The luckiest generation

Members of the Silent Generation have weathered economic storms, notably the Great Recession, better than most, in no small part because they had more savings, less debt, and less of their net worth tied up in their homes. That may be because they are smarter and thriftier than we are (I am open to that possibility). It may also be because it was easier for them to save, to forgo debt, and to pay down their mortgages. Part of that is lucky timing: If you were 70 when the housing meltdown happened, there’s a good chance that your house was paid for and any losses you experienced were on-paper abstractions; if you were 30, chances are that the tanking value of your house was complicated by the fact that it was a leveraged asset. (Regardless of age, an important variable is whether you were dumb, e.g., if you took out a nothing-down variable-rate interest-only mortgage on a house you could not possibly afford because you believed that a house was a magical asset, the price of which moves only in one direction.)

In theory, older households should do worse during a severe economic downturn because asset prices are pro-cyclical, meaning that they rise when the economy is strong and decline when it is weak. But the authors of the St. Louis Fed paper found the opposite: “A key differentiating factor between young and old families is the overall strength and resilience of their income sources and balance sheets. Older families indeed were affected more severely when asset prices fell sharply, but many older families had diversified assets, low or no debt, sufficient liquid assets, and adequate net worth before the crisis in order to ride out what turned out to be a temporary downturn.”