You haven't looked at the statistics on this, have you?
Imagine vastly simplified world where people are in full time education (with no income and zero net worth) until age 20, then they start earning wealth at a constant rate. At age 30 they'd have 10 years of savings. At age 60 they'd have 40 years of savings, and that's 4x as much.
Wouldn't we intuitively expect this to be true? Especially given that wealth accumulated over time and is usually measuring capital assets, which young people as a rule do not have yet.
As an example, let's say a person starts at age 20 now, adds $4k into an account every year. At the end of the year they get 4% interest on what's in the account. By the time they're 65, they should have about $507,482. Let's now assume that from 65 onward, a person depletes their savings by 4% every year. By age 85, they now have $224,408
If we now imagine a world where there is exactly one person for each year along this same path, we have a world where under 40 years old has a total combined wealth of ~$1,096,920. By comparison, over 54 (why skip the 14 years in between?) has ~$11,230,880. That puts under 40, at ~30% of the population at 7.12% of the total wealth, and over 54 at ~47% of the population at 72.97% of the total wealth.
That doesn't seem out of line with what we're seeing here, and if you bump that annual return to something like 7%, with the same 4% draw down, now you're looking at a split of 4.1% of the wealth vs 80.2%
And this doesn't account for other forms of wealth like property ownership or even business ownership. It's just a basic investment account.
As a simplified thought experiment, consider an a priori perfectly equal, static (equal numbers of people of all ages) society with the following characteristics:
* People are in school until age 20.
* Assets at age 20 are 0.
* People work until age 65.
* People die at age 85.
* Assets at death are 0.
Assume that inflation and investment returns are 0. After-tax income while working is uniform, say at $100k/year. Expenses are uniform. We'll pretend expenses before age 20 are 0 (covered by taxes). A really super-simplified model.
Total lifetime after-tax income is $4.5 million. This is 65 years worth of expenses, so expenses are $69231/year.
Peak wealth, at 65, is $1,384,605. Wealth around that peak is distributed like so as a function of age:
The top 10% of the population by wealth are all in that age range (because 9/85 > 1/10). Note that by construction this is a perfectly equal society.
The point is, looking at wealth numbers without considering lifecycle effects is usually pointless. Yes, having a paid-off house and a bunch of saved-up retirement money is not something most people have. It's something that generally only people approaching retirement would have. Younger folks have neither yet; someone who has been retired for a while may have the former but no longer the latter.
Now looking at wealth distributions while holding age constants is a more interesting exercise. You can still run into issues because of differences in lifeycles, of course. As a simple example, what can one say about the lifetime earning prospects of a 30-year old making $60k a year? Well, it sure depends on whether they're an elementary school teacher or a neurosurgery resident.
Unfortunately, good analysis of this stuff is hard. It's even hard to figure out what sort of questions make sense to ask....
Amass wealth in your twenties sounds so ridiculous to me. My bank balance for most of my 20’s was barely positive. Now that I’m mid thirties my salary is finally high enough that the savings have started to increase, but it’s still far from anything resembling ‘wealth’.
And yet if people did save and invest aggressively in their 20s and 30s we would not be talking about wealth inequality to nearly the degree we are now.
The reason the generation holds this wealth is because it spent its life working and accumulating it. Is it really surprising that someone who worked for 40 years, including the prime productive years of their career, has received more money in aggregate, than someone who has worked for 10, just starting their career?
Even without compounding returns (i.e. economy growing), and given a fixed spending/saving rates over time, you would expect the former to have vastly more saved money.
Yes, absolutely people don’t save like this. That $10,000/year can buy a boat, or maybe a bigger house. But most don’t do that, especially the Boomer generation.
And it’s even worse because if they actually retire at 65 they had like a good 40 years of compound interest too, 10 years is a big difference versus the 30 we were talking about.
amazing to me with wealth inequality people don’t do the most basic calculations to do a fair comparison between racial groups or any other group.
A 22 year old with 10k saved but making 200k a year at google is a lot better off than a 80 year old who has 200k saved thats living off social security, despite have 1/20th of the wealth.
the median age of whites is 50 percent higher than that of black people so they should have 15 more years of savings accrued in their net worth
This feels really obvious to me. Of course people just starting their adult lives wouldn't have had a chance to build up much savings / acquired an inheritance. Naturally they'll buy a house and start building equity in it before investing a huge amount into the stock market. As they get older, retirement accounts and home equity will grow, leading to older people having more wealth.
An intereting analysis would be to look at what this looked like for different generations adjusting for age (what did savings for baby boomers look like when they were in their 30s?).
It's pretty universal as a kid, as someone in their 20s? Much less so. Sure, if you're getting a degree in CS and will land a 150k a year job soon, saving anything significant from your $14 an hour parttime job as a student makes little sense. But I was making $50k in my late twenties and was not going to jump in income significantly, I saved quite a bit and was able to buy a house and later stocks which have appreciated a few hundred thousand since then. Now starting my 30s with around $80k salary. Saving is a lot easier now, but the housing market got a lot harder, too. Inflation-adjusted I don't even make that much more. But with the few hundred thousand equity, at a 7% annual return my retirement at age 65 could be reasonably locked in at >$3 million, even without saving an extra penny. Saving in my 20s made a big difference. Outside of a few fields like tech, most people don't see crazy income growth to not have to bother with saving/investing in their 20s.
yeah but you’re comparing 20 year olds with no money saved to 70 year olds who are retiring and have a house. The greatest inequality is actually between age but it’s obvious why.
I must be missing something in this article. It seems to say that older generations have more net worth than younger generations. Its graph depicting net worth by age scales almost linearly. Isn't this how it's supposed to work?
If I encounter someone who has spent a year digging a hole, another person who has spent two years digging a hole, and another person who has spent ten years digging a hole, I suspect that each respective hole's depth would be roughly proportional to the length of time spent digging it. The same concept applies to years making income. Clearly this isn't ubiquitous, since it's only possible to gain wealth if you make enough money to save wealth, but one could argue using this data that it's actually the norm.
I agree with everything you wrote here except this:
> However, having enough money in savings that you get $40k/year without having to work is something else entirely. A 65-year-old with that nest egg is borderline-wealthy. A 40-year-old with that level of savings is solidly wealthy.
Why the difference? The 65 year old is going to be able to actually draw down some of the nest egg much sooner than the 40 year old. The 40 year old will be 65 some day. Could you explain what you mean? Is it just that the 40 year may still earn/save even more money, despite not actually needing to?
This article (or one like it) needs to see wide circulation as a counterpoint to the posted article.
All things being equal and assuming some sort of positive savings rate and return on investment older people will _always_ be richer than younger people.
What's more when your denominator is so small (old / young) the increasing X% just becomes silly. If their average wealth decreases $600 (which is the projected impact of rising gas prices next year, I believe) the elderly will then be 56X as wealthy.
Personally, the fact that the average not-old person is swimming in consumer debt, has a 0% savings rate, and that by their own choosing is the real story and one that no one seems willing to touch.
$30 a day is almost $1000 per month, that's completely unrealistic for 90+% of under 25s, most people don't hit that kind of saving power til they are 30. And I don't see any evidence in your post that previous generations did that? My parents certainly didn't, they started saving at 30 on teacher's salaries and bought a house three years later. That house (in Cambridge, UK) is now worth £800k, I can't afford that, despite earning far more than their salaries at retirement put together.
And yet it's more than 90.1% of the population posesses...
These analyses tend to overlook the age dimension. It is entirely normal that a 65-year-old about to retire would have accumulated more assets than a 22-year-old who has just graduated with student debts. So is the proportion of the population holding the wealth also the proportion of the population who has been working and saving for 30-40 years already? If so there is nothing to see here, move along...
Since time is a resource, yes these 20/30 year olds are wealthier if we assume that everyone's time is equally valued - and that's an unrealistic assumption
Sort of a terrible example by the author (Gladwell, I guess), I think with regards to the wealth creation window being limited to those born between 1831 to 1840.
don’t see why its surprising at all that 14/75 of the richest people in the country came from a given 9 year time period.
Since we don’t know what the distribution looks like, lets grind through this.
If we had no a priori reason to suspect that that particular 9 year period is different from any other, we might think that 75/14*9 ~48 years encompasses all 75 of the richest people 75 people in the country. If we expected that 9 year birth period to show more wealth creation then we should see MORE than 19% representation.
In a time where most people didn’t accumulate their wealth quite as early, lets imagine that people could even imagine to START getting rich at 25 (remember this is a time where instant wealth creation via the internet didn’t exist). Add 48 years to that, and we’re at an age of 73.
Current life expectancy is 78 in the United States and it was lower back then.
So… the claim that 14/75 of the richest people were born within a 9 year period is not inconsistent with the null hypothesis that being born in that 9 year time bracket shows absolutely no proclivity towards wealth creation than any other equivalent 9 year time period.
Imagine vastly simplified world where people are in full time education (with no income and zero net worth) until age 20, then they start earning wealth at a constant rate. At age 30 they'd have 10 years of savings. At age 60 they'd have 40 years of savings, and that's 4x as much.
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