November 12, 2011

Wealth gap between old and young increases

It is interesting how the Occupy Wall Street movement has triggered so much interest and discussion about wealth and income inequalities in the nation. Now comes a study that shows that the wealth of households headed by people over 65 has increased to 47 times that of households headed by people 35 and younger, compared to a ratio of just 10 in 1984.

It is natural for older people to have more wealth since they have had more time to earn and save. But this rapid rise in inequality is not healthy. What is even more disturbing is that the median net wealth of the younger group has actually declined dramatically in this period. A society that has a minority of old and very rich people and a large number of young and poor people is not a healthy or stable society.



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It would seem that part of the difference is due to the fact that many older people had invested in the stock market in years where returns were 15-18 and 20% or more with fairly safe mutual funds. Compounding over time this difference can be huge as indicated where younger people do not have enough capital to invest let alone invest in the stock market. The real question is whether this new data should have an impact on estate taxes. Is Warren Buffet right here in saying the estate tax should be more significant from a tax revenue generator and as a social equalizer? Not sure of the answer here but these things do have some linkage.

Posted by Steven J Fromm on November 12, 2011 03:35 PM

Could this also be due to the higher amount of student debt younger people have? I have friends who pay almost half of every pay cheque back for their student loan payment. It's tough to get ahead when the money that could be spent on smart investing goes to pay back high school bills.

Posted by Adam Bate on November 13, 2011 07:57 PM