How baby boomers got so rich, and why their kids are unlikely to catch up

Baby boomers hold more than $85 trillion in assets, making them the richest generation by far. New research explores the extraordinary rise in their good fortunes — one that experts say successive generations will be hard-pressed to replicate.

The reasons come down to timing and time: Americans 75 and older bought homes and invested in stocks well before such assets exploded in value, according to Edward Wolff, an economics professor at New York University. In a working paper for the National Bureau of Economic Research, he examined the four decades between 1983 and 2022 when those older boomers’ saw their wealth climb and their younger peers recorded relative declines.

“It’s astonishing how their relative wealth has taken off in the last 30 plus years,” Wolff said. “They started out as among the poorest groups in terms of wealth back in 1983.”

The wealth of baby boomers — especially those in retirement — is a reflection of the uniquely favorable economic conditions that occurred during their working lives, Wolff and other economists said. So much so that it would be difficult for younger generations to emulate, especially as they are more likely to be weighed down by debt or child care costs.

Housing costs also factor into the widening divide between baby boomers (born from 1946 to 1964), and everyone else, experts say. Generation X (1965 to 1980), millennials (1981 to 1996) and their successors increasingly dedicate a bigger portion of their budgets to mortgage or rent.

People might assume boomers’ wealth reflects superior financial decision-making, if they don’t consider the historical context that allowed boomers to build their wealth over decades, said Olivia Mitchell, professor of business economics and public policy at the University of Pennsylvania’s Wharton School.

What happened?

By contrast, younger generations endured the Great Recession — which ran from late 2007 to mid-2009 — early in their careers and more volatile capital markets afterward, she said.

And “particularly for middle-income workers, real wage gains since the 2000s have been modest, compared to the robust wage growth that boomers benefited from mid-career,” Mitchell said.

By age 30, the average millennial had about twice as much debt as their baby boomer counterpart, said Jeremy Ney, a professor at Columbia University’s business school.

Post-World War II, “you had this tremendous boom that many got to ride for a very long period of time,” Ney said. “And when you compare that to the bursting of the dot-com bubble, when you compare that to the 2008 housing crisis, when you compare that to the declines of COVID, it made it much more difficult for people to invest, accumulate wealth.”

Some older boomers benefited from having access to defined-benefit pension plans, many of which were phased out in the private sector in the 1980s as tax-advantaged 401(k)s became commonplace. The rise of such employer-sponsored retirement plans also drove up baby boomers’ stock holdings.

Baby boomers have accumulated $85.4 trillion in wealth through the second quarter, according to Federal Reserve data. That’s nearly twice as much as Gen X and four times more than millennials.

Younger generations are more likely to have debt, leaving less to save or invest, Ney said, citing student loans and child care costs that nearly doubled between the mid-1980s and 2011, according to the U.S. Census Bureau.

“In 1940 there was a 90 percent chance that you were going to earn more than your parents. To somebody born today, it is just a coin flip,” Ney said.

Millennials and Generation Z (those born between 1997 and 2012) also tend to be more risk-averse when it comes to investing in the stock market, compared with members of the Silent generation (1928 to 1945), boomers and Gen X that lived through better economies, Ney said.

“Gen Z does not buy the dip,” he said. “They are too nervous to engage in the stock market” when prices are low.

Many were better positioned to buy or refinance their homes during stretches with particularly low interest rates, including after the Great Recession and during the COVID-19 pandemic, said Annamaria Lusardi, academic director of Stanford University’s Initiative for Financial Decision-Making.

The nation’s median home price was $410,800 in the second quarter, compared with the $327,100 recorded just before the pandemic started in 2020, Federal Reserve data shows. Medians are significantly higher in the Northeast ($796,700) and the West ($531,100).

By comparison, the median home price in the first quarter of 1976 — when the oldest boomers were 30 — was $42,800, Fed data shows. That would be $242,400, adjusted for inflation.

While higher home valuations have bolstered the net worth of existing owners, Lusardi said, they’re outpacing the earnings of younger adults. Nor are they helped by current mortgage rates, which have hovered above 6 percent on a 30-year loan since September 2022.

About one-third of baby boomers’ wealth today is equity in their primary residence, Mitchell said, citing the 2023 survey. Boomers overall bought homes at younger ages than later cohorts and when prices were significantly lower, allowing them to benefit from decades of home appreciation.

“Even when you look at that same age, you tend to see much lower rates of homeownership, and therefore much lower rates of wealth accumulation,” Ney said.

Michael Walden, a professor emeritus of economics at North Carolina State University, said some of the divergence might be due to preference — such as younger adults preferring to rent rather than assume responsibility for home repairs, or to wait for a perfect home rather than settling for a starter home they might hold onto for a few years until they had enough equity to move up.