Emmons Little Rock Mar 6 2014

7/21/2019 Emmons Little Rock Mar 6 2014

1/52

March 6, 2014

William R. Emmons

Center for Household Financial Stability

Federal Reserve Bank of St. Louis

[email protected]

These comments do not necessarily represent the views of the Federal

Reserve Bank of St. Louis or the Federal Reserve System.

Generations X and Y:

Facing Economic and Financial Challengesin the Shadow of the Baby Boom

1

conLowdownL ittle R ock
mailto:[email protected]:[email protected]


2/52

2

Generations X and Y:Facing Economic and Financial Challenges

in the Shadow of the Baby Boom

Why generations matter for economic and financial

outcomes

Who are Generations X and Y?

Opportunities for Gen X and Gen Y

Labor markets: Youll benefit from scarce competition.

Asset markets: We need you to buy our houses and stocks.

Economic and financial challenges facing themembers of Gen X and Gen Y

Damage from the Great Recession

Can living standards keep rising?

Fiscal and environmental sustainability


3/52

3

Why Generations Matter for Economic

and Financial Outcomes

Think of generations as cohorts (groups) that move

through their lives side-by-sideyour peer group.

New generations affect overall supply and demand.

A large supply of workers may push down wages; a large

number of savers may push down interest rates.

A large demand for education, employment, housing, or

social insurance will affect political choices.

Each generation is unique, shaped by social,cultural, and political experiences.

Historical episodes affect attitudes and behaviors.

Each generation will have its turn in charge of the

economy and the political process.


4/52

4

Generations Since 1900

The Greatest Generation, born 1900-24

(included people who fought in WW II)

The Silent Generation, born 1925-45(Depression and WW II)

Baby Boomers, born 1946-64

Generation X, born 1965-80

Generation Y (also called Millennials

or Echo Boomers), born 1981-2000

The Post-Millennial Generation, born

after 2000

Currently

90-114 years old

69-89

50-68

34-49

14-33

Under 14

Big

winners

Big

losers

?

?

?


5/52

5

Generations Since 1900:

How Big?

Millions of

people

Source: Census Bureau

Projections


6/52

6

Millions of

people


Projections


How Big?


7/52

7

Millions of

people


Projections


How Big?


8/52

8

Millions of

people


Projections


How Big?


9/52

9

Millions of

people


Projections


How Big?


10/52

10

Millions of

people


Projections


How Big?


11/52

11

Generations Since 1900: Adjusting

for Different Generation Lengths

Millions of

people


Projections


12/52

12



Millions of

people


Projections


13/52

13



Millions of

people


Projections


14/52

14



Millions of

people


Projections


15/52

15



Millions of

people


Projections


16/52

16



Millions of

people


Projections


17/52

17

Generations Since 1900: Adjusting for

Different Generation Lengths and

Growing Overall Population


ProjectionsPercent o f

overall

population


18/52

18






overall

population


19/52

19






overall

population


20/52

20






overall

population


21/52

21






overall

population


22/52

22






overall

population


23/52

23

Life-Cycle Stages: Which Generation

Had the Largest School-Age Population?


Percent o f

overall

population

Age of the f irst year s members of the generat ion

First year of

cohort: 1900


24/52

24




Percent o f

overall

populationFirst year of

cohort: 1900

1925



25/52

25




Percent o f

overall


cohort: 1900

1925

1946



26/52

26




Percent o f

overall


cohort: 1900

1925

1946

1965



27/52

27




Percent o f

overall


cohort: 1900

1925

1946

1965

1981



28/52

28




Percent o f

overall


cohort: 1900

1925

1946

1965

1981

2001



29/52

29

Life-Cycle Stages: Which Generation Had

the Largest Working-Age Population?


Percent o f

overall

population



30/52

30

Generations X and Y and Post-

Millennials Will Be in Scarce Supply


Percent o f

overall

population



31/52

31

Supply and Demand in the

Labor Market

Price =

wage rate

Quantity =

hours worked

Supply of workers

Demand for workers

W

H


32/52

32

Silent Generation Was Very Small,

Baby Boom Was Very Large

[-----Silent-----]

[Baby Boom]

[--Gen X--]

[----Gen Y----]


33/52

33

Silent Generation Was A Small Group

=> Higher Wages

Price =

wage rate

Quantity =

hours worked

Supply of workers

Demand for workers

W

H


34/52

34

Baby Boomers Were A Large Group

=> Lower Wages

Price =

wage rate

Quantity =

hours worked

Supply of workers

Demand for workers

W

H


35/52

35

Members of the Silent Generation Received

Highest Incomes, Controlling for Edcn. etc.

[----------Greatest---------][---------Silent---------][---Baby Boom--][------Gen X----][-----Gen Y-----]

Source: W. Emmons and B. Noeth, The Economic

and Financial Status of Older Adults, 2013.


36/52

36

[--------Greatest-------][--------Silent-------][--Baby Boom--][----Gen X----][-----Gen Y-----]

Source: W. Emmons and B. Noeth, The Economic

and Financial Status of Older Adults, 2013.

Members of the Silent Generation Are

Wealthiest, Controlling for Edcn. etc.


37/52

37

Life-Cycle Stages: Which Generation Had

the Largest Retirement-Age Population?


Percent o f

overall

population



38/52

38

Supply and Demand in the

Market for Retirement Assets

Quantity =

financial assets

Supply of retirement assets

Demand for retirement assets

V

A

Price = stock and

bond valuation

(inverse of

expected return)


39/52

39

Baby Boomers Save for Retirement

=> Expected Returns Decline

Price = stock and

bond valuation

(inverse of

expected return)

Quantity =

financial assets



V

A


40/52

40

Baby Boomers Sell Assets =>

Valuations Decline

Price = stock and

bond valuation

(inverse of

expected return)

Quantity =

financial assets



V

A


41/52

Cyclically Adjusted S&P Price-to-Earnings Ratio

Stock price divided by 10-year moving average of real earnings per share

2010009080706050403020Source: Robert Shiller /Haver Analytics

50

40

30

20

10

0

50

40

30

20

10

0 41

Baby Boomers Saved While Stocks Were

Expensive; Retiring With Lower Valuation

Greatest

Generation

saving

Silent

Generation

saving

Greatest

Generation

retiring

Silent

Generation

retiring

Baby

Boomerssaving

Baby

Boomers

retiring

Gen X

saving

P/E ratio

Quarterly through Q4.2013


42/52

Real 10-Year Treasury Yield

Percent

201510050095908580757065605550Source: Haver Analytics

10

8

6

4

2

0

-2

-4

10

8

6

4

2

0

-2

-4 42

High Real Interest Rates Helped Silent

Generation Save for Retirement

Quarterly through Q4.2013

Percent

Greatest

Generation

saving

SilentGeneration

saving

Greatest

Generation

retiring

Silent

Generation

retiring

Baby

Boomers

saving

Baby

Boomers

retiring

Gen X

saving


43/52

43

Slow Growth of Prime-Age Homeowners

Will Dampen Housing Market for Years

MillionsAnnual change in

number of housing units

Annual change in

number of households

aged 35-64

Projections

Baby Boomers

retiring and

selling houses

Gen Y becoming

homeowners

Gen X becoming

homeowners


44/52

44

Economic and Financial Challenges Facing

Members of Generations X and Y

Damage from the housing crash and Great

Recessionespecially for Gen X.

Can economic growth and rising livingstandards continue at earlier rates?

Long-term sustainability of current policies

Environmental

Fiscal


45/52

45

Average Wealth of Young Families Plunged

During Recession; Recovering Slowly

Sources: Fed. Res. Board and Fed. Res. Bank of St. Louis; Means: Triennial through 2013; medians: through 2010

Index

levels

equal 100

in 1989

Baby

Boomers

Gen X

Silent Generation


46/52

46

Homeownership Rates Are Plunging

Among the Non-Elderly

Source: Census Bureau Annual through 2013

Percent

Baby

Boomers

Gen X

Silent Generation

Gen Y

Th W kf Will G Sl l


47/52

47

The Workforce Will Grow Slowly,

Reducing GDP Growth Potential

Source: Census Bureau Annual through 2013

Percent

Baby Boomers

entering labor force

Projections

Baby Boomers

leaving labor force


48/52

48

The Fiscal Deck Is Stacked Against

Gen X and Especially Gen Y

Year of

birth Generation

Average per-capita lifetime net benefit from

federal benefits received minus taxes paid

1923 Greatest $105,900

1933 Silent $191,100

1943 Silent $279,300

1953 Baby Boom $222,700

1963 Baby Boom $54,200

1973 Gen X -$75,250

1983 Gen Y -$160,1501993 Gen Y -$183,400

2003 Post-Millennial -$135,100

2013 Post-Millennial -$86,900

Source: Jagadeesh Gokhale, Fiscal and Generational Imbalances and Generational Accounts:

A 2012 Update, Cato Institute working paper, November, 2012, Table 3.


49/52

49

The Cost of Doing Nothing

About the Environment

Without action, the overall costs of climate change

will be equivalent to losing at least 5% of global

gross domestic product (GDP) each year, now and

forever.

Including a wider range of risks and impacts could

increase this to 20% of GDP or more, also

indefinitely.

Source: The Stern Review of the Economics of

Climate Change, 2006

(www.webcitation.org/5nCeyEYJr)

Generations X and Y:


50/52

50

Generations X and Y:Facing Economic and Financial Challenges

in the Shadow of the Baby Boom

The Baby-Boom generation suffered from its large

size, but has passed some of the adjustment costs to

future generations.

Housing-market adjustments

Fiscal- and environmental-sustainability challenges

Generation X suffered most from the housing crash.

Gen X and especially Gen Y are big fiscal losers.

Generations X, Y, and the Post-Millennials (in that

order) are likely to benefit in labor and asset markets

from their smaller size.


51/52

51

Center for Household Financial Stability

A research and policy initiative of the Federal

Reserve Bank of St. Louis: www.stlouisfed.org/hfs.

Some of our specific research questions:

Which families suffered the most during the financial

crisis?

Why are only some families recovering from the crisis?

What household balance-sheet characteristics are

associated with financial instability?
http://www.stlouisfed.org/hfshttp://www.stlouisfed.org/hfs


52/52

52

To Learn More About the Financial

Outlook for Young American Families

Upcoming public events:

May 8-9, 2014: 2ndAnnual Household Financial Stability

Research Symposium, at the St. Louis Fed.

o Topic: The Balance Sheets of Younger AmericansIs the

American Dream at Risk?

o Sessions on student loans, homeownership, economic mobility,

economic impacts of young families, and more.

October 16-17, 2014: Policy Symposium in Washington DC.

o Topic: The Financial Stability of Younger Americans.

o In partnership with theNew America Foundation and the

Young Invincibles (an advocacy group for young Americans).

Find our research, public presentations, and media
http://www.stlouisfed.org/hfs

Documents

Emmons Little Rock Mar 6 2014