What Wharton experts say about the wealth gap between baby boomers and younger generations
BENJAMIN KEYS AND SUSAN WATCHER EXPLAIN HOW THE CURRENT STATE OF THE HOUSING MARKET IS MAKING IT TOUGHER FOR YOUNGER BUYERS TO ACCUMULATE WEALTH.
The recent housing demand has been led by two distinct groups: baby boomers and millennials. Baby boomers “have a lot of the country’s wealth,” Keys said, and they’re using that money to retire early, buy second or vacation homes, and even upsize to larger homes rather than downsize. Millennials are now at the peak of their home-buying years, and those with good incomes are entering the market with gusto.
None of that bodes well for prospective buyers who don’t have a lot of cash. Larger homes, higher prices, and stiff competition have broken the rungs on the traditional homebuying ladder, where people start small and trade up for more square footage and amenities. Economists call that “filtering,” and the pace of it has slowed considerably, Keys explained.
“I think all these things point to challenges for the average homebuyer that’s trying to get their foot in the door to homeownership,” Keys said. (Source)
Watcher describes the impact home builders and the government are having. “There have been trillions of dollars of wealth created for those who already own their home. But for those who are looking to buy or rent, coming up with tens of thousands of dollars is no easy task,” Watcher said. “Builders are, in fact, moving in this direction. Homes are getting smaller. But it’s less profitable to produce on the starter home than the luxury market overall. And there needs to be that ability to increase the supply of land that is developable near infrastructure, near jobs, in communities and in states that are willing to go in this direction.
I think there is a new look at the importance of policy, particularly at state levels. States across the country are experimenting with ways to ease up the supply of developable land.” (Source)
Keys also discusses the “McMansion” problem. McMansions are large, mass-produced houses that the baby boomer generation (born 1946-1964) favored as a status symbol. Now, baby boomers are entering their 70s and 80s and many are looking to downsize, but they are finding it hard to offload these large homes, facing a paucity of buyers among the millennial generation (born 1982-2000), who are unable to pay the prices they want.
Baby boomers and the generation before them collectively account for about 46 million owner-occupied homes that are worth an estimated $13.5 trillion, according to a 2018 Fannie Mae report by Myers titled, The Coming Exodus of Older Homeowners.
Even millennials who can afford to buy a home are impacted: a big problem for the McMansion market is the mismatch between where millennials prefer to live and where those large houses have been built. The younger generation gravitates to cities – where their jobs are — whereas baby boomers have built their homes in suburban locations. At the same time, the average size of the household has fallen as people have fewer kids than in earlier generations, Keys noted. “For the houses that don’t fit the families, the prices are going to have to fall.” Added Myers: “The millennials seem to have a taste for living more sparsely. They don’t want as much furniture. They don’t want as much space.” (Source)
WHARTON VISITING SCHOLAR STÉPHANE FRANCIOLI DESCRIBES HOW REVERSE AGEISM, ALSO KNOWN AS “YOUNGISM” IS PLAYING A ROLE IN WIDENING THE GENERATIONAL WEALTH GAP.
“Society often assumes that ageism mainly targets older adults,” Francioli explained. “Meanwhile, youthfulness is typically associated with beauty, athleticism, and mental sharpness. Many people strive to appear and feel younger than they are.” Yet, the reality is more nuanced. Young adults — those aged 18 to 30 — often face condescension, stereotyping, and outright discrimination. This bias against the young tends to take a unique form. While ageism targeting older adults finds its roots in people’s discomfort with the process of aging and older age as a life stage, youngism stems from the perception that today’s young do not live up to the standards set by previous generations at the same age.
Baby Boomers complain about Millennials and Gen Z being lazy, entitled, and naïve when they themselves were stereotyped as indolent, self-righteous, and gullible “hippies” in their youth.
“If you believe that young people are lazy, it’s easy to rationalize why they earn less than previous generations at the same age, and overlook the real economic challenges they face, like student debt, economic recessions, and the rising cost of living and housing.” This creates challenges for younger generations, because “Real change depends on older generations, who hold most of the political and economic power to make it happen.” (Source)
RESEARCH BY STEPHANIE CREARY, PETER CAPPELLI, AND MATTHEW BIDWELL INDICATES WORKFORCE PREPARATION IS HAVING AN IMPACT ON YOUNGER GENERATIONS’ ABILITY TO ACCLIMATE TO THE WORKPLACE.
Gen Z is on track to be the most diverse and highly educated generation yet, according to a recent Pew Research Center analysis of U.S. Census Bureau data. Only a little more than half of Gen Z is white non-Hispanic, and the oldest of them are entering college at a higher rate than millennials were (59% for Gen Z, and 53% for millennials) when they were the same age. However, younger generations are entering the workforce with less job experience than previous ones. Only 19% of 15- to 17-year-olds in 2018 reported working in 2017, compared with 30% of millennials in the same age group in 2002. In 1968, nearly half of baby boomers (48%) reported working in 1967 when they were between 15 and 17 years old.
Bidwell says that, “One argument for why children aren’t working as much is that as a parent you say, ‘You could become a national chess champion or violinist or compete for an athletic scholarship,’ and for the upper class, spending all your time earning $7.25 an hour is not a particularly good return.”
Creary highlights how generational disparities in the perception of hierarchy plays a role. “Many older workers were trained to have a different relationship with people in positions of authority, such that we would address them much more formally. We were trained with the idea that regard for authority was really important regardless of whether you respected their ideas. This generation expects a much closer relationship with people of authority, so they can treat people who are higher in the hierarchy as their friend, and that can become a problem in a workplace where there are structures and chains of command that are important.”
Capelli highlighted challenges with convincing older workers to adapt to more effectively bring younger workers into the fold. “Honestly, we can’t get supervisors in most organizations to pay real attention to their subordinates, and the idea that we are going to cook up some special way to have them manage these young people as opposed to what they do for others is comical.”
To address this, Bidwell suggests that leaders “take a more realistic approach and to sit down and really remember what we were like at that age and what we did. People in the workforce lack a lot of the tacit knowledge that managers have learned over the years about things like the appropriate ways to behave – the ways to present yourself, all of that sort of thing. That takes time to learn, and you should be concerned but not horrified that younger people don’t know it.” (Source)
