Looks Are Deceiving ... The Story Behind the Story ... The Financially Secure Old versus the Financially Insecure Young

Overall, our economy is recovering, albeit slowly. Unemployment remains unacceptably high, and government debt and unfunded pensions, Social Security, Medicare and ObamaCare obligations are at historic and unaffordable levels as well.

But that doesn't begin to capture the unfairness involving the growing financial conflict between America's old and young.

Because if we take the time to look below the surface of our recovering American economic situation, we'll see a very troubling picture.  It's about what government benefits for the old are doing to the future opportunites of our young. And in my opinion, it's time we put the issue squarely on the table and out in the bright sunshine.

In other words, the unintentional but very real intergenerational conflict where the oldsters are taking advantage of the youngsters must not be ignored any longer. Let's look directly at entitlements, the effect of the housing bubble and future financing burdens being placed on the young folks. It's not fair.

The young pay for the old. That's the way our entitlements funding works. The generation at work pays for the prior generations that are retired. Pass it on, in other words. At least that's the theory and practice of funding entitlements in America until now --- when baby boomers, early retirees, generous guaranteed benefits and a declining workforce are all contributing to the financial mess in America.

As a result, government spending has grown and the economy grows at a slower pace due to the shrinkage of the private sector necessitated by the growth in the government. It's not a pretty picture, and what we're doing to the younger folks among us needs to be changed. It's not only unfair. It's also unaffordable and making a slow growing economy even slower. That means fewer jobs, less income and so forth. A vicious cycle, to be sure.

 Younger Households Are Slower to Make Gains in Net Worth clearly illustrates the dismal developing intergenerational story. The charts accompanying the article are especially revealing:

"THE total wealth of American households has recovered from the financial crisis and Great Recession, according to the Federal Reserve Board. But that recovery has not been enough to keep up with inflation, and many Americans, particularly younger adults who took on heavy debt to acquire homes before the housing bubble collapsed, are lagging.

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Off the Charts: The Old Get Richer, but Not the Young

The Fed said last week that household wealth rose by $3 trillion in the first quarter, to $70.3 trillion. It was the first time the total exceeded the $68.1 trillion total posted in the third quarter of 2007, before the recession began, and was the largest quarterly increase since 1999, when the stock market was rising rapidly.

In the first quarter, a third of the gain in wealth came directly from rising values of corporate stocks owned by households. That was a little more than the gain attributed to rising real estate values.

The Federal Reserve Bank of St. Louis pointed out that there are more households now than there were in 2007, and that there has been inflation as well. As can be seen in an accompanying chart, the average household wealth at the end of the quarter was $613,635, a figure that is 11 percent below the peak of $689,996 (in 2013 dollars) set in the first quarter of 2007.

Those averages are deceptive, in that they are raised by the high wealth of a relatively small number of households. A very different picture emerges from looking at the median — the level at which half the households are richer and half poorer. That statistic can be calculated from the Fed’s triennial survey of consumer finances. In the studies conducted in the 1990s, the median net wealth was about one-quarter of the average. In the 2000s, the median fell to about one-fifth of the average, and in 2010, it was down to about one-sixth of the average.

During the housing boom, said William R. Emmons, the chief economist of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, “exactly the people you would think need to act conservatively were doing the opposite.” Homeownership rates, and mortgage debt levels, rose for younger households, as well as for less educated and minority ones. Those groups suffered more during the crisis, he said, and have been slower to recover.

Mr. Emmons compiled average wealth figures for different groups from the triennial surveys, and estimated how they have changed since the 2010 survey. . . . While all age groups have yet to recover to their 2007 wealth, when adjusted for inflation, older households are down just 3 percent on average, while those headed by middle-age people are down about 10 percent. But the decline is nearly 40 percent for the younger group.       

During the housing boom, households ended up with more of their wealth in real estate than before, and mortgage debt rose to record levels relative to the size of the economy. The proportion of wealth in homes is now back to close to the level of the 1990s, but the debt levels remain high by historical standards."

Summing Up

The long lasting effects of the housing bubble on the young are tremendously negative and will be for years to come.

The American dream has turned into a nightmare for far too many Americans, and especially the younger among us.

If it's true that the truth shall set us free, and I believe it is, then taking a hard look at what government subsidies and programs are doing to the chances for younger Americans to have the same opportunities that prior generations, including mine, have enjoyed is a fundamental necessity.

As is understanding that the benefits going to the oldsters in the form or retirement income and health care are not "investments" that will make the future brighter for younger Americans.

They will only burden them further.

Only worse.

That's my take.

Thanks. Bob.