The net worth of a typical family headed by someone born in the 1980s was 34% below what was expected, according to a new Federal Reserve Bank of St. Louis study titled "A Lost Generation?"
What's worse, the typical 1980s family lost ground between 2010 and 2016, after the recession ended. These folks, who were in their late 20s and early to mid 30s in 2016, were the only age group to do so out of the six cohorts studied.
"This represents a missed opportunity because asset appreciation is unlikely to be as rapid in the near future as it was during the recent period," said the report, which was based on the Federal Reserve's 2016 Survey of Consumer Finances.
Those born in the 1980s were not the only group to fare worse than expected. Americans born in the 1960s and 1970s accumulated 11% and 18% less wealth respectively in 2016 than predicted. This is worrying, but these cohorts -- who are now generally in their 40s and 50s -- had narrowed the gaps considerably since 2010.
Meanwhile, older generations were worth somewhat more than expected, with those born in the 1930s doing the best at 17% above the predicted value.
"The Great Recession and its aftermath significantly widened the wealth gap between young and old," the study said.
The lower wealth levels were not due to shortfalls in income. In fact, those born after 1960 are earning roughly what was expected.
Instead, the problem is more likely a result of debt and homeownership. Families headed by someone born in the 1960s and 1970s were more likely to own homes than expected prior to the Great Recession. But their homeownership rates fell significantly below predicted levels by 2016. Still, as the housing market recovered in recent years, those that did own property were able to recover some of their wealth.
The 1980s kids, however, were generally too young to own homes prior to the Great Recession. Even by 2016, fewer than 45% had bought homes, below what was expected.
But they are still heavily in debt, which increases their financial fragility. Even worse, the main types of debt they owe are student loans, auto loans and credit card debt. Unlike mortgages, these do not finance an appreciating asset, such as real estate, which is one reason these families failed to boost their wealth in the last few years.
Millennials born in the 1980s face a "formidable challenge" in restoring their net worth. This could have long-lasting consequences, the report found.
"The fact that many families suffered large wealth setbacks during their prime earning and wealth-accumulation years raises the question of whether they will be able to rebuild their wealth to meet major saving goals, including for a home purchase, college tuition for their children and retirement," it said.
On the bright side,1980s kids have two things going for them. They have a lot of time to get back on track and they are the most educated generation, with the highest earning potential.
"It is possible that the income and wealth trajectories of this generation will be steeper than those of earlier generations, allowing many families to achieve their wealth goals in the end," the study said.