Monday, June 25, 2012

Age Ain't Nothing But a Number

There was an interesting article in Sunday New York Times on political and economic differences between generations.

The article's main focus is on differences in voter preferences and how a large chunk of federal spending is a transfer from young people to old people (Social Security, Medicare, etc). 

Their are also some really cool graphs on changes from 1992-2010 in median net wealth and income for different age groups.  It's pretty well known that median income growth has been pretty stagnant for at least the past decade, and this is apparent in the data.  However, there are some large differences across age groups, with older people doing relatively well.  

I wasn't aware of this, and I don't have a great explanation for it.  It might have something to do with older people earning a larger fraction of their income in capital gains, but I don't have a great story. 

Update:  I have gotten some very good comments on this post.  Thanks for that!

I was interested in knowing what the picture looked like before the recession.  The recession struck around the end of 2007 and most of the damage occurred in 2008.  Here are the pictures for change in net worth and income substituting 2007 in for 2010, which hopefully shows us what was happening prior to the recession.


It actually looks quite different from the NYT charts.  It seems that all age groups were seeing gains prior to the recession, and that the recession has taken a different toll across these age groups.

Those age 65 and older have held onto their gains through the recession, and just about everyone else has taken a step back.  I agree with Mark in the comments that this likely has to do with retirees having more guaranteed income and less risky investments.  Also, his theory on housing values makes sense to me.

By the way, the entire data series for net worth can be found here:
in this file:
Estimates inflation-adjusted to 2010 dollars (5.5 MB Excel)

And for net income here:
in table H-10:


  1. I like the capital gains argument. I think there have been some changes in capital gains tax that have made capital more profitable.

  2. Hey Brian, that is a very interesting question about differences in median net wealth and income for different age groups. I checked out the Federal Reserve definition of median net wealth and they define it is as “the difference between a family’s gross assets and their liabilities.” In looking into it a little further, they included non-financial assets, such as a home, in with gross assets. For most people, their home is their single largest asset. As a result, I wonder if the change in net worth by age group could be largely affected by differences in home ownership attitudes between the different groups (i.e. the amount of equity each group has in their home). Here’s my theory…you will notice that people under the age of 44 had the largest decline in net worth. Could this be caused by the fact that (as a group) they likely purchased their most recent home in an environment of loose credit restrictions and high average household debt? If this group borrowed more money (as a % of their net worth) to purchase a house, then their net worth would be much more susceptible to swings in home prices (which have undoubtedly declined in real terms over the period presented). On the flip side, for older families (over 65), they may have purchased their current home in an era with very high interest rates (1970’s and 80’s) and thus been forced to purchase a more modest home. This would cause their net worth to be less susceptible to swings in home prices.

    On the topic of changes in income…I have two factors that I think could account for the trend shown in the chart. First, perhaps older individuals (over 65) who do choose to work are doing so on a part time basis. If that were true, then they may tend to accept jobs at the lower end of the wage scale (you will notice from the chart that over 65 workers have substantially lower incomes than people generally considered to be “of working age”. I did a quick check on the DOL website and the minimum wage in 1990 was $3.80. In 2009, it was raised to the current level of $7.25. That is a 91% increase. Granted that is in nominal dollars, but even in real terms, I believe the growth in minimum wage would be substantial. This could partly account for why their income grew so much, relative to other workers. Secondly, in all likelihood, older individuals may have had access to defined benefit plans (pensions) during their working years. As I’m sure you are aware, most pensions provide guaranteed annual payments to an individual once retired (regardless of market returns). So, whereas younger individuals may have had some of their wage growth offset by a reduction in investment earnings, older workers benefited from significant bumps in wages, as well as constant (rather than declining) retirement earnings. Just my hypothesis :)