Not Just Jobs

In "Elders Leading the Charge, Frugality-Wise," I highlighted a post by the Atlantic Business Channel indicating that the older generation is slashing spending at a higher rate percentagewise than younger Americans in response to deteriorating economic conditions.

That said, if one looks at the job losses that different demographic segments have experienced (as illustrated by the following graph), one might have thought that the opposite was true.

As it happens, a post at the BillShrink blog, "The Impact of the Recession on Different Age Groups," notes other factors that may carry more weight in terms of their impact on spending behavior than the near-term employment situation, including the (negative) wealth effect, age-related medical concerns, the demographic make-up of sectors that have been affected most by the downturn (e.g., the automotive industry), and the time remaining until or elapsed since retirement:

These days, the words “the recession” call to mind ubiquitous images of  anxiety, hardship and worry. Bemoaned daily by our leaders and cultural spokesmen, the recession has become almost an abstraction, synonymous with generalized dread rather than specific problems experienced by specific groups of people. However, recent surveys show that not everyone is being affected equally or even in the same ways. Today we will summarize some of these findings in order to pinpoint recessionary pressures on particular age groups.

Teenagers aged 16-19

Citing an impressive collection of research and statistics, the blog Political Calculations claims that the recession has “outgrown” teenagers aged 16-19. While this age group bore the brunt of job losses from July 2006 to July 2008, Political Calculations demonstrates that the bulk of job losses since October 2008 have been among adults 25 or older, remarking furthermore on the “apparent stabilization of the net disappearance of jobs held by teens and young adults.” Unfortunately, the authors predict that job losses for this age group will resume with the passing of new, higher minimum wage laws in July of 2009, as these and our next age group are “disproportionately employed at these wage levels.”

Young adults aged 20-24

The same Political Calculations research illustrates a similar trend among young adults aged 20-24. Despite a continuing net loss of jobs from October 2008 to January 2009, it is shown that this trend “unexpectedly declined in February 2009″ and has continued doing so ever since. While the authors again predict gloomy prospects for this group following the passage of a higher minimum wage, the good news is that automotive industry turmoil has relatively little effect on this or the previous age group. Attempting to explain the somewhat brighter job prospects of these two age groups compared to older individuals, the authors cite “their lack of exposure to the current employment fallout affecting the auto industry.”

Adults aged 18-29

According to recent survey research conducted by Pew Research Center’s Social & Demographic Trends project, adults 18-29 have been hit exceptionally hard in terms of the job market. With double digit unemployment in many states, the job market has taken a bigger hit during this recession than in recent decades. We have already seen that most job losses since October 2008 have come at the expense of those 25 and older. However, even those younger than 25 are at a disadvantage, as many of these people are attempting to start careers following college or even potentially get their first job. In early June, the New York Times wrote about how frightening the job outlook is for these individuals:

“The unemployment rate rose to 9.4 percent in May, the government says. That is bad enough, but we’ve seen worse.

What is more alarming is the long-term unemployment rate. The government says that 4.5 percent of the work force has been out of work for 15 weeks or more. The worst previously seen — at least since 1948, when the government began counting people that way — was 4.2 percent, in December 1982.”

On the bright side, Pew also notes that adults aged 18-29, with their long time horizons, “remain relatively upbeat about their financial future.” 72% of those surveyed also claim that they have not had trouble affording medical care for themselves or their family (perhaps because many are still covered by their parents or universities), and 69% deny losing money in retirement accounts such as 401(k)s, according to Cleveland.com.

Adults aged 25-44

While job losses have mounted for this age group, some researchers foresee plenty of time to recover. For instance:

The head of macroeconomics at PriceWaterhouseCooper, John Hawksworth says, “While no age group is fully immune from the adverse effects of the downturn, our analysis suggests that people in their mid-20s to late-40s will on average have relatively better financial prospects through the recession than younger or older generations.”

Adults at the older end of this threshold are still 10 years away from the well-known employer bias against hiring workers 45 and older, while those on the younger end have even more prime working years left when the economy improves. It is worth noting however that the recession has caused this age group to change its behavior markedly. Pew reports that “fully 60% of younger and middle-aged adults” claim to be doing more of their shopping at discount stores. This is compared to a much lower percentage of adults 65 and over who report discount shopping, as will be explored later.

Adults aged 45-60

The British website TheMoneyStop cites research from PriceWaterhouseCoopers claiming that adults aged 45-60 have been hit hardest. As noted earlier, these are adults nearing the twilight of their earning years and beginning to think about retirement. Elaborating on this point, TheMoneyStop notes

“Those aged 45 to 60 generally have a lot more money invested in pensions and retirement funds than younger people and therefore have a lot more to lose. Since they are coming to the end of their working life, they do not have a lot of time left in which they can wait for the values to start to recuperate and climb back up to the usual levels.”

Also troubling for this age group is the fallout from the housing bust. The same 45-60 year old adults who have been diligently building their retirement nest eggs have also been building equity in their homes - many of which have plummeted in value since 2008. As so many financial experts remind us, a home is the only appreciating asset most of us will ever own. Homeowners whose equity has taken a hit - particularly the older homeowners in this age group - must now hope for home values to rise so that they can cash out when the time comes. Another painful reality for this age group is that one of the few positives of the fallout - lower mortgage rates - are not especially helpful to those who have ten to twenty years or more already invested into one home.

Well-prepared individuals notwithstanding, the near future looks bleak indeed for adults aged 45-60.

Adults aged 50-64

Of the 2,969 adults interviewed during Pew’s nationally representative phone survey, adults aged 50-64 report still more pain relating to stock market and pension losses. More specifically:

“Two-thirds of adults ages 50-64 say they lost money in the past year in mutual funds, individual stocks or 401(k)-type retirement accounts. Of those who report such losses, two-in-ten say they lost more than 40% of their investments’ value and nearly four-in-ten say they lost 20% to 40%.”

Adults in the 50-64 age group are uniquely exposed to this risk in a way that much younger and much older adults are not. Younger adults in the 18-35 range, for example, either had far less money invested in stocks or abundant time in which to recoup their losses. On the other hand, adults 65 and over (as we will see shortly) have generally cashed out of their stock portfolios or transferred their money into more conservative vehicles like bonds before the recession hit. Unfortunately, those 50-64 are generally not ready to retire and as such, a disproportionate amount of their wealth remained in stocks to be eaten up by the crash. It remains to be seen how the market fares in the precious few years these adults have before age 65.

Adults aged 65+

Most research on recessionary impact on age groups concurs that adults 65 and over have suffered the least. Pew states that this age group has “escaped the full fury” of the recession by virtue of already having retired and downsized their lifestyle. The website Global Economic Watch reports on what has been, for this age group, a “kinder and gentler recession.”

“They are less likely than younger and middle-aged adults to say that in the past year they have cut back on spending; suffered losses in their retirement accounts; or experienced trouble paying for housing or medical care. They’re more likely to report being very satisfied with their personal finances. And they’re less likely to say the recession has been a source of stress in their family.”

Simply put, adults 65 and older got out before the bomb went off. As a group, these adults possess enough of their wealth in liquid, spendable form (or in non-affected vehicles like annuities) to be relatively insulated from day to day stock price movements or fluctuations in unemployment. As is typically the case with recessions, those least affected are those at the opposite poles of the age spectrum - high school teens and college aged adults on one end, and retired senior citizens on the other.

Comments

[Roger Cramer]

If you are 55 to 65,are a manager, and make $90,000 to $200,000, your head is on the chopping block. I know several people in this group, out of work. Realistically, their working career is done. Involuntary retirement(they HATE that word) is the reality for them.

[roger]

Simply put, adults 65 and older got out before the bomb went off
this is true,but we have seen hard times in other words we have
payed our dues.There is more to life than a working career.
Retirement I love it. Career= servitude and a stifling of the mind.
Free time = expanding of the mind

[HSpencer]

This one time I am glad to be 65. Actually, I have been retired, so to speak, since I was 55. Home and things all paid for. Passive income keeps me well supplied, and some Money Market, IRA, CD, and other worthless bank devices that I actually dont count on much for growth. I feel sorry for lots of those who took the McMansion bait, especially those my own age who should have known better. I guess they thought they would die of an old and natural death before the bubble burst. If you were born in the 40's or even the 50's you should have better insights than what we see people have done the last ten years.

[survivalist]

What do we really expect? Ever since Georg Bush SR. was president, free trade has been put on the fast track. As its gotten easier for companies to pack up and move to china, until millions of jobs have been lost. Jobs that are not being replaced.

The younger Americans are being hit hard on the job market, because there is no job market - not like it was in the 1960s and 1970s anyway.

Decades ago people could leave high school, go to work at a steel mill and earn and honest wage. And now, the steel mills are gone and so are the wages.

[Snoop-Diggity-DANG-Dawg]

"Pew also notes that adults aged 18-29, with their long time horizons, “remain relatively upbeat about their financial future.”

Apparently ignorance is bliss for 20-somethings.

[jturner]

I agree with Snoop-Diggity-DANG-Dawg. I am 28, and used to be an investment banking analyst. I am now working in the treasury dept of a corporation making less than half what I made before, but still more than the large majority of people my age. Many of my friends have been laid off and have had trouble finding any type of white collar job, let alone a well paying one.

The fact of the matter is that the standard of living is too high in this country, and it will eventually come down. And making less money in nominal terms is not necessarily a bad thing, by the way. As a saver I am strongly in favor of deflation.

But our govt is so misguided in their attempts to help that they are creating further problems, and just trying to kick the can further down the road to get themselves re-elected. The Fed has proven that it is going to fight deflation at any cost. And one of the few ways for the average person to protect his wealth from the currency debasement that is occurring is to invest in gold related assets, which will continue to benefit from a weaker dollar. There are some articles at http://www.goldalert.com/ that further discuss this situation and the consequences of the govt's policies. Trying to fix a debt problem with more debt is moronic and very dangerous.