The Me Generation is living up to its name, and its sons and daughters may certainly pay the price.
Generation Xers, those born to the Baby Boomers between 1960 and 1980, could be headed for economic disaster. Not only are they unlikely to get an inheritance from their aging parents — because of their losses during the Financial Crisis — but they will also be on the hook to pay off the mounting government debt amassed to get out of the Great Recession.
That’s the sentiment of several recent studies and books, which argue that the American Dream for Generation Xers could be a nightmare. This could be the first generation since the Great Depression in which the children will do worse economically than the parents.
“The last 30 years has seen a considerable dropoff in median household growth compared to earlier generations,” according to Economic Mobility: Is the American Dream Alive and Well?”
The report, an initiative of the Pew Charitable Trusts, contends that the income decline is more than an economic statistic. It is, the report says, an indication of a profound societal change.
By some measurements, the report found that “we are actually a less [economically] mobile society than many other nations, including Canada, France, Germany and most Scandinavian countries. This challenges the notion of America as the land of opportunity.”
The notion of perpetual optimism for each generation of Americans is also questioned. Over half of Americans surveyed thought the American Dream is no longer attainable for the majority of their fellow citizens, according to a CNN poll.
The cause of pessimism could be in the average male’s paycheck. “Men in their 30s today earn less than men in their father’s generation,” according to the Pew Charitable Trust study.
The next few years could be a very difficult period for those born in the 1960s and 1970s. That’s because they have neither earned income nor accumulated financial assets at the pace of their parents, the reports say.
This income slowdown also leads to another problem: Making less than one’s parents tends to mean Generation Xers can’t save enough.
Many American families are “racing toward financial catastrophe,” according to Jane White, the founder and president of Retirement Solutions. They don’t put enough in their retirement plans that were changed in the 1980s. The change from defined benefit to defined contribution plan left them, not the employer, with the responsibility to save enough.
That’s a responsibility in which they are failing, White asserts. They are also maintaining a lifestyle based on borrowing.
“Despite the fact that many Americans may appear to be wealthy, too many have been living on leverage — over their heads in debt,” according to White in her book, “America Welcome to the Poor House.” White warned that many Americans are headed for retirement hell.
They suffer politically as well. While few elected officials would dare tamper with entitlements while the Boomers are retired, Rep. Paul Ryan (R-Wis.) and others have suggested overhauling Medicare, cutting benefits for those under age 55.
OK, many people in this generation of middle-age Americans aren’t doing well. But what about the coming intergenerational transfer of wealth?
This should help Xers. They’ll use their inheritances to make up the gap between what they earned and what their parents earned, right?
Don’t count on it.
The much-ballyhooed intergenerational wealth transfer, a recent study suggests, has been oversold. The typical Baby Boomer who had it all will end up spending it all, or close to all of it, according to a recent US Trust survey, which polled 457 high-net worth adults.
And the boomers who had the wealth and lost it in the market downturn of 2007-2008 will hold on to what’s left to keep up with their retirement lifestyle.
Many still-wealthy parents say they are not leaving financial inheritance to the next generation, according to a US Trust Insights on Wealth and Worth report.
Why are mommy and daddy getting chintzy in their old age?
In part because they believe their children would not be able to manage an inheritance. In some cases they have not even discussed their wealth with their children.