Wealth accumulation is significant for multiple reasons. For households, wealth serves as a source of future consumption and a safeguard against economic hardships. At a national level, wealth supports domestic and international investment, influences current spending, and affects the effectiveness of monetary and fiscal policies. Additionally, the substantial changes in total household wealth compared to GDP in recent decades are noteworthy.
Understanding the causes and patterns of household wealth changes across generations and over time is a complex task. This paper takes initial steps in this direction, building on the work of Gale and Pence (2006), Gale, Gelfond, and Fichtner (2019), and Gale and Harris (2020), using data from the 1989 to 2016 Federal Reserve Board’s Survey of Consumer Finances (SCF). We present several key findings.
First, although the Great Recession of 2007-2009 reduced wealth across all age groups, the long-term trend shows that older age groups have gained wealth, while younger age groups have seen declines. These changes are largely due to shifts in household demographics and economic characteristics. Second, millennials—born between 1981 and 1996 and aged 20 to 35 in 2016—had less median and average wealth in 2016 compared to similarly aged groups from 1989 to 2007.
Predicting future wealth accumulation is challenging, but millennials have certain advantages over previous generations. They are the most educated generation and generally earn more. With the shift towards defined contribution (DC) pension plans, millennials may work longer, allowing more time to save. They are also likely to inherit more wealth than earlier generations.
However, millennials face several disadvantages. Their careers were disrupted by the financial crisis and Great Recession. They are more likely to work in uncertain jobs with fewer benefits. They are marrying, buying homes, and having children later. Longer life expectancies mean they need to save more to maintain their pre-retirement lifestyle. Delayed inheritances due to longer-living parents, potential government fiscal shortfalls, and lower projected economic growth rates also pose challenges.
Third, minorities will significantly impact millennial wealth prospects. Minorities make up a larger share of the millennial population than previous generations. Our analysis shows that minority status negatively affects net worth, even after accounting for other factors. The wealth gap between Black and white households appears to be increasing over time.
One important consideration is that this paper’s analysis only covers the period before the COVID-19 pandemic, which will undoubtedly affect wealth accumulation for many age groups. Thus, this paper should be seen as a study of generational wealth patterns up to 2016, providing a benchmark for future comparisons.
