'm skeptical that things are so rotten. Younger people have far more access to credit than ever before - in the form of student loans (the typical grad who takes out student loans has somewhere in the $25,000 range in student loans upon graduation), credit cards (still easier to get than they were in the '70s and '80s), and mortgages. Pew says the biggest asset younger households have is a house. If you're a married couple a decade out of college and you've got a mortgage, you're doing pretty well.

But you're going to look pretty bad on paper. You could be pulling down $100,000 as a unit, but you'll likely have $40,000 in student loans. And you have next to no retirement savings. If you've got a car loan, that's another liability that reduces your net worth even as it means you've got a new ride.

Then there's the house. You probably bought it with 5 percent or 10 percent down, meaning you owe a ton on it; that's not a bad thing, it's just a fact. If you bought sometime in the 2000s, your house has likely dropped in value from the purchase price while your mortgage hasn't, which again reduces your net worth. Yet the fact of being able to own a house (well, pay a mortgage on one), is surely a sign of a pretty good standard of living. And that hasn't budged in 20 years. In 1990, about 35 percent of 24-29 year olds owned their house; in 2010, the percentage was…37 percent (the peak of 42 percent in 2006). For 30-34 year olds, the relevant percentages were 52 percent in 1990 and…52 percent in 2010. I'm betting that most, if not all, of the big net worth decline is tied to home values, which are in a historic slide still. When you factor that in, along with the fact that young people enter the full-time, career work force later than they used to, well, increases in student loan debt isn't all what it's cracked up to be. 

Bonus question: Are there other people out there who, like me, are fans of widely available credit? If there's one thing worse than debt, I'd say it's being denied the chance to borrow against your future. For god's sake, credit cards and car and home and student loans allowed me access to the very things that allowed me to get and keep jobs and build whatever passes for my life. I've yet to stiff anybody and wouldn't dream of doing so. I have plenty of friends who got in over their heads and went bankrupt (either literally or figuratively). But why should the rest of us who use credit judiciously and pay back our borrowed money suffer because other people can't handle the responsibility? When I hear folks on the right and the left talking about reducing available credit as a way of helping those of us too stupid and reckless and poor, I just don't know what to say. I'm slow to suggest my personal experience is any sort of typical route (much less a model worth emulating) but I do know I had negative net worth at least until I was in my late 30s (I may still be close to that). But that figure would have told you very little about my standard of living.