Wealth Gap Between Young and Old Is Widest Ever

Social Security benefits account for 55% of the annual income for older-age households, unchanged since 1984. The retirement benefits, which are indexed for inflation, have been a consistent source of income even as safety-net benefits for other groups such as low-income students have failed to keep up with rising costs or begun to fray. The congressional supercommittee that is proposing budget cuts has been reviewing whether to trim college aid programs, such as by restricting eligibility or charging students interest on loans while they are still in school.

Sheldon Danziger, a University of Michigan public policy professor who specializes in poverty, noted skyrocketing college tuition costs, which come as many strapped state governments cut support for public universities. Federal spending on Pell Grants to low-income students has risen somewhat, but covers a diminishing share of the actual cost of attending college.

"The elderly have a comprehensive safety net that most adults, especially young adults, lack," Danziger said.

Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis, said the report shows that today's young adults are starting out in life in a very tough economic position. "If this pattern continues, it will call into question one of the most basic tenets of the American Dream — the idea that each generation does better than the one that came before," he said.

Other findings:

• Households headed by someone under age 35 had their median net worth reduced by 27% in 2009 as a result of unsecured liabilities, mostly a combination of credit card debt and student loans. No other age group had anywhere near that level of unsecured liability acting as a drag on net worth; the next closest was the 35-44 age group, at 10%.
• Wealth inequality is increasing within all age groups. Among the younger-age households, those living in debt have grown the fastest while the share of households with net worth of at least $250,000 edged up slightly to 2%. Among the older-age households, the share of households worth at least $250,000 rose to 20% from 8% in 1984; those living in debt were largely unchanged at 8%.

On Monday, the Census Bureau planned to release new 2010 figures that will show a big increase in poverty for Americans 65 or older due to rising out-of-pocket medical expenses. Currently, about 9% of older Americans fall below the poverty line, based on the official definition put out in September, but that number did not factor in everyday costs such as health care and commuting.

The new supplemental figures will show poverty to be higher than previously known for several groups, although they may not fully reflect longer-term changes. For instance, a recent working paper by the National Bureau of Economic Research found that U.S. spending on the safety net from 1984 to 2004 shifted notably toward programs benefiting the near-poor rather than the extreme poor and to the elderly rather than younger adults. That trend, which has continued since 2004, has led to faster increases in poverty over time for some of the underserved groups.

Robert Moffitt, a professor of economics at Johns Hopkins University and co-author the paper, cited a series of cuts in government programs since 1984 for the neediest, including welfare payments to single parents and the unemployed under the Temporary Assistance for Needy Families program, while Social Security and Medicare have either been expanded or remained constant.

"Over time, even under a revised poverty measure, the elderly have done better," he said.

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