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NextGen Magazine

 
 

Born in the '80s? The Financial Crisis Hit You the Worst

By:
Chris Gaetano
Published Date:
May 21, 2018
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A recent study from the Federal Reserve Bank of St. Louis says that people born in the 1980s suffered the worst damage from the 2008 financial crisis, and warned that those in this cohort might form a "lost generation" who always struggle economically. The conclusions come after looking at data from nearly 48,000 families divided into six age cohorts based on the birth year of the family heads, from the 1930s to the 1980s. What they found was that those who were born in 1960 and after have yet to fully recover from the crisis, and that those who were born in the 1980s are having a particularly difficult time in shaking off the economic impacts. 

"Wealth in 2016 of the median family headed by someone born in the 1980s remained 34 percent below the level we predicted based on the experience of earlier generations at the same age. The corresponding shortfalls of the 1960s cohort (–11 percent as of 2016) and the 1970s cohort (–18 percent) are worrying but are much smaller than their
respective 2010 and 2013 shortfalls. Alone among the six decadal cohorts we studied, the typical 1980s family lost ground between 2010 and 2016, falling even further behind the typical wealth life cycle. This represents a missed opportunity because asset appreciation is unlikely to be as rapid in the near future as it was during the recent period," said the study's executive summary. 

In other words, the Fed asked: How much wealth would we expect a typical family to have at each age, and then what is the extent to which a generational cohort would or would not meet that benchmark? A chart on page 8 of the report shows that a typical 35-year old head of household is expected to have a net worth of about $50,000. The report said that, generally, the most rapid wealth accumulation happens earlier in life, with later wealth building upon it. Given that, for this cohort, their prime earnings years happened in the middle of a financial crisis, this means they have less to build upon than those who accumulated their assets beforehand. The report also pointed out that, relative to other generations, those born in the '80s tend to carry more debt, which can increase instability and eat away any gains they do make. Further, this debt tends to stem less from big purchases like houses (in fact, far fewer people born in the '80s are homeowners at all) and more from student loans, auto loans and credit cards. 

"Because none of these types of debt finance assets that have appreciated rapidly during the last few years—such as stocks and real estate—they have received no leveraged wealth boost like that enjoyed by older cohorts. The 1980s cohort was unique in falling even further behind its wealth benchmark between 2010 and 2016. Given the prospect of lower asset returns in the future than in the recent past, 1980s families face a formidable challenge in building wealth rapidly enough to reach benchmark levels set by earlier generations," said the report. 

One point of optimism, though, was that those born in the '80s are still relatively young and tend to be well-educated. They have many years to get on track, and generally have the education required to do so.