Americans older than 75 now control an “extraordinary” amount of wealth relative to younger generations and people who were in that age bracket in past decades, according to a new report by Edward Wolff, a research associate with New York University’s Department of Economics.
The average wealth of American households headed by someone 75 or older was 55% greater than the national average in 2022, up from 5% greater in 1983, according to the research.
Three principal factors appear to have driven this “seismic shift in age-wealth profiles” — the high homeownership rate of older Americans, the total amount of stock they own both directly and indirectly, and the low level of home mortgage debt they carry.
Correspondingly, the relative wealth holdings of all other age groups dropped substantially over the same period — especially for those younger than 35. This is despite the average real rate of return on the net worth of the youngest age groups between 1983 and 2022 being 5.67%, meaningfully higher than the 3.29% measured for the oldest age cohort.
What explains these seemingly contradictory results? The first, Wolff reports, is increasing net home equity for the elderly. The increase in the ratio of mean net home equity to the overall population during the study period explains 38.3% of the relative gain in net worth for the 75-and-older group, Wolff finds, but very little for that of the youngest group.
The second factor is surging mortgage debt among the youngest households, which explains 297% of the actual decline in the group’s mean net worth ratio. But even more impactful, Wolff finds, is the overall homeownership rate for the oldest Americans.
“The home ownership rate might well be close to a ‘smoking gun’ for the oldest age group’s [outsize wealth accumulation],” Wolff writes. “It shoots up by 11.5 percentage points for this group, and the group’s relative wealth holdings expand by a sizable 50.4%.”
Likewise, the “fantastic growth” in stock holdings among the oldest age group is playing a big role in the growing wealth disparity among generations. As Wolff details, the relative value of the oldest group’s stock portfolios compared to the overall average “skyrockets” from 0.56 to 3.47, accounting for a “staggering” 269% of their gain in net worth relative to the overall average.
Notably, Wolff’s analysis shows, the youngest age cohort doesn’t seem to be as troubled by student loans as many would think.
“Despite dire press reports, educational loans fail to appear as a significant factor [in their underperformance],” Wolff writes.
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