Mellody Hobson talks about young people and wealth on today’s “Money Mondays” segment.
I hate to be the bearer of bad news, but the Urban Institute just released a new study about wealth building and younger generations, and the findings show that Gen X and Gen Y Americans have accumulated 7% less wealth than their parents did at that age over 25 years ago.
Hasn’t the average wealth of Americans doubled over that same period of time?
That’s true, and the American dream of working hard, building wealth, and saving more than one’s parents has held true…unless you’re under 40. It makes sense if you remember that wealth compounds over long periods of time, which is where young people are at a relative disadvantage. Less time saving means less compounding, and a lower bottom line.
But how do you account for the discrepancy that their parents had saved more by the same age?
It’s a number of factors that are greatly out of the individual’s control: Stagnant wages, fewer job opportunities and lowered home values among them.
First, let’s take a look at the job market, which has been particularly harsh for young people over the past five years. The unemployment rate is 7.8 percent for workers between the ages of 25 and 34; it hovered over 10 percent for more than a year during the recession and early stages of the recovery. By contrast, for workers between the ages of 45 and 54, the unemployment rate is 5.5 percent, and it peaked at 8 percent in 2010. If you don’t have a job, you can’t save any money.
Next, let’s look at housing. When the housing market crashed, homeowners who owed the most on their mortgages relative to their home values were hit the hardest, and this group was mostly people in their 20s and 30s. These young adults now find themselves locked out of the housing market, because although prices have fallen sharply and interest rates are remarkably low, the credit standards are a lot tougher.
Soaring student loan debt is another factor. A study of Federal Reserve data by the Pew Research Center found that 40 percent of relatively young households had outstanding student debt as of 2010, up from 34 percent in 2007. The median balance among all households with student loan debt was more than $13,000. These debts could take years to pay down.
All of these factors spell economic hardship for young people, and they’re struggling just to pay the bills—saving isn’t a priority.
So what’s your advice to young people about how to get on track to save more and work towards a secure retirement?
Honestly, I wish I had more answers. First, I would remind young people that it’s not their fault. The older generation can have the habit of blaming young people’s economic hardships on poor saving and spending habits, but that’s really not the case here. The scholars at the Urban Institute scholars suggested a number of new government policies to help address the problem. First, they suggested encouraging retirement accounts by making them automatic unless an employee opted out. They also proposed modifying the home mortgage interest deduction to push more money toward homeownership for lower-income workers. In addition to being a staple of the American dream, homeownership can be a primary vehicle for building wealth. The study found that if a person delayed the purchase of a home to age 40 instead of buying at age 30, it could result in a $42,000 loss in home equity by the time she reaches 60, given trends in wealth accumulation over the past few decades. The bottom line is that the onus is on all of us to help young people get on track to build their nest eggs for retirement, or it will be on all of us to bail them out down the road.
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This Week’s Celebrity Instagrams (11/26-12/2)
30 photos Launch gallery
1. Little Legend and Puddy 😍😍😍😍
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2. "You on point Phife?" "all the time,Tip". 💥 #bannedfromnormal
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3. Vegan! The Impossible burger at Crossroads
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4. Lawrence #BeforeandAfterEpisodes 1-4: 184lbs 13% body fatEpisode 8: 196lbs 8% body fat S/O @coachdaveboxing with the works outs and @kildareriordan with the nutrition
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5. Jus haaaanngin out
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6. Meanwhile back at home in Atlanta GA someone mad they not on the 🛳. 😳
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7. No limits... Photo cred: Chris Bridges @ludacris
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8. new new
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9. Apparently my 260lbs is too much for the actual vines in the Hawaiian jungles to hold me without breaking and me falling hundreds of feet. So for safety purposes, I'm forced to swing thru #Jumanjj on wires strong enough to hold 12 adult buffaloes and 1 adult Rock. #OnSet #Jumanji #IronicallyIEatBuffaloDailyForLunch #MoreManThanNatureKnowsWhatToDoWith
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10. hey ma! 🎎#wcw 💙
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11. Surprise visit to our factories!!! #GoodAmerican #USA
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13. Peachy Keen 🔥✨⚡️
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14. If this don't look thankful I don't know what does. Happy Thanksgiving to you and yours. #UltraBlessed #24kMagic #SweetPotatoFly
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15. Late nights @nbcmarlon with the writers... we in here!!!
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16. There goes my baaaaaaaaabbbbyyyyy #QueenKingMagic!!! We're up to something! Ira BIG!!! Stay out our buisness -
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17. You want to win every game you play but when you come home to these faces... who cares. #ILoveYouGirls best part of my day, everyday!
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18. Steady,steady..... full size jenga.. "I got this one "???? Or do I ?
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19. Cornrows kind of day 😉@dontaysavoy2 you convinced me and I love. ❤️️
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20. #BrotherlyLove #tbt
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22. #basel #TeamLOVE @kingcombs
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23. Just introduced a special screening of @directher 's groundbreaking (must see) documentary @13thfilm with my brother @themichaelealy | @unitedblackout #blackoutblackfriday
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24. Me & Vanessa Williams giving #DuckLips #Pose on the set of #DaytimeDivas @vh1 - Coming Soon to a tv near you. Lol. - My make up done by @makeupsurgeon
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25. This picture just makes me wanna praise the Lord, you hear me!!!!!! Yes Lord brotha #TEDDYCAMPBELL What a #man !!! You are everything right on this picture husband ......... #gorgeous #stylish #classy #strong #masculine #king #sexy #debonair #gentlemenstyle And that #bible in your hand just seals the deal for me (probably cause i know that, that is what helped you become just as amazing as you look😘). While my heart and mind experiences the goodness of God at #church on Sundays, my eyes experiences the goodness of Teddy😍. Amen somebody🙌🏽. "Bless the Lord oh my soul and all that is within me bless his holy name" #myman #myhusband #goodman #blackman #dapperman #godlyman #goodfather #mybestfriend
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26. Yesterday was my mama's 53rd birthday!!!!! Got to celebrate with her all day. If this is what I have to look forward to I can't wait. Looking like a soft bucket a cocoa butter. Yaaaaaaaaaas! 😍😍😍 love you mommy!
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27. "Shout out to @PureAtlanta for getting the family right"....I'm loving this jogger. 😍😍
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28. This pic warms my heart ❤️ #myLogiebeans and aunt aunt umba @itowandabraxton 😘
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29. You will always be my baby😜. #HappyBirthdayReginae #mybaby18
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30. GC "Gods Child" Red on Red SweatSuit available now at www.MonicaApparel.com ... Take Your Crown wherever you go!! I'm pictured in a Medium... Go to the site now for other options ... cc: @trukernell
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