The gap between rich and poor in America is expanding explosively. Should the wealthy pay more?
Income inequality is widening in the United States, sparking a national debate over whether the ultra-rich should be subject to a wealth tax.
To paraphrase the late jazzman Mose Allison, young Americans these days don’t have nothing in the world.
According to the Federal Reserve’s household budget data, 45-year-old Americans control just 11% of the nation’s wealth.
In other words, 9/10 of America’s assets belong to the older half of America. People over the age of 45 make up about 42% of the country’s population and about 54% of adults.
Boomers, the generation born between 1946 and 1964, own 51% of America’s wealth, with their mountains of real estate, stocks, pension benefits, personal businesses, and other assets set to total $90 trillion by the second half of 2025.
Generation X, those born between 1965 and 1980, own 26% of wealth, worth $46 trillion.
The dwindling group of Americans over 80 controls 12% of the nation’s wealth, worth $21 trillion.
The rest of America’s wealth, valued at about $19 trillion, belongs to Millennials born between 1981 and 1996, and others, the oldest members of Generation Z, born after 1997.
Older Americans are wealthier than ever
Older Americans are wealthier than ever and are getting wealthier. Empower estimates that the average 50-something is worth $1.4 million. The average person in their 60s is worth $1.6 million.
In contrast, the average 20-something has $139,243 and the average 30-something has $325,952.
This pattern seems obvious. Age creates wealth.
Boomers, the wealthiest generation, control $31 trillion worth of stocks and mutual funds, according to the Federal Reserve. They own $19 trillion in real estate. The combined value of these assets has ballooned over time due to soaring stock markets, rising home values, and the steady accumulation of home equity.
To some extent, the concentration of wealth among the elderly is related to the simple passage of time.
“Building wealth is like a snowball rolling down a hill,” said Richard Fry, a senior fellow at the Pew Research Center. “It takes time to grow into a big snowman.”
If you continue to invest in stocks and bonds for retirement over your lifetime, the value of your account can grow exponentially.
The company reports that the average retirement account balance for Americans 65 and older will be $299,442 in 2024. The average balance for savers between the ages of 25 and 34 was just $42,640.
If you buy a home and take out a 30-year mortgage, your home equity will steadily increase over time due to payments and property value appreciation.
“These are things that accumulate over the lifecycle,” said John Sabelhaus, senior economic research fellow at the Urban-Brookings Tax Policy Center.
The economics of building wealth are changing
But the economics of wealth are changing, potentially making it harder for young Americans to build wealth.
According to the National Association of Realtors, the typical age for first-time homebuyers is now 40, an all-time high. The median age of all homebuyers is 59 years.
“If you live in an affluent area of this country, which is everywhere these days, and even if you have a lot of assets, even a very high income is not enough to buy a home,” says Dinon Hughes, a 25-year-old certified financial planner in Portsmouth, New Hampshire.
American workers are expected to save for retirement over the course of their careers, a model intended to concentrate wealth at older ages. Previous generations relied more on workplace pensions.
Retirees are living longer, which means their heirs have to wait longer to inherit their wealth. Americans are most likely to inherit it between the ages of 56 and 65, according to a 2021 analysis from the Wharton School at the University of Pennsylvania.
“I have a lot of clients who have lost their parents, and most of them are in their 60s,” said Laurie Allen, 43, a certified financial planner in Hermosa Beach, California.
It is difficult to compare different generations over time. But boomers clearly controlled more of America’s wealth in their (relative) youth than today’s millennials and zoomers.
In 1991, when the oldest baby boomers turned 45, the younger half of Americans held about 23% of all wealth, according to Brookings’ Frye.
(The complication is that in 1991, baby boomers made up a larger proportion of the population than millennials do today.)
Will Millennials and Gen Z ever catch up?
The good news for Millennials and Gen Z is that there are many encouraging signs that suggest they will accumulate a lot of wealth in the coming years.
Wayne Winegarden, a senior economics fellow at the Pacific Institute, said millennials “will inherit more from their parents than boomers.” But they may not see that money for another 20 or 30 years.
Several recent reports suggest that Millennials are building wealth faster than older generations and currently own more wealth than older generations managed at the same age.
Gen Z and Millennials typically started saving for retirement earlier than Gen X and Boomers and are avid savers.
Fidelity reports that Gen Z workers’ combined 401(k) savings rate is 11.3%, far behind the savings rates of Millennials (13.5%) and Gen X (15.4%). Because Gen Z will take decades to retire, young people’s savings rates are extremely high.
“We all know we have to save for our retirement, and we’re taking advantage of every benefit available,” said Hughes, a Gen Z financial planner.
Between saving for retirement, eventual home ownership, and inheritance, Millennials and Zoomers will end up amassing significant wealth, researchers say. But it takes time.
“They’re young. They haven’t had much time to accumulate yet,” Pew’s Fry said. “It’s the magic of compounding. And compounding is magic, but it takes decades for that magic to manifest.”
