Since 1989 almost all the new wealth generated in the United States has gone to people 55 and older, according to Federal Reserve data, as reported by the USA Today.  In the meantime, people in their 20s, 30s and 40s have barely kept up with inflation, and some have actually fallen behind during this time period.  This age-wealth gap is wider than the gap in traditional class stratification.

The rich is getting richer, and the older generation is keeping a larger portion of the cumulative wealth in the United States.  Suzy Orman has written a book with financial advice for what she calls the Young, Fabulous and Broke.  This is a demographic segment that is loaded in debt from credit cards to school loans and is finding ever more difficult to catch up.

Young people today are facing much bigger financial challenges than the generations that came before them.  Let’s take a look at some of these challenges.  A higher education is increasingly becoming a must have for anyone looking to obtain a job that pays a good salary.  Yet, the cost of higher education has been on the rise for several years, growing much faster than the rate of inflation.  Consequently, many young people have to borrow significant sums in order to finance their education, and by the time they start their adult work lives they have already accumulated significant debt.

In addition to school debt, many young people have increased access to credit cards which also contribute to the total debt load.  At a young age, it takes a significant amount of discipline and maturity to control one’s spending, and many young people fall short of the financial discipline required to stay away from easily available credit.

One of the best ways for young people to build equity and accumulate wealth is through home ownership.  However, with the increase in home prices in recent years it is becoming ever more difficult for young people to even save enough money for a down payment or keep up with ever increasing mortgage payments.  As a result, home ownership is getting delayed and people are not taking advantage of this wealth accumulation tool until much later in life.

What the data from the Fed’s Survey of Consumer Finance shows is that inequality within age brackets has not changed much from 1989.  However, there is a significant increase in the gap between age groups.  For example, the most recent data from 2004 survey shows that people in ages 55-59 have a median net worth of $249,700, which represents a 97 percent increase in 15 years.  However, people in ages 35-39 have a median net worth of $48,940, a decrease of 28% in the same time period.  As baby boomers enter in to their 60’s, the wealth gap is likely to increase even more.

It is natural for older people to accumulate more wealth.  After the kids leave home most people are at their peak in income, have accumulated significant equity in their homes, have lower expenses and debt, and benefit the most from increases in the stock market due to the accumulated wealth in their 401K and other brokerage accounts.  For example, most people in the 60s have no mortgage debt and little or no credit card or car loan debt.  However, at this point in life they have benefited significantly from the power of compounding on savings that have been growing for a few decades.  On the other hand, most people in their 30s are still paying off school loans, credit card debt, car loans, and high mortgages just at a time when they have not yet peaked in their careers, but have high expenses as they try to raise kids.  It is easy to see how the age-wealth gap can naturally develop.

What can young people do to try to close the gap?  The best thing is to try to control costs, reduce debt, and save as much and as early as possible.  Obviously this requires discipline and self-control.  Young people must deal with the fact that it is unrealistic for them to expect to have the same standard of living as their parents when they are just starting out.  The problem is that most people are not willing to wait to have “nice stuff” and they end up not dealing with debt effectively.

Times are tougher for people just starting out.  But with some discipline and good planning, financial success is still within reach for many young people who are willing to delay gratification.