Cohorts born in the late 1930s and 40s did especially well

by on October 15, 2013 at 5:37 am in Data Source, Economics, History, Uncategorized | Permalink

Via @ClaudiaSahm, there is a new paper (pdf) from Emmons and Noeth at the St. Louis Fed, the abstract is here:

The global financial crisis and ensuing Great Recession reduced the income and wealth of many families, but older families generally fared better than young and middle-aged families. The Federal Reserve’s Survey of Consumer Finances reveals that being young was a significant risk factor during the downturn, regardless of a family’s race, ethnicity, or education level. Among older families, those headed by someone 70 or over fared slightly better than those headed by someone between 62 and 69. Income and wealth also increased most strongly among older families during the two decades preceding the crisis. Part of the explanation for favorable income and wealth trends among currently living older Americans is a positive birth-year cohort effect. After controlling for a host of factors related to income and wealth, we find that cohorts born in the late 1930s and 1940s have experienced more favorable income and wealth trajectories over their life courses than earlier- or later-born cohorts. While it is too soon to know how cohorts born in recent decades will fare over their lifetimes, it appears that the median Baby Boomer (born in the 1950s and early 1960s) and median member of Generation X (born in the late 1960s and 1970s) are on track for lower income and wealth in older age than those born in the 1930s and 1940s, holding constant many factors other than when a person was born.

One driving force seems to be that the older generation was simply more motivated to save.  And here is a dramatic sentence:

Among young and middle-aged families, the median levels of net worth were 30.5 percent and 24.1 percent lower in 2010 than in 1989, respectively.

The paper presents many interesting facts, but I would start with pp.9-10.

From The Guardian, here is an argument that middle class youth in Great Britain today will end up faring worse than did their parents.

1 Brian Donohue October 15, 2013 at 6:40 am

Well, anyone that sold their home and down-sized in 2004-2006 did pretty well. This overlaps nicely with the cohorts in question.

2 Rusty Synapses October 17, 2013 at 3:07 pm

+1 My parents (’30s) and spouse’s parents (’20s) both downsized before bubble burst. Plus, as is probably typical for the ’30s and ’40s cohorts, they had a lot of bonds (following conventional allocation wisdom) to ride the incredible interest rate reduction of the last 20 years – younger cohorts with different allocations wouldn’t get that (to the extent have wealth, more in stocks, which have moved sideways). Also, ’30s and ’40s cohorts hitting earning stride in ’50s and ’60s (dream years) – if ’20s cohort or prior is really worse, probably b/c depression and WWII got in the way.

3 Brian Donohue October 15, 2013 at 6:44 am

As for Boomers, we’ve seen thirteen years of fecklessness with them at the helm. It seems to me they’ve made their own bed.

Could it be that anti-social vices like saving money actually serve some purpose? But ‘spend it all and then some’ is what drives the economy, right? Hmmm.

4 Norman Pfyster October 15, 2013 at 8:54 am

And, despite not being a baby boomer, I’m sleeping in it.

5 Ed October 15, 2013 at 7:16 am

The generations born in and immediately after the Great Depression know how to be frugal because that’s how they were brought up. Later generations were spoiled from birth.

Also, generally speaking, older generations are wealthier than younger generations. They have longer to save up money.

6 Edward Burke October 15, 2013 at 9:59 am

So whatever became of inheritance? Just another legal relic, construed as an onerous legal instrument or as an oppressive cultural conditioner? (Where do old people get off thinking they themselves were once human beings, anyway?)

7 Ed October 15, 2013 at 7:18 am

Those born during the Depression and immediately afterward know how to be frugal because that is how they were brought up. Generations born later were spoiled from birth.

Also, older generations will always be wealthier than younger generations — they have had more time to save up money.

8 Steven Kopits October 15, 2013 at 7:32 am

Well, congratulations, Claudia! I think this is the first time Tyler has referenced one of your works.

9 Claudia October 15, 2013 at 7:55 am

Not my paper, but I am happy it got posted.

Also my currently unsupported conjecture is that the Great Recession has shifted individuals attitude toward borrowing (as opposed to saving). And that may help explain the slower in consumption growth we see now … related to my work on worse income expectations. Also Malmendier and Nagel also have several interesting papers on how macro experiences shape expectations and preferences.

10 liberalarts October 15, 2013 at 7:42 am

This is the cohort of my parents, both of whom were born in the 1930s. They and their friends definitely had a different approach than younger families. Even when they were younger they had a very conservative approach to borrowing. Their incomes were modest while young, and they live modestly. I even remember my mother darning my father’s socks when I was a kid. She cut off our jeans every summer to make our shorts, rather than buying pre-made shorts, etc. As their incomes rose, the lack of debt suddenly made them pretty comfortable. They ramped up spending, moving from used cars to new cars and flying more on vacations and the like. Even then, though, they didn’t ever spend faster than their pace of savings and as a result have built up a nest egg that is probably 25 to 30 times their highest family income, which probably never really exceeded $50,000 (maybe $70,000 in 2013 dollars). Their friends (who avoided the 1970s divorce wave) appear from the outside to have similar patterns. Ditto my wife’s parents who were also born in the late 30s. Early baby boomers born in the late 1940s have a different approach to life from my anecdotal eye, though.

11 John Maynard Keynes October 15, 2013 at 8:04 am

Your parents are anti-social hoarders.

12 mavery October 15, 2013 at 9:36 am

Certainly not my parents, both born in the late 40s. They hardly spent while I was growing up, and now with their house all but paid off, my dad only continues working because he wants to.

As for the paper, perhaps it is simply tougher to save now than it was 40 years ago? IIRC, the economic crises of the late 70s and early 80s paled in comparison to what we’ve had over the past 5 years. Is it hard to imagine a large number of folks being thrown out of work and having to fall back on their savings? I don’t claim that there have been no changes in saving/borrowing behavior, but it’s not like circumstances are the same in both cases, either.

13 Benny Lava October 15, 2013 at 8:33 am

There is no great stagnation!

…oh I mean young people surely must be more average, right.

14 Brandon October 15, 2013 at 8:51 am

“Motivated” to save, or had the ability to save? Sort of hard to save when your wages have been stagnant for a few decades and your cost of living has crept steadily upward.

15 A Percentile October 15, 2013 at 10:46 am

Yeah, my wages have been stagnant, but I’m not an actual human.

16 Jay October 15, 2013 at 9:23 am

I see the authors did not bother to assess house prices in 1989 and 2010 while determining if their comparison was valid. How about net wealth in 1989 vs 2007? A much more valid comparison.

17 John Thacker October 15, 2013 at 10:05 am

Among young and middle-aged families, the median levels of net worth were 30.5 percent and 24.1 percent lower in 2010 than in 1989, respectively.

Most people don’t save (but, as correctly noted, people who grew up in the Depression are more likely to). So for most people, their net worth is largely their house. I’d be interested to see how 2007 and 2013 numbers compared.

18 Errorr October 15, 2013 at 10:26 am

I wonder what the effect of being just old enough to ride the demographic wave that was the boomers into prosperity.

I find it interesting that the data shows the coho rt as split between pre and post 1950. Does this mean that the eldest of the boomers also were able to benefit?

I would suggest that the competitive marketplace for skills was particularly beneficial for those who found themselves with the most experience when the population of boomers in the 50s age cohort caused aassive expansion in consumption and employment.

19 ElamBend October 15, 2013 at 11:54 am

Wasn’t this Cohort the one best placed to take advantage of the effects of the US’s win in WWII (like having all the worlds industrial capacity for a while). Also, as a member of this cohort pointed out to me, it was a smaller group than the one before and after, so they had some competitive advantage among peers, especially for professionals.

20 Benny Lava October 15, 2013 at 12:57 pm

If you look at post-war unemployment, the trough was in the 1950s and the peak was in the 2009-10 period.

21 Steve Sailer October 15, 2013 at 5:49 pm

A large fraction of the most famous rock stars of all time were born in that cohort. Being slightly older (and thus cooler) than a giant cohort of Baby Boom teenyboppers was a pretty sweet deal.

Also, for 16 years the President of the United States was a man born in 1946 at the very beginning of the Baby Boom. There just wasn’t as much competition in life if you were born during the Birth Dearth or early Baby Boom.

I personally was born at the peak of the Baby Boom in the late 1950s, and always had plenty of older people ahead of me in line. Obama, b. 1961, is similar

22 Tom West October 16, 2013 at 7:51 am

Is it possible that my parents had “just enough” automation for wide spread success and now we’ve progressed to “too much” automation which leaves a significant portion of the populace competing for a smaller pool. of decent jobs? “Average is Over” may have started early.

Well, as a late boomer, I certainly expect my children’s generation to fare worse as median Western wages and median world wages converge.

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