No, Generation X is not worse off than the Baby Boomers

See Who is the Wealthiest Generation? by Jeremy Horpedahl. Excerpt:

"Have you seen this chart?

I have seen it many times. It comes from this Washington Post article, but it seems to go viral on Twitter about every 6 months or so.

 

 

The implication of the chart seems to confirm what many young people feel in their bones: Boomers had it much easier, and it’s getting harder and harder for later generations to catch up and build wealth. For many the graph… explains a lot, as one recent viral Tweet put it (in the weird world of social media, 5 short words and a recycled chart are all it takes for 20,000 retweets).

But wait. A few questions probably come to mind. For example, when Boomers were young they comprised a much larger share of the population. The original article makes an attempt to adjust for this, by calculating a few ratios towards the end of the article. However, there’s a much more straightforward way to adjust for this, which also nicely fits into a chart: put wealth in per capita terms!

If we do that, here’s the chart we get (also, of course, adjusted for inflation).

 

[Note: my very first post on this blog also covered this topic. But that was using borrowed data and not exactly replicating the viral chart, so I decided to address it again and more directly.]

Looking at the exact same data (from the Fed Distributional Financial Accounts) from a different perspective gives us a much different picture of recent history. In this version, Gen X is now richer (30% richer!) than Boomers were at the same age (late 40s). Millennials don’t yet have a year of overlap with Boomers, but they are tracking Gen X almost exactly. There is no reason they won’t continue to track Gen X, and therefore exceed Boomers as well when they are in their late 40s (which will happen in about 2037 for Millennials).

My prediction is that by the time Millennials are in their late 40s, they will even surpass Gen X in wealth. Why? The reason is counterintuitive: student debt.

Huh? Isn’t student debt what is holding Millennials back? In some sense, yes. But in the long run, no. Right now, many Millennials (and some Gen Xers!) hold a lot of student debt. That goes on the liabilities side of the balance sheet. But there is no corresponding asset showing up the balance sheet, but there is an asset: their human capital! Over their lifetime, that human capital will give them even greater earning potential in later life. Much like Gen X basically tracked Boomers until their mid-40s, until their student loans were paid off, and their degrees (and graduate degrees!) really started to pay off in the labor market.

So right now, student debt is doing two things: overstating liabilities and understating assets. To be sure, this may cause some short term problems: perhaps it is harder to buy a house, or at the very least to save for a down payment on a house. This could (I repeat could) lower Millennial wealth in the long run. But keep in mind that Gen X faced this same headwind, though to a lesser degree than Millennials."