Why is Generation X Going Broke?

Why is Generation X Going BrokeGen X is perhaps more diverse than any other generation when it comes to race, ethnicity and culture. They are earning money, spending it, and have become growing, important consumers to marketers worldwide. So why is Generation X – those 65 million kids born between 1964 and 1980 – going broke?

A report by the Pew Charitable Trusts entitled, “Retirement Security Across Generations: Are Americans Prepared for Their Golden Years?” examines the savings behavior of five age groups before the Great Recession. The research also explores how wealth losses during the recession affected each group’s retirement security by calculating replacement rates, or how much annual pre-retirement income households will have available to spend after retirement.

The research takes a comprehensive look at the net worth (assets minus debts), financial net worth (financial assets, alone), and home equity of five generations: Depression babies, war babies, early boomers, late boomers and Gen Xers. This research shows the youngest generation – the Gen X – not only have higher levels of debt compared to assets, but also, in the years before the Great Recession, did not get the financial benefit of either the dot-com boom or the housing bubble, which greatly boosted the assets and security of early boomers before 2007. In fact, Gen X lost about 45 percent of its wealth during the Great Recession. The net worth Gen X had plummeted from an average of $75,000 in 2007 to just $42,000 in 2010.

“Late boomers and Generation Xers lost significant amounts of wealth during the Great Recession, eroding their already low levels of assets,” said Erin Currier, who directs Pew’s economic mobility project.

As for retirement, Gen Xers are said to be the least financially secure and the most likely to experience downward mobility in retirement. According to a 2012 Insured Retirement Institute report, only a third of Gen Xers are “very confident” about having enough money to live comfortably during retirement, cover their medical expenses, and send their kids to college.

Just 41 percent have figured out how much they’ll need to save for retirement. Among those who have saved, half have amassed less than $100,000. The IRI study also noted during the recession, 15% of Xers made early withdrawals from their 401k plans, 23% stopped contributing to their retirement accounts, and 22% stopped contributing to college savings plans.

Here are some conclusions of the Pew report regarding why Gen X is going broke:

  • The picture of wealth accumulation and savings for Americans born after 1955 was more mixed. Gen Xers had higher net worth than late boomers (born between 1956 and 1965) when both were in their 30s and 40s, but neither group had as much wealth as early boomers had at the same age. Similarly, late boomers had more wealth than early boomers when both were in their 40s and 50s, but neither had as much as did war babies. The financial net worth of younger cohorts is more tenuous. Gen Xers are not on track to exceed the financial position of the cohorts who immediately preceded them. In their 30s and 40s, Gen Xers lagged behind late boomers by about $6,000 by this metric.
  • Gen Xers have significantly lower asset-to-debt ratios than do the older groups. Over the last two decades, Depression and war babies have been shedding debt, while Gen Xers have been accumulating it. As of 2010, war babies’ asset levels were 27 times higher than their debts. In contrast, Gen Xers’ assets were about double their debts.
  • All groups experienced wealth losses in the Great Recession, but Gen Xers took the hardest hit. Both early and late boomers were negatively affected by the recession at a critical point in their lives, losing 28 and 25 percent of their median net worth, respectively. From 2007 to 2010, however, Gen Xers lost nearly half (45 percent) of their wealth totals, an average of about $33,000, reducing their already low levels.
  • Replacement rate analysis shows the youngest cohorts will not have enough assets for a secure retirement. Gen Xers may need to downgrade their lifestyles in retirement. Most financial planning professionals recommend individuals amass enough retirement savings to replace between 70 percent and 100 percent of their current income, but Gen X is on track to replace about 50 percent. Early boomers may be the last cohort on track to retire with enough savings and assets to maintain their financial security through their golden years.

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