Generation X is earning more but ends up having less

(Bloomberg View) — It’s pretty common these days for the media to make fun of millennials. But back in the 1990s, the previous generation, Generation X, got much the same treatment. They were slackers, they were entitled, blah blah blah. 

In truth, members of Generation X — Americans born between 1965 and 1980 — earn substantially more money than their parents did at the same point in their lives. That is one conclusion of a report by the Pew Charitable Trusts from September, which tracked Generation X households and compared them with their parents at similar ages. 

Pew found that the typical Gen-X household makes about $12,000 more than its parents’ household did at the same age, after adjusting for inflation and changes in household size. That also dispels the slacker myth, since much of that gain has come from increased amounts of paid work.

Total labor force participation has risen strongly during most of their working lifetimes. What’s more, income has gained in every quintile of the distribution, and for all races. 

Yet there’s also a dark side to the Gen X story, which is yet to play out. Although they make more money than their parents, Gen Xers have far less wealth. Fewer than 50 percent of Gen Xers in every income bracket are wealthier than their parents at the same age. This is probably because Gen Xers are more educated than their parents, so they started earning money later in life. But it’s also the result of two other trends:

1) The declining savings rates and

2) Lower returns on assets. 

Personal savings rates have been declining since the mid-1970s

Even with more income, you can’t build wealth unless you save it. Gen Xers have been saving less and consuming more. 

Why? One reason is — you guessed it — student loans. College costs are counted as consumption, but a large part of that spending is actually an investment: You invest in your own human capital when you get a college degree. 

The dramatic rise in the price of college, coupled with parents’ decreased willingness to pay those price increases, represents a price shock that has hit the middle class particularly hard. The student debt that has resulted from that adverse shock means that Gen Xers have had to pay more for their lifetime income than their parents did.