Older people in America are almost always more likely to have more money than younger generations. And it's always been that way, making that senior citizen discount something we should really think about eliminating. But an important new report from the St. Louis Fed's Center for Household Financial Stability shows that the wealth gap between the old and the young in America is growing faster than normal. While older Americans are increasing their wealth a bit, the millennial generation is falling further behind than the previous generations when they were younger.
Before we look into this new and wider gap, it's important to note that the reason older Americans have always had more collective wealth is simple: they've been working longer. The longer you work, the more money you're likely to have. The longer you live and work, the more time you have to get out of debt and save. But I will make it even simpler than that. Adults generally have earning power, children generally do not. One key to earning more and being richer is keeping your childhood years to a healthy and normal amount.
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When we address the newer and wider wealth gap between the old and young, a lot of experts rightly point out the effects of much higher student loan debt and the recent Great Recession. But it's not just economics, there is something else at play that is contributing to the generational wealth gap that combines economic, cultural and even emotional factors. And that is the fact that younger Americans are more and more likely to delay their passage into adulthood and the earning power that goes with being a grown up.
Experts have been documenting this trend, and it's something that began far before the Great Recession. Sociologists have boiled down the basic milestones of adulthood to five major events: graduating high school or college, leaving your parents' home, paying your own way, marrying, and having a child. The U.S. Census Bureau says that in 1960, 77% of women and 65% of men over 30 years old had passed all five milestones. By 2000, fewer than half of all 30+ year-old women and fewer than 33% of men that age had done so. Since 2000, the downward momentum has continues. One psychologist has even been leading a movement to title the 20's as a decade of "emerging adulthood" instead of calling it "early adulthood," or just "adulthood."
Why is this happening? I've discussed before how economics are often just a convenient excuse for delaying those commitment-laden milestones listed above. Again Ladies, if your boyfriend keeps telling you he can't marry you because of his student loans... well, he's just not that in to you. It's not just the economics, but the fact that it's become more culturally acceptable to behave a certain way past a certain age. And this generally childlike failure to commit is keeping our kids emotionally young and also keeping them financially poor.
The classic example of this is the very common case of the recent college grad who is back home living with his parents. Now, I can understand the plight of a millennial who has to live at home because student loans and a tough job market curtail him from paying market rent. I can also understand why a parent would agree to take a college grad child back into the house. But despite an improving economy, the latest Pew Study shows a growing number of millennials, 26%, are living at home with their parents. And I'll give you 2-1 odds that most of those still-living-with-their-parents millennials are still getting their mommies to do their laundry and maybe also make their beds and cook their meals. There's no real excuse for that, and it's that kind of "spoiling," for lack of a better word, that's also a serious factor keeping 24-year-old "junior" in the nest... and out of a real job.
The above scenario can't be explained by economics alone. You need a new term called "Momonomics" coined recently by Liberty Fund Fellow Sarah Skwire. Economics tells you that parents would not want to do anything to extend their own added costs of having to keep an adult child at home. Momonomics tells you that mom will probably still do that kid's laundry anyway. And lots of young people living at home know it.
Now I come to this with no snobbery intended. Because I too was one of those college grads who moved back in with his parents and even had my mom do my laundry for me. But my parents also did a pretty good job of making sure the arrangement was not too comfortable or permanent. The situation lasted for about a year until I was motivated enough to cobble together enough part time jobs and find a cheap enough place to live on my own, (with 3 roommates of course). I graduated in the last big recession in 1992, but it wasn't economics that caused my delayed launch. It was simple lack of planning and maturity on my part. All I can do now is to help my own kids and other parents and their kids plan better for their own economic success. One very big tip is to not allow yourself to use the economy as an excuse.
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Planning isn't the only tool. Another essential way to help avoid delayed adulthood and economic success is setting clear expectations. Parents who make sure returning college grad children do their own laundry, make their own beds, and even pay a little rent tend to see those kids move along much faster. On the marriage milestone front, parents shouldn't pressure their children to marry anyone. But if your adult child is in a serious relationship, it's not wrong to say the responsible thing to do is to make a matrimonial commitment. If your son or daughter calls you too old fashioned for saying that, tell them that you're just trying to make them richer.
The final option is younger Americans can simply embrace and own the argument that money isn't everything. After all, there are some good things about delayed adulthood when you realize we don't live in a country where pre-teens have to quit school to work in a factory somewhere or get drafted into a militia. If young people in America are living like children longer and loving it, so be it. But then they need to be ready for their parents to eventually cut them off. If they're still okay with that tradeoff, then they also need to agree to not to complain about their income inequality now, or down the road when their delayed entry into adulthood sets them far behind their peers.
Something tells me that when clearly presented with those facts and conditions, most of today's slowly developing adults will simply choose to grow up.