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Bad Timing

Ross Menke  |  April 8, 2019

EVERY GENERATION faces its own unique financial challenges—and my generation has, so far, had a particularly rough time. Consider a 2018 report by the Federal Reserve Bank of St. Louis, which looked at the connection between birth year and financial well-being.

Some 48,000 families were divided into six groups based on their birth decade—from the 1930s to the 1980s. I was born in 1987 and hence belong to the 1980s cohort. The Great Recession affected all generations, but it’s possible that my age group was hurt the most. The study found that the odds for long-term financial wealth are currently stacked against the 1980s group, though there are still reasons for optimism.

Get to know today’s typical 35-year old family. They were born in 1984 and attempted to enter the workforce at the start of the Great Recession. This 1980s cohort is the most educated group to date, but that came at a price—in the form of record levels of student loans.

As the report states, “The typical 1980s family also had higher debt in relation to both income and assets than any previous generation at the same ages, creating headwinds to wealth accumulation and risks to financial stability when setbacks occur.” Because we graduated college in the midst of a recession, we started our careers by finding any entry-level job available, simply so we could make student loan payments, while often also being forced to postpone homeownership.

Understand the challenges that the 1980s cohort have faced over the past 10 years. The greatest driver of a family’s wealth is income. The higher your income, the greater your chances of increasing your wealth over the long-term. You’re able to pay off student loans, purchase a home and save for retirement.

Problem is, because my group has had to deal with lower incomes and a lack of assets, we’ve missed out on the rapid appreciation of stocks and real estate since the Great Recession ended. With lower returns expected in the decades ahead, we’ll be playing catchup for years to come.

Compare the 1980s group to previous decades. The cohorts that recovered fastest from the Great Recession were born in the 1930s to 1950s. Why? These groups have more assets and lower levels of debt, allowing their wealth to bounce back over the past decade.

By contrast, those born in the 1960s, 1970s, and 1980s now have wealth levels that are, respectively, 11%, 18% and 34% below benchmarks established by earlier generations. For each group born before 1980, the largest amount of debt is their mortgage. Meanwhile, my group’s largest debt is student loans. Because this debt isn’t tied to an appreciating asset like a home, 1980s families fell further behind from 2010 to 2016, relative to earlier generations.

Sound bad? There are still reasons for my cohort to be optimistic. As the baby boom generation exits the workforce, millennials hope to see a spike in earned income. This should provide the opportunity to save more and buy appreciating assets. The study expects both the income and wealth trajectories of my generation to be steeper than that of earlier generations. Improved health at later ages should also be a financial benefit. We can potentially work longer during years when we’ll be at or near peak earnings—assuming we’re willing to push back full retirement until our 70s or even our 80s.

Ross Menke is a certified financial planner and the founder of Lyndale Financial, a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross’s previous blogs include Never Too LateHead Games and Full Speed Ahead. Follow Ross on Twitter @RossVMenke.

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