Clear of the Nadir

Generations generally want the next to inherit a world and life better than they received.  Some worry that this stopped with the Baby Boomers.  While either side of the debate can likely be made, today we’ll look at some research from the American Enterprise Institute (AEI) which could push against the notion that the Boomers had it best in economic terms. 

Rate of change could be a point of confusion when thinking about passing the baton from one cohort to the next.  For instance, this article authored by Kevin Corinth of AEI and Jeff Larimore of the Federal Reserve Board suggests that the past four generations have all had it better than their predecessors but defining the amount “better” is the issue.  The researchers used an inflation-adjusted, after-tax and post-transfer income measure, so it accounts for cost-of-living differences and includes take-home pay as well as social benefits from the government during ages 36-40.

Millennials are the latest group to enter into the age bracket analyzed.  This cohort is 18 percent better off than their Generation X counterparts.  While this is a slower improvement compared to the Silent Generation which was 34 percent better than the Greatest Generation nor as good as the Baby Boomers who were 27 percent better off than their parents, it improved upon the 16 percent increase Generation X experienced. 

It is early, but the data thus far looks promising for the newest generation in the workforce: Gen Z.  According to this article from the Economist, hourly wages for those aged 16-24 is up 13.0 percent year-over-year, outpacing the 6.0 percent average for those in the 25-54 age range.  When Boomers were 25, their annual household income was less half that of similarly aged members of Gen Z (adjusted for inflation of course).  There are also indications that Gen Z works fewer hours than Millennials did at 25, and that they spend slightly less on housing and education (including interest) than those immediately before them.

The rate of change seems to have bottomed with Generation X.  Young adults today are better off financially at an early stage in life, so it is not wild to think this could bring about future prosperity as they mature and earn (and spend) even more.  There is a lot of gloom in the media these days, but it looks like the slowest generational rate of change is in the rearview mirror, offering some cause for optimism.