The Center for Social Development at Washington University in St. Louis built on an already engaged and productive relationship this month when it co-sponsored a symposium with the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.
“The Balance Sheets of Younger Americans: Is the American Dream at Risk?” covered a number of topics on household finances, focusing specifically on the young adult age group.
There was discussion about the American Dream and what it means to different generations. This theme was set at the beginning with a keynote address from Neil Howe, founding partner and president of LifeCourse Associates, who said, “Each generation reimagines the American Dream based on its own vision.”
Generation X, which Howe defined as those born between 1961 and 1981, is the generation currently struggling most with the “Dream.” Gen Xers have faced the largest decline in homeownership and are the most likely to be underwater on homes they still own. They have also seen the steepest decline in employment rates.
“How to get this generation back on track economically is one of the biggest challenges we face,” Howe says.
It’s a depressing thought, yes, but one that is providing the foundation for an entire body of work in socioeconomic research. All panelists during the sessions that followed Howe’s keynote touched on this topic in some way, discussing student loans, young adults’ balance sheets, homeownership, and economic mobility.
Steve Fazzari, professor of economics at Washington University in St. Louis, pointed to higher unemployment and slower wage growth – compared with those of previous generations – as the two largest economic challenges young adults face. Fazzari served as discussant for the panel on “A Micro and Macro Look at Younger Americans’ Balance Sheets.”
On the same panel, William Emmons of the Federal Reserve Bank of St. Louis said young adults may have harmed themselves and the economy when they were given more financial freedom. “Researchers and policymakers should focus on repairing the damage,” Emmons said. “The young really are different. We continue to ignore this fact in research and policy, and it has the potential to have long-lasting effects.”
Diana Elliott of Pew Charitable Trusts has conducted research with the goal of understanding the balance sheets and economic mobility of Gen Xers in relation to their parents at the same age. By and large, she said, the younger generation has exceeded their parents in income, but wealth has fallen short. This has greatly affected their economic mobility. Fifty percent of those born into the bottom economic quintile are still there as adults. Additionally, nearly three-quarters of the bottom group never make it to the middle. “They’re stuck,” she says.
Multiple presenters noted that Millennials – those born in the 1980s through early 2000s – are largely postponing milestones like buying a house and getting married, and many live with their parents well into their 20s or even later. Therefore, they have not faced as much loan delinquency, foreclosure or financial hardship as the generation ahead of them. But why are they delaying the asset building that comes along with homeownership and other investments?
Meta Brown of the Federal Reserve Bank of New York and Melinda Lewis of the Assets and Education Initiative at the University of Kansas cite the ever-increasing burden of student loans as one prominent reason. Student borrowing has escalated since the early 2000s, causing young student borrowers to retreat from the housing market and sometimes move in with their parents, Brown says.
Lewis agrees: “High debt loads threaten household balance sheets by constraining asset accumulation.”
Center for Social Development Director Michael Sherraden, Policy Director Margaret Clancy and Faculty Associates Youngmi Kim and Jin Huang made a case for Child Development Accounts (CDAs), using evidence from SEED for Oklahoma Kids (SEED OK), a statewide social experiment. Findings from SEED OK indicate that CDAs not only provide a savings opportunity for college, but they also have a positive impact on mothers’ educational expectations for their young children.
Another CSD team – Associate Director Michal Grinstein-Weiss and Senior Research Analyst Blair Russell – participated in a panel on homeownership. Russell notes that 95 percent of young people still believe homeownership embodies the American Dream. At the same time, however, homeownership among adults has decreased from 50 percent in 2005 to 42 percent in 2013.
The research team conducted a study in which more than 40,000 young adults who purchased a home saw more asset growth than similar young renters.
The distinction between micro and macroeconomics came up multiple times throughout the symposium. One question during the economic mobility session was whether younger generations are struggling because of a difference in behavior or a difference in the macro environment in which they live. Sherraden and Ray Boshara of the Federal Reserve Bank of St. Louis also addressed the distinction during their wrap-up remarks.
“Economic life is about more than income and consumption,” Sherraden says. “Paying attention to outcomes of balance sheets in people’s lives is an underdeveloped area of study. This symposium is a step toward greater understanding of this topic.”
Missouri State Treasurer Clint Zweifel and City of St. Louis Treasurer Tishuara Jones both look to programs and policies starting early in life in an effort to create change. Zweifel spoke of the importance of financial literacy classes – “getting young people thinking and talking about the process” – as well as the Missouri MOST 529 CDA plan. Jones said, “Children’s savings accounts give families hope.” She plans to launch a children’s savings program in the city of St. Louis.
“The work we’re doing, and the research that’s being provided, has the opportunity to change lives,” Zweifel says.