Wealth generation over time

Jeremy Horpedahl:

Looking at the exact same data (from the Fed Distributional Financial Accounts) from a different perspective gives us a much different picture of recent history. In this version, Gen X is now richer (30% richer!) than Boomers were at the same age (late 40s). Millennials don’t yet have a year of overlap with Boomers, but they are tracking Gen X almost exactly. There is no reason they won’t continue to track Gen X, and therefore exceed Boomers as well when they are in their late 40s (which will happen in about 2037 for Millennials).

My prediction is that by the time Millennials are in their late 40s, they will even surpass Gen X in wealth. Why? The reason is counterintuitive: student debt.

Huh? Isn’t student debt what is holding Millennials back? In some sense, yes. But in the long run, no. Right now, many Millennials (and some Gen Xers!) hold a lot of student debt. That goes on the liabilities side of the balance sheet. But there is no corresponding asset showing up the balance sheet, but there is an asset: their human capital! Over their lifetime, that human capital will give them even greater earning potential in later life. Much like Gen X basically tracked Boomers until their mid-40s, until their student loans were paid off, and their degrees (and graduate degrees!) really started to pay off in the labor market.