Older Americans: rich or poor?

American Demographics, August, 1991 by Charles F. Longino, Jr., William H. Crown

SUMMARY

A look at the net worth of households with older Americans reveals profound diversity in their financial abilities and sources of wealth. Targeting all Americans aged 65 and older with one message means falling into an inevitable trap. Any single image of aging we reach only one of older adults.

Ten years ago, few businesses made special efforts to reach older Americans. Business leaders around the country believed in the myth that all elderly people are poor. But now, after a decade of media hype, many businesses are acting as if all older Americans are rich.

The "mature market" is now so ill-defined that it is vulnerable to serf-serving research. Special-interest groups in Washington claim that millions of older adults could be thrown into poverty by cuts in Social Security. Meanwhile, cruise-ship companies, automobile manufacturers, and land developers present images of energetic, attractive, silver-haired couples who have money to burn.

Both of these advertisements are accurate depictions of some older Americans. The special-interest groups are talking about the poorest 20 percent of households containing the elderly. These households have an average net worth of about $3,400. Luxury cruise lines are interested in the richest 20 percent, who are worth almost 90 times as much.

Some of the confusion over the economic condition of older Americans stems from the unique ways in which they use and store money. The median income of the average American household peaks between the ages of 45 and 54. The incomes of householders aged 65 and older are two-fifths as high, on average. This would seem to indicate that older Americans are significantly less affluent than younger Americans.

Yet lower incomes don't necessarily mean less spending power. Although the median income of households headed by people aged 65 and older is only about 40 percent that of households headed by 45-to-54-year-olds, the older group's discretionary income per household is 60 percent that of the younger group, according to the research firm Find/SVP. The older group also has a much smaller average household size, so their per capita discretionary income is actually higher than it is among the younger group.

A LOOK AT NET WORTH

Rather than focusing on income, we chose another measure of the financial condition of older Americans: net worth, or the market value of all assets minus all debts. We chose wealth, rather than income, as the primary segmenting factor because assets conceal purchasing power not revealed by income alone. Older adults can finance major purchases by cashing in on stocks, real estate, or other assets. Looking at these hidden resources gives you a more realistic picture of the potential market. It also reveals incredible diversity in the financial conditions of the elderly.

A good estimate of household net worth is available from the Census Bureau's Survey of Income and Program Participation (SIPP). The SIPP survey is designed specifically to increase the accuracy of economic data and to learn about the public's participation in government programs. In 1988, it found that median net worth rises from about $6,000 for householders younger than age 35 to $33,200 for those aged 35 to 44, $57,500 for those aged 45 to 54, and just over $80,000 for householders aged 55 to 64. It is highest for householders aged 65 to 69 ($83,500), drops slightly for those aged 70 to 74 ($82,100), and drops substantially among householders aged 75 and older ($61,500).

Looking at net worth gives you a very different picture of affluence. It shows, for example, that the oldest householders control more wealth than do householders in the highest-income age group. Moreover, comparing the 1988 survey with identical data from 1984 reveals that the share of wealth controlled by working-age Americans is eroding, while the share controlled by elderly Americans is increasing.

Between 1984 and 1988, the net worth of the average household headed by someone aged 34 or younger decreased by 5 percent (in constant 1988 dollars). Net worth for householders aged 35 to 44 decreased by fully 18 percent, that of house holders aged 45 to 54 decreased by 11 percent, and that of householders aged 55 to 64 decreased by 4 percent. Yet the net worth of the average household headed by a newly retired person (65 to 69 years of age) increased by 10 percent. The net worth of the average 70-to-74-year-old householder increased by fully 20 percent. And the net worth of the eldest householders (aged 75 and older) decreased, but only by 2 percent.

This analysis indicates that elderly Americans control a substantial and increasing portion of the nation's wealth. Three factors were working in their favor between 1984 and 1988. The share of households headed by an elderly adult was increasing, thereby increasing the aggregate wealth of older Americans. Also, the stock market boom of the mid 1980s benefited affluent elderly householders who control a large portion of individual stock holdings. Finally, a rapid escalation in home values in many markets boosted the net worth of most elderly householders, because most older Americans own their homes.