How Generation X Could Change the American Dream

  • by Erin Currier
  • January 26, 2018
  • Essay

Gen Xers are a bellwether for the nation—and the future isn’t looking good.

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The fact that Gen Xers’ stickiness is more pronounced, that the economic repercussions of an economically stable (or unstable) upbringing are more powerful for this generation than for groups that came before, should be seen as a wake-up call to Americans.

In the United States, many people have long believed that hard work and ambition determine economic success and that this country is exceptional at promoting opportunity from the bottom up. It is the essence of the American Dream—the idea that each subsequent generation will do better than the one that came before and that together a rising tide will lift all boats. But for many, the dream is fading. The Pew Research Center has found that just 37 percent of Americans believe children today will be financially better off than their parents, a lower share than in 21 other nations in a global survey. 

Americans may be right to be worried about today’s children, but we won’t know for several decades whether they exceed their parents’ financial standing. Economic mobility—the study of how people move up and down the economic ladder over time—is a backward-looking measure; we can only know whether people are better off than their parents or their peers once they’ve had enough time to go to school, build a career, and hopefully acquire wealth. So we get a much better sense of the future of the American Dream by looking at today’s adults, and in particular, that small and sometimes overlooked group known as Generation X.

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Born between 1965 and 1980, Gen X is a bellwether cohort to examine for evidence of generational progress. Now mostly in their 30s and 40s, many have completed their educations, established work histories, and started families. They have two decades in the labor market and are in their prime working years, resulting in a lot of good data on how they’re doing, not just financially but in terms of their economic mobility as well. What we know shows why so many people have concerns about the American Dream.

Sixty-five million Gen Xers are sandwiched between two much larger and louder cohorts: the 76.4 million baby boomers and the 83 million millennials. In many ways, the coming of age of Gen Xers has corresponded to a turning point in the American story. Consider just a few of the social and economic dynamics at work for Gen Xers. They are the first cohort to experience a labor market that practically demands postsecondary education for economic success (over a lifetime, the average college graduate earns $570,000 more than the average person with only a high school diploma), and they have responded with higher educational attainment. By age 33, 18 percent of Gen X men and 20 percent of Gen X women had earned a four-year degree, compared with 17 percent of men and 14 percent of women in the baby-boom generation. 

But along with the earnings gains, Gen Xers have also seen the cost of college soar. Since 1980, college tuition has far outpaced inflation and median income growth, and student debt among this group has grown exponentially. In 1977, when the youngest Gen Xers were in fourth grade, a third of students borrowed for college. By the time this generation was finishing school in 2000, 65 percent did.

Data Points

  • $43,000 About how much the typical Generation X household earns annually.

    This is a sizable increase from the $31,000 earned by their parents at the same age. In fact, three-quarters of Gen Xers have higher family incomes than their parents did.

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  • 56% of Generation Xers hold mortgage debt, the most of any generation.

    43 percent hold car loans (the most of any generation), and 26 percent have education loans (topped only by millennials, 41 percent of whom have student debt). These findings are from The Pew Charitable Trusts’ Survey of American Family Finances.

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  • 40% of Generation Xers who were raised at the bottom of the income ladder, and stayed there, are black.

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Gen Xers are also the first generation to experience nearly equitable labor force participation between women and men; about three-quarters of Gen X women were in the labor force in 2000, compared with a little more than half of similarly aged women who worked in 1975. (In the case of couples, that added earner has been critical for family financial security, because median wages for men have been nearly flat over the past two decades.)

And Gen Xers are much more racially diverse than groups that came before. In 1963, just 16 percent of 18- to 33-year-olds in the silent generation were nonwhite. By 1988, when Gen Xers were the same age, that percentage had more than doubled to 34. And millennials continue the trend, with 43 percent of that cohort Americans of color.

These social and economic trends suggest that the rules of the game have shifted dramatically for Gen Xers, and they provide an important backdrop for reviewing this generation’s success in achieving the American Dream.

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Gen X’s finances

There are a number of ways to assess the financial security of Gen Xers, but it’s easiest to start with how they stack up against their parents. Despite experiencing flat earnings for much of their careers, the typical Gen X household earns about $43,000 annually, a sizable increase from the $31,000 earned by their parents at the same age. In fact, three-quarters of Gen Xers have higher family incomes than their parents did, a bright spot in the financial picture for this group. More women working and adding a second earner to many families certainly helped this metric. These income totals are adjusted for inflation and family size, and since families have gotten smaller across the generation, Gen Xers’ extra income is also spread among fewer people. So on the basis of this metric alone, one could argue that Gen X is doing better than the generation that came before.

However, economic well-being includes more than just family income, and taking a more holistic view of Gen X finances reveals some vulnerabilities. Namely, Gen Xers haven’t been able to translate their extra income into wealth. Not including home equity, the typical Gen Xer has just over $13,000 in wealth (defined as total assets minus total debts), compared with the $18,000 held by a typical Gen Xer’s parents when they were the same ages. Just 36 percent of Gen Xers have higher family wealth than their parents did—a notable difference from their intergenerational income gains. But they are falling short by this measure in large part because, among those with debt, Gen Xers have six times more than their parents did. 

They are the first cohort to experience a labor market that practically demands postsecondary education for economic success …

In fact, right now Gen Xers have higher debt than pretty much everyone: In The Pew Charitable Trusts’ Survey of American Family Finances, 9 in 10 Gen Xers reported holding debt, the highest proportion of any group, including millennials. Fifty-six percent of Gen Xers hold mortgage debt (the most of any generation), 43 percent hold car loans (the most of any generation), and 26 percent have education loans (the most of any generation except millennials, 41 percent of whom have student debt).

To some degree, this is to be expected. Gen Xers are in their prime debt-acquiring years, buying houses and cars, and even though they’re well into their careers, some still have student loan debt. Debt is not inherently bad, especially if it’s leveraged for things that build income and wealth, such as college education and homeownership. And the presence of debt signals access to credit, a good indicator of financial security.

But the weight of Gen Xers’ debt, especially without higher assets to offset it, stands in contrast to the generations that came before, threatening this group's wealth acquisition in the short term and its retirement preparedness in the long term. 

In The Pew Charitable Trusts’ Survey of American Family Finances, 9 in 10 Gen Xers reported holding debt, the highest proportion of any group, including millennials.

The Great Recession didn’t help. Gen Xers were already behind previous cohorts before the economic downturn: In 2007, the typical Gen Xer had fewer financial assets—in the form of money held in savings accounts, 401(k)s, pensions, and individual retirement accounts—than baby boomers held at the same age. But the timing of the recession was particularly challenging for Gen Xers, many of whom purchased homes during the housing bubble. While all groups experienced wealth losses in the recession, Gen X took the hardest hit. From 2007 to 2010, Gen Xers lost nearly half of their wealth, an average of about $33,000. 

As a result, Gen Xers are not on track for a secure retirement. If current trends continue, they’re slated to replace just 50 percent of their working-age income through savings when retired. Most financial planners recommend that number be closer to 70 or 80 percent.

Taken together, these facts don’t paint a rosy picture. A holistic accounting of Gen X balance sheets suggests that, unless something changes, this generation may not, in fact, do better than the one that came before it. 

But what about another definition of the American Dream—the idea that anyone can pull himself or herself up by the bootstraps and that hard work and ambition are the keys to economic success? Looking at the typical Gen Xer obscures the diversity of experience across this generation, and if Gen Xers raised at the bottom of the economic ladder were significantly upwardly mobile, one could feel confident that despite shaky balance sheets the American Dream is just fine. Answering that question requires a deeper dive into the metrics of economic mobility—and specifically exploring which Gen Xers move up the economic ladder and how far. 

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A tale of two Gen Xs

Studies examining economic mobility in the nation as a whole have found notable “stickiness” at the top and bottom of the income ladder across generations: About 40 percent of those raised by low-income parents remain low-income themselves, and about 40 percent of those raised by high-income parents end up high income. 

For Gen X, this stickiness at the bottom is even more pronounced than for other generations: Half of Gen Xers raised at the bottom remain stuck there themselves, and nearly three-quarters never reach the middle. Similarly, 40 percent of those raised at the top remain there as adults, and more than two-thirds never fall to the middle. In fact, 7 in 10 Gen Xers at the top rung of the income ladder in their 30s were raised by parents who were also above the middle in their 30s. 

A whole host of things influence whether a person will end up in the bottom, middle, or top of the economic ladder as an adult. Family background clearly plays a sizable role, but so does educational attainment, family structure, and race—and all these are exemplified in the balance sheets of Gen Xers: College-educated, partnered, or white Gen Xers typically have higher income and wealth totals than do their counterparts who have less education, are single, or are black. Those with a college degree have $25,000 a year more in family income, $9,000 more in non-home-equity wealth, and $26,000 more in home equity than do their non-college-educated peers. Gen Xers who are part of a couple have $13,000 more income and three times the non-home-equity wealth and home equity of their single peers. And typical white Gen Xers have about $17,000 more in family income and hold over four times the non-home-equity wealth and home equity of typical black Gen Xers, underscoring powerful and persistent racial wealth gaps. 

But family background, education, and race aren’t just contributing factors to who enters the top of the income ladder within one cohort; these demographic characteristics fuel a cycle of immobility and growing inequality between the two ends of the economic spectrum, generation after generation. In fact, the space between the haves and have nots is so wide that Gen Xers raised in and stuck at the top of the income ladder have very little in common with those raised in and stuck at the bottom.

For instance, 83 percent of those raised in and currently at the top of the income ladder are in a couple, compared with just 44 percent of those raised in and stuck at the bottom. Of those at the top, nearly all of them—96 percent—also had parents who were in a couple, while far fewer (59 percent) of those stuck at the bottom did. Seven in 10 Gen Xers at the top have a college degree, and in 75 percent of cases, at least one of their parents does, too. In contrast, a mere 2 percent of their peers at the bottom are college-educated, and only 3 percent have at least one parent who is. Less than 1 percent of Gen Xers who were raised in and remain at the top of the income ladder are black, in large part because so few black children were raised there. In contrast, 4 in 10 Gen Xers raised in and stuck at the bottom are black.

Simply put, Gen Xers raised in the top come from financially comfortable, well-educated, and nearly always white parents and become financially comfortable and well-educated themselves, while Gen Xers raised in the bottom have the exact opposite family background, race, and economic outcome. This story is not significantly different from the mobility experience of other generations, which also see stickiness at the ends driven in part by these demographic characteristics. But the fact that Gen Xers’ stickiness is more pronounced, that the economic repercussions of an economically stable (or unstable) upbringing are more powerful for this generation than for groups that came before, should be seen as a wake-up call to Americans.

Now, family background is not destiny. Of those Gen Xers raised in the bottom fifth of the income distribution, 27 percent of them made it to the middle of the income ladder or higher as adults. Three percent made it to the top fifth. These are hardly impressive numbers, but they do show that people can overcome difficult economic circumstances to become both financially secure and even extremely wealthy.

Still, these data represent an existential threat to the notion of the American Dream, to the belief that America is indeed a land of opportunity for even the least financially secure. Broad, national data on economic mobility already challenged the often accepted notion of equality of opportunity in the United States, but the specifics of the Gen X experience are an exclamation point to those broader trends. 

These data also make answering the question “Is this generation better off than the one that came before?” a relatively complicated task. Looking at the educational attainment, income, and wealth of those raised in the top fifth (or even the top half) of the income distribution, the answer could be a resounding yes. There are examples of success stories that show people are making it. 

But looking at the education, income, and wealth of Gen Xers raised in the bottom fifth of the income distribution, the answer is just the opposite. This generation is not better off, and efforts to improve upward mobility from the bottom must grapple not just with income and education, but also with race.

These data on Gen Xers make clear that our current economy, built within an increasingly globally competitive world, will remain a classic tale of the haves and the have nots, unless there are changes in policy to ensure broader economic opportunity.

But there is no single solution to these concerns. Improving economic mobility—especially upward mobility from the bottom—requires a multifaceted approach that recognizes the systems of advantage and disadvantage at work within communities and institutions, as well as acknowledgment that the majority of those in need of help are families of color. The current lack of mobility from the bottom is a result of policy choices, so reversing these trends means a collective agreement to prioritize equity in general and racial equity in particular.

The lessons from Gen X are sobering and have implications for everyone. They are also a call to action for policymakers, community leaders, employers, and philanthropists to work together and find the concrete changes needed to create more equality of opportunity. Not to act on these data and find ways to alter these trends will forever change the American Dream for those generations still to come.

Trend Magazine Winter 2018