The Far-Reaching Effects of the Generational Wealth Gap

Young Americans are struggling to build wealth following the Great Recession.

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Perhaps one of the most dramatic changes to take place during the Great Recession is the way young adults live. For decades prior to the downturn, it was expected that after college, good jobs would be available and provide the means for young adults to start their own lives.

This is no longer the case.

[See Is Gen X the Real Lost Generation?]

College students who graduated in recent years—commonly referred to as "millennials," a term that reflects their upbringing in the first decade of the 21st Century—have faced one of the worst job markets since the Great Depression. Even the best and brightest college graduates have struggled to find work. Many have been forced to take part-time jobs, or jobs with uncertain futures. Their ability to build wealth has diminished.

In addition, more and more young people are living at home—not out of choice, but financial necessity. According to Pew Research Center, as many as 3 in 10 young adults now live at home.

The increase in "boomerang kids" is dramatic. In 1980, only 11 percent of young adults lived at home, according to Pew. Now, nearly 30 percent of 24- to 34-year-olds have either never moved out of their parents' house or returned after living on their own. And 53 percent of 18- to 24-year-olds still live in their parents' home.

[See The High Price of Living Alone.]

The growing wealth gap. All of these factors contribute to what has come to be known as the generational wealth gap: Older Americans are gaining more and more wealth, while the net worth of younger Americans is decreasing.

According to a November 2011 Pew Social and Demographic Trends Report, the average net worth of people under age 35 decreased from $11,521 in 1984 to just $3,362 in 2009, a 68 percent drop. At the same time, the average net worth of people 65 and older jumped 42 percent, from $120,547 in 1984 to $170,494 in 2009.

"As a result of these divergent trends, in 2009 the typical household headed by someone in the older age group had 47 times as much net wealth as the typical household headed by someone in the younger age group—$170,494 versus $3,662," the report said. "Back in 1984, this had been a less lopsided ten-to-one ratio. In absolute terms, the oldest households in 1984 had median net wealth $108,936 higher than that of the youngest households. In 2009, the gap had widened to $166,832."

Paul Taylor, executive vice president of the Pew Research Center and one of the report's authors, says the inability of young people to build wealth has resulted in a nationwide case of arrested development. "These are patterns that are decades in the making and they were accelerated by the bad economy," Taylor says. "The 20-somethings who can't find a job aren't getting married."

Another report by Pew helps support Taylor's claim. According to a December 2011 study, just 51 percent of adults in the United States are married. The median age for brides is 26.5 years; for grooms, it's 28.7 years. Compare that to 1960, when 72 percent of all adults were married.

[See How to Get Marital Benefits—Sans Marriage.]

The "funemployment" myth. As many young people have struggled to find work, a new term has been created to describe their condition: funemployment. According to Urban Dictionary, fumemployment is defined as "a happy time in one's life when one is not employed and is not wanting to be employed."

This condition was popularized in large part by the IFC series Portandia, which both celebrates and satirizes the lifestyle. But according to Eric de Place, a senior researcher at Seattle's Sightline Institute, a group that studies public policy issues in the Pacific Northwest, the show does not accurately portray the gloomy employment outlook, especially for young people.

"Its easy to play up the Portlandia stereotype, but the reality is quite grimmer than that," de Place says. "Most folks would like to find a decent job, but it's not the environment that they came out of college into."