Younger generations today are financially worse off than their parents were at the same age. This stark reversal of generational prosperity is fundamentally changing economies in significant ways. Gone are the days when each successive generation could expect to do better than the last. Instead, today’s youth face declining wages, soaring costs of living, crushing student debt, inflated housing prices, diminished job prospects, and weakened social safety nets.
While older generations benefited from favorable government policies, robust economic growth, and accumulated wealth, younger demographics struggle to advance in the current economy. Delayed inheritance, wealth concentration among the ultra-rich, bad government policies, and inflationary monetary policy continue to create inequality among generations. Young people’s economic challenges will profoundly impact consumer behavior, spending, investment habits, family formation, and industry demand. Finding ways to solve intergenerational wealth and income imbalances is necessary for economies to avoid stagnation and reduced mobility.
Government Policy and Voting Power Have Favored Older Generations
Older generations have more voting power due to their numbers and turnout rates. They have used this influence to support policies that benefited them when they were younger, like free or low-cost education and vital social welfare and retirement programs. Now, older voters tend to favor policies like lower income taxes, less business regulation, industry protections, and zoning laws that protect home values – all of which benefit them in older age but reduce support and opportunity for younger people.
For example, in the UK, a 2017 study found voting for conservative, elderly-friendly policies shifted from being divided by class to being divided by age. In Australia, the 2019 election pivoted on an approach reducing retirement account tax benefits – the party that protected those benefits won, largely thanks to older voters.[1]
Housing Affordability Has Plummeted for Young People
In the past, homes were cheaper, and banks paid higher interest rates on savings(8% -10% in 1985 vs 0.5% now), allowing faster down payment savings. Today’s high home prices make buying extremely difficult for young people. For example, the median home price in 1985 adjusted for income was $92,600 versus $362,000 today. Not only are home prices higher, but paying off the principle is harder with higher mortgage interest rates combined with higher home prices – it would take much less money and interest to pay off the 1985 house versus today.[2][3]
High housing costs also reduce mobility by locking young people out of specific job markets if they can’t afford to live there. A 2020 study found that 52% of young American adults still live with their parents, partly due to unaffordable housing.[4]
Delayed Inheritance Prevents Wealth Building When It’s Needed Most
The bulk of wealth transfer from older generations often comes too late when their children retire. This means younger people don’t benefit from inheritances when needed for education, home purchases, and starting families. With wealth concentrated in older demographics, younger people have reduced economic opportunity and mobility. Extended life spans keep wealth with older generations longer than in the past.
Unique Economic Conditions Benefited Older Generations
Older generations have benefited from a low cost of living since 1982, with a growing global economy, trade liberalization, rapid technological innovation, and cheap energy that provided more opportunities to build wealth that may not be easy for younger generations today. Automation and globalization have shifted job markets, often reducing opportunities and security for younger workers.
Wealth Concentration with the Ultra-Rich Skews Generational Statistics
Once people become extremely wealthy, that wealth stays concentrated rather than distributed across generations. The presence of billionaires and multi-millionaires in older generations exaggerates economic divisions versus younger cohorts. For example, in a group with one billionaire and 999 broke people, the average wealth is $1 million. Technology has created unlimited opportunities for anyone to create their own online business and a winner-take-all economy for the vast population.
Wage Stagnation Despite Rising Costs of Living
While costs for housing, education, healthcare, childcare, etc., have risen dramatically, real wages for younger workers have remained stagnant, making it harder to save and build wealth. For example, after adjusting for currency inflation, college tuition has increased 747.8% since 1963, the Education Data Initiative found, while higher dollar median wages have the same purchasing power adjusted for inflation. [5] [6]
The Burden of Student Debt
The rise in higher education costs has burdened many young people with staggering student loan debts that delay wealth-building milestones like buying a home, getting married, or having children. The average 2023 graduate has $37,650 in student debt – up from just $10,000 in the early 1990s. [7]
Difficulty Breaking into Job Markets Shaped by Automation and Globalization
Economic shifts like automation, outsourcing, and offshoring have fundamentally changed job markets, reducing opportunities and security for younger workers entering the workforce. Jobs lost to trade and mechanization in manufacturing are likely to be replaced at different wage levels. This hurts generational income mobility. Software, Artificial Intelligence, and contract workers have also eliminated many full-time white-collar jobs in the economy.
Precarious Work Options in the Gig Economy
The rise of precarious, benefit-less gig economy jobs like Uber driving or freelancing means younger workers are more likely to face unstable incomes without safety net benefits like health insurance or paid time off. This results in less financial security.
How Poorer Young Generations Are Fundamentally Changing Economies
The economic challenges facing young people today will profoundly impact our economies in the future. Poorer younger demographics affect consumer behavior, spending, investment patterns, and family formation – critical drivers of economic growth. Delayed milestones like having kids or buying homes ripple across industries. Challenges in building wealth also reduce social mobility and increase inequality. If left unaddressed, generational wealth inequality may lead to long-term economic stagnation and social instability.[8]
Key Takeaways
- Older generations utilized political influence to enact policies favorable to them but now support agendas that disproportionately benefit older people.
- Skyrocketing housing costs have priced young people out of homeownership and limited job mobility.
- Delayed transfer of wealth to inheritors prevents young people from using it during pivotal life stages.
- Unique economic boom times enabled older generations to amass fortunes in the old economy, which is not possible in today’s new economic conditions.
- The presence of billionaires in older demographics distorts perceptions of inequality across age groups.
- Stagnant wages amid soaring living costs make it harder for youth to achieve financial stability.
- Burdensome student loan debt hampers younger people from pursuing other wealth accrual.
- Automation and globalization have diminished job prospects and security for young workers.
- The rise of precarious gig work increases income volatility for younger people.
Summary
A confluence of factors – from the high cost of living, low-paying jobs, policy biases, and inflated asset values to accumulated debt and insecure work – have systemically hindered younger generations from building wealth, entrenching inequality, along with continuous dramatic shifts in consumer patterns, investing, and economic growth. Rectifying imbalances through free markets, fair wages, better policies, and sound monetary policy can help restore generational mobility and prosperity.