Why Were Young Families Hit So Hard By The Recession?

from the St Louis Fed

Families of all ages lost wealth in the aftermath of the Great Recession. But while the oldest families were slightly better than expected by 2016, the youngest families still had wealth levels below what was expected.

The latest essay in the Demographics of Wealth series, produced by the St. Louis Fed’s Center for Household Financial Stability, examined the connections between people’s birth years and their financial well-being. This essay was written by Lead Economist William Emmons, Policy Analyst Ana Hernflndez Kent and Lead Analyst Lowell Ricketts, all with the Center.

Lagging Behind

The authors studied six groups of families based on birth decade – people born in the 1930s through the 1980s – and found that all six groups had median wealth levels comfortably above what would be expected in 2007, just prior to the Great Recession.1

Wealth levels declined among all groups following the recession. By 2016, the three oldest groups of families – those born in the 1930s, 1940s and 1950s – had all returned to above-expected median wealth. However, the three youngest – those born in the 1960s, 1970s and 1980s – were still below those benchmarks. For example:

Why the Lower-Than-Expected Wealth?

Emmons, Kent, and Ricketts also examined several potential reasons why these families remain below their wealth benchmarks. Overall, they noted, “Income and saving trends appear to be relatively unimportant, while several financial indicators – especially debt and homeownership – loom large.”

Income

The authors noted that higher income obviously allows for more saving. It can also signal other wealth-building influences, such as patience, cognitive/noncognitive abilities or access to employer-provided and -subsidized retirement plans.