Will You Make More Money Than Your Parents? Does It Matter?

Both the Wall Street Journal and CNN Money recently ran articles about a new study that concluded that American men in their 30s are earning less than their father’s generation after adjusting for inflation.

In 2004, the median income for a man in his 30s, a good predictor of his lifetime earnings, was $35,010, the study says, 12% less than for men in their 30s in 1974 — their fathers’ generation — adjusted for inflation. A decade ago, median income for men in their 30s was $32,901, 5% higher than 30 years earlier. Ms. Sawhill said she isn’t sure why men’s wages have stagnated. “It seems there’s been some slowdown in economic growth, it’s possible that the movement of women into the labor force has affected male earnings, and it’s possible that men are not working as hard as they used to.”

“The expectation that each generation will do better than their parents has become a fundamental part of what we call ‘The American Dream,’” said Morton. “But this new analysis suggests this bedrock belief may be shifting under our feet.”

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The problem with statistics like this are that they really don’t tell us anything. Maybe more men are staying at home to take care of the kids, or are otherwise choosing to earn less money to balance work and life. Maybe the government’s method of measuring inflation is inaccurate. Maybe it’s due partially to globalization. Maybe it’s simply supply and demand – families as a whole are making more to dual-income households. Maybe the blue-collar jobs don’t pay as well as they used to. Maybe a 30-year old these days is more likely to have spent an extra 5 years “finding themselves”. Don’t people get married a lot later these days versus 1974? Ten different people could read these articles and come up with ten different reasons for the income decrease based on their own personal beliefs and experiences.

As for me, I don’t really get why it even matters what my father earned? Poor, rich, whatever, all we can do is see what challenges exist now, and work to meet them head on. Even if we earned 50% more than our father’s generation, I don’t see how that would change my behavior. It just creates excuses and distractions. Am I missing something?

Comments

  1. I agree with you. The study is pointless and gives us no important information. So what if my dad made more or less, his challenges were then, my challenges are now. Either way, knowing what my dad made is pointless because it doesn’t do anything for me and my life. Is it supposed to motivate me? Doubt it…

  2. The fact that the “family” income has gone up and the “individual man’s” income has gone down seems to indicate that there are more women now that have the opportunity to join the workforce and men have to earn less to support the family….

  3. I agree; the study is misleading to completely wrong. I would be interested in a survey of real people compared to their real fathers. I think the income trend is always up. Historically the first generation immigrant works the entry-level job and the offspring get better jobs and the next generation has a strong multi-generation family to back them up as they get advanced degrees and even better jobs.

    I also think the trend from single-income families to dual-income families invalidates the conclusion of the study.

    What about total compensation? 401K contributions, health insurance, etc?

  4. I completely agree, and am glad to see some other people do as well! I glanced over the article the first time and didn’t bother reading it. Then when it got more attention I did, and still didn’t get it. I share the “so what” sentiment.

  5. I agree that some other data should be looked at, but I know for a fact that I am more educated than my father but make about the same to less on an inflation adjusted basis.

    Perhaps what really should be measured is the purchasing power of the money earned.

    The tax code has never really been adjusted for inflation and the government consistently lies about the inflation rate. Seriously, do you have any respect for a person on CNBC making six figures telling you that inflation is fine if you exclude food and energy?

    Overall, I expect to have a lower standard of living than my parents. Sure, we have internet, more comfortable and efficient vehicles, and other amenities not even thought of in the late 1970′s, but due to a falling currency your purchasing power will not be what it was for your parents.

    I make a little less than the national median income and even though I don’t have kids, don’t buy useless junk, and save where I can, I still feel like the check does not go far enough to accomplish what I would like.

  6. Siggyboss says:

    I agree with your opinion of the article. Yet, let’s step back to see the forest and not just the trees. The whole underlying purpose is to show how the economy isn’t “working,” and that the government needs to “fix it.” In other words, a socialist perspective of the world – fear the global economy because it isn’t as regulated by a single government (in particular the US).

  7. Ted Valentine says:

    I think what you’re missing is the underlying Oedipal desire of men to conquer their fathers. This is as much a psychological study as financial.

    Other than that I think your conclusions are on the mark.

  8. Heather says:

    I guess I’m in the minority with don_m. To expand his inflation argument, I bet education/child care is much to blame specifically. The American Dream in my mind always meant that a person with a low wage could send their kids to school for next to nothing, and if they did well they would get a good job. Now, good schools are getting so expensive (either via property taxes or by private tuition), it either puts people with even middle class wages deeply in debt or is out of reach entirely. While one statistic doesn’t prove that something has changed about the US, it’s good to keep measuring it in different ways. I don’t know if it’s socialist to give everybody access to good, cheap education but if it is, then I guess I’m a socialist.

  9. The more interesting component of those stats is how much more women are earning than their mothers. Of course, instead of reporting that, they reported the natrual outcome, that men are earning less.

  10. I would have to say that it is fairly simple to understand that men earn less than they used to. This study just confirms what is pretty obvious to most middle class people — one income just doesn’t buy what it once did. That’s why we were fortunate (in my opinion) to have our moms’ stay home with us. I wish I could stay home with my daughter — and it’s not like I’m working so I can have a mansion and a yacht (ha!). I work to support my family because my husband couldn’t do it alone. Many families today are in the same position.

    This is what I feel happened (I’m sure some will disagree), but; in the mid 1980′s a lot of mothers returned to the workforce when their children reached secondary school. This was a very educated generation and since their kids weren’t that young anymore, decided they could get their family the “extras”. I would have done the same thing. Of course, since they entered the workforce, corporations took advantage of the added talent that now was available and brought salaries down somewhat, and eventually all employees were earning less.

    Now, my generation comes along — my husband and alot of other men can’t make enough to support their families alone anymore – so women with young children now have to work also. For some this is a good thing I know — but for me and a lot of others it stinks. I wish I could have what my parents had. Some men are very successful and this is not a problem for them, or live in a low cost part of the country. But for the mainstream, I would say, men definitely do not make what they used to.

  11. Steve Austin says:

    I stumbled on references to the article last week, and had much the same response as you folks. There are many, many things that make the intergenerational real earnings comparison bunk.

    I think household real earnings per household earner (household earnings / mean household earners) would normalize out the man-woman salary discrepancy. Furthermore, not all income is earned, and so certainly some of that father’s generation’s higher real income has been inherited by the son’s generation and is now yielding real investment income.

    Also agree that mean real household expenses matter just as much as this generational earnings study. Even more interesting to me is how the rate of real wealth creation has changed across recent generations. Anyone have info on that? (Too lazy today to do my own research.)

    And ultimately agree that the article has undertones of entitlement. The US Guvmint is not the US economy. *We* are the US economy and if that economy is not remunerating us for our labors at a real rate we would like (whether relative to prior generations, or just in absolute terms) we just have to work harder, or smarter, or both. Another option is to be content with and grateful for where we (the US) are economically. Empires go boom and bust just like markets do. Perhaps wild economic success in the 20th century has unduly set expectations for the 21st?

    Valentine’s point re: psychological is strong: I’m not a defeatist but I think current generations should not rail themselves about failing to attain the same or higher real incomes, either in the average, or on an individual basis.

  12. I agree with CFO Dad and Ted Valentine’s comments -

    Thirty years ago in was a man’s responsibility to provide for his family and that provided motivation to advance and earn more. However, today most men really have no motivation to earn more to support their families. They expect their wives to make up the difference instead of improving their professional situation. I’ve seen it and experienced it first hand. When my wife decided to quit work and stay home with our kids you know I found the motivation.

  13. “Maybe a 30-year old these days is more likely to have spend an extra 5 years ?finding themselves?.”

    I think this is pretty important. I know that my life plan is much different than my dad’s was.

  14. I need to look this up, but I’m sure a 30-year old is much less likely to be married and have kids now than 30 years ago. I’m nearing 30 (!) and most of my friends are still childless (very small sample size, I know).

  15. HSA Son says:

    May the study should have focused on comparing a 30 yr old mechanic in 2004 vs a 30 yr oild mechanic in the ’74 (apples to apples). The study should also include benefits offered today vs 30 yrs ago by employers…after all pay + benefits = income. Remember, pensions are almost extinct in 2007.

  16. Even though the numbers are adjusted for inflation, I think living now is much different than living in 1974, just as living in 1974 was much different than living in 1940. (The study covered 30 years, but it’s not fair to compare life during WWII). During the past 30 years there have been major changes in technology, housing prices, lifestyles, age of marriage (as mentioned), education levels, job specializations, frequency of job relocations, family size, etc. This list could go on and on.

    There is also a greater amount of things to spend money on now compared to 30 years ago. Back then people didn’t have computers, DVDs and home movie theaters, video game systems, or many of the other things so many Americans today think are necessities.

    The study is so broad that it has dozens of different factors. There are a lot of good comments and points of view here.

  17. Another lurking variable: “Anticipated life span”. My father’s 30 is much like my 35. Expected retirement 30 years ago: 65. Expected retirement now: probably 75 by the time we get there (and maybe never for people who don’t frequent this board).

    So obv, it’s really hard to go apples to apples on this one. But Erik Lane and others have great comments about partner support.

    I just moved cities for a family and a better job. My fiance graduated in April and moved out with me. She finished her 4-year BA with 0 student loan and money in the bank, and we just started renting an apartment together this month. She has yet to start looking for a job, b/c we have her on forced vacation (She’s worked very hard for 4 years and she deserves a month or two of “free living”)

    Well, turns out that I love it too! Having a “homemaker” backing you makes it so much easier to help your own career. Shaving off 8 hours of chores every week gives me 8 more hours to help out at the office or do extra training courses to help push my salary. If we’re both working full time, it’s harder to find that extra time for courses or critical OT or whatever else helps you “move up the ladder”.

    Truth is, now that she’s started job hunting, she’s actually looking at working part-time. The 10-15 hours she’s not working are a form of investment in my career and in our relationship.

  18. Since it seems that everyone dislikes this survey, let me offer a reason to take it seriously. Productivity has increased dramatically between the 1970s and now — workers are able to produce “more” (goods, services, whatever) now than they ever have been able to. Yet, none of that additional productivity has resulted in higher wages — that is, people are working harder now for less money. I don’t think this survey should be read as a call to action (“get out there and out-work your dad, you slacker!”), but instead as an illustration of the state of our economy (“I’m already working hard, generating more income for my boss, but earning less than ever?”)

    I think that’s the point: it’s one more example of how the average worker is increasingly failing to share in the rewards of the modern economy.

  19. CHRIS:
    I hear and understand your comment: “I think that’s the point: it’s one more example of how the average worker is increasingly failing to share in the rewards of the modern economy.”

    And here’s the article quote ?The expectation that each generation will do better than their parents has become a fundamental part of what we call ?The American Dream,?? said Morton. ?But this new analysis suggests this bedrock belief may be shifting under our feet.?

    So you’re getting the article and so are the other posters, we’re just cutting through some of the misdirection. What’s actually being demonstrated is that the median income has very closely kept up with inflation. And you’re not really “earning less than ever”, the study is in fact showing that you’re earning pretty much the same now that you were then, though it seems that there’s a slight downward slide.

    Of course, in the meanwhile, we’re all “sharing in the rewards of the modern economy”: airfare is way cheaper, better quality TVs, better quality mucis audio recordings (CD vs Vinyl), faster, safer, more efficient cars and bigger houses with more sq ft./person.

    This isn’t really that special, b/c it’s basically exactly what we would expect, relative to inflation Americans are still making the same amount now as 30 years ago. Maybe the men are down 10% in median income, but putting more women in higher income positions over the last 30 years pretty much explains the whole difference.

  20. Ruby R. says:

    You’re right; it really isn’t important what our parent?s earnings were. What is important is the fact that our parents (in most cases) had more time for us than we have today for our children. Not only don’t we spend a 2-3 week vacation with our family each year like our parents did with us, we’re lucky if we stay married to the same person for any extended period or if we have kids who grow up saying “I hope I’m as lucky as you were with love”. Fortunately, time is not linked to any inflation index and it’s never too late to make up for what was lost. Our children will remember the great summer holiday spent together as a family long after they remember how much we earned.

  21. I started saving alot earlier than my Dad did. That is going to make all the difference.

  22. I’m with you Chris and want add to your thoughts…

    The article should have then pointed to how this decrease in income for men in their 30s is contrary to the great increase in the incomes and wealth of the top 1% in all age groups. One of the articles (if not both) references the “rising tide’ theory that our government has partially based their tax plan on.

    It is not the point that we should pay attention to differences/similarities from our fathers’ generation. Inflation #’s, who stays home, etc., doesn’t matter when the same formula is applied to all income levels. While the article discusses the thought that each generation should do a little better, I don’t feel that should be the main point (as someone mentioned above, Empires rise and fall). What matters to me is the injustice to the common man who is strugglinig to get by yet our government tells him to allow guys like me to take home more and it will trickle down to him. Is anyone getting my extra $12,000 as a result of lower tax rates? No it’s in my new FNBO Direct account. Executive pay is at a record yet pensions have gone away. Just a couple of basic ways demonstrating how the rich have gotten richer. Check out historical census data on income to see the numbers. You’ll note how the last six years has adversely affected the income level for the middle class as opposed to the prior six years, yet it has consistently gotten better over the last 12 years for the rich.

  23. When CEOs get record pay and corporate profits are skyrocketing and jobs go overseas it seems pretty obvious where the wages are going, into your boss’s boss’s boss’s estate. No one has mentioned, women are raising kids alone. The number of single moms is rising. Women are still getting paid less than men for doing the same job. In fact my mom was a systems analyst getting paid less than men who worked under her.

  24. Steve Austin says:

    I’d have to agree we’re not doing a great job at governing, but when we blame “government”, we only blame ourselves (common man included). I fear that thread of thought will get political, so I’ll just leave it there.

    But will make one other comment about “rich”. I think it prudent to take care in specifying what one means by it. “rich have gotten richer” I take it means that the salaries of the top 1% of earnings have in real terms far outpaced those of the other 99%? That’s “salary rich”, but there is another kind of rich and that’s “asset rich”. Most PF and investing blogs operate on the unspoken maxim that the (asset) rich do — and should — get (asset) richer. It’s the whole point of investing and compounding one’s life savings. As far as how to “fix” the salary rich, the winner-takes-all effect, it seems that executive pay for public corporations is in the hands of the boards of directors, true? I’m not sure how the boards can be compelled to right this wrong, but this thread of thought probably gets political, too.

  25. Why do you care if you make more money than your dad? Well, maybe you specifically don’t. But the real concern here is this is an indicator of where the U.S. economy is headed in the global landscape.

    If each successive generation is collectively doing worse than the prior generation — then the economy is in a downward spiral, and your kids will work harder for less benefit than you do.

    Look at Guatamala — they had a thriving middle class just a few years ago — but now the middle class is gone, replaced with a handful of super rich, but a collective of mostly poor. This is an extreme example — but one none the less of why we should care about generation to generation median income.

  26. mapgirl says:

    Interesting debate. At first I agreed with you and thought it really didn’t matter, but I read Chris’ comment and I can understand his point of view.

    I think it boils down to a quality of life. While I’m not a big fan of the atomization of the American family and the isolation felt by SAHM for whom that wasn’t an active choice, I think it’s sad that two parents pretty much HAVE to work to give their kids the same upbringing they might have had with only one working parent.

    What disturbs me as a woman is that the ‘family’ incomes are really not that much higher, perhaps reflecting the fact that women get paid less than men for similar work. Or that they only take part time work so they can still be at home with the kids. Hard to tell from just some graphs.

  27. Mapgirl says:
    “I think it?s sad that two parents pretty much HAVE to work to give their kids the same upbringing they might have had with only one working parent”

    And Chris says:
    ” then the economy is in a downward spiral, and your kids will work harder for less benefit than you do. ”

    And you’re both getting part of the picture, but I think you need to combine these two thoughts and look at this globally. I’m Canadian, so I say this with an outsider’s view and an insider’s understanding: Globally, the US economy is going down the tubes. And there is very little to stop it. The average american’s “quality of life” has nowhere to go but down. (disclaimer, Canada’s not much better, but that’s a different post).

    Check out the Wikipedia article on US debt and the pretty graph(http://en.wikipedia.org/wiki/U.S._public_debt) and notice that right now the US is carrying 65% of its GDP in debt! And it’s been that way for decades! Now short-term this may be solvable, but the “average” american has lived so opulently for so long that there is no longer a “quick fix”.

    The US owes other people lots of money and they don’t have anything to cash in. They don’t have enough energy, their labour is too expensive, they’re low on natural resources (lumber?) and one of the few excesses they do have (food) is too expensive on a global market.

    I mean, think about it simply, if I’m Chinese and I have USD $1M, what can I get for my money? I can get 10 American consultants for one year (20,000 hours) or 100 Chinese/Ukrainian/Pakistani consultants (at a liberal USD $5/hour). Even with extra training, those 10 americans have to be 10x as efficient just to break even! If even one of my “cheap” consultants is an “all-star”, then americans can’t compete.

    When you’re at the top of the chain, there is really nowhere to go but down. Americans have been at the top of the chain for so long, that they’re now going to have to lose “standard of living” as other countries start moving up.

    These numbers are a reflection of that reality. Of course, you’re only down ~10%. But by no means do both parents HAVE to work to support children. People the world over are raising healthy, intelligent children on fractions of the typical american income. People like our own Jonathan can save 40% of their pre-tax income (even with one person in school), so it’s not like there’s some type of money shortage here, just the mistaken belief that we should ALL be able to MORE on a consistent ever-growing basis.

  28. I think there are tons of global, national, and social reasons for all these things at work. As for the American economy going down the tubes, our quality of life going down, others’ quality of life going up, I’m not really versed on that. The question is, how do we address it?

    Top down: politics and government, although I hate politics, has to be a tool. When more people watch American Idol than vote, that’s a problem. This includes better education and better-run programs.

    Bottom up: We also gotta take care of our own business. Life here ain’t perfect at all, but where else in the world would you rather live?

  29. Endymion95 says:

    F*** it. I’m moving to France.

  30. Steve Austin says:

    Jake, we should take care not to draw broader conclusions than warranted from the study. The study, as reported at CNNMoney, compared household income growth ’64-’94 to that btw. ’74-’04. You can take just about any mathematical relation and find 2 pts on it where the slope of the segment between them is negative. “if each successive generation is collectively doing worse than the prior generation” suggests more than we should reasonably draw from the reporting on this study. Maybe ’64-’94 was just an exceptionally strong period for US real household income growth, and now things have begun to mean revert.

    I like how Gates VP assesses this situation. I sincerely doubt that we Americans are going to fold and complain just because it’s tougher to compete than it was for a prior generation, but we also shouldn’t feel entitled to better (or even the same) macroeconomic conditions, some of which can be attributed to luck, fortune, providence, however you want to interpret it. Gates VP, just for the record, for every American that complains about how hard it is to get by here these days, there are a handful of others who quietly bust their asses gettin’ it done day by day. (On that note, Jonathan’s Bottom up comment is bang on.)

  31. “Top down: politics and government, although I hate politics, has to be a tool. When more people watch American Idol than vote, that?s a problem. This includes better education and better-run programs.”

    One solution is to only vote for politicians that will enforce the US Constitution to the letter. This means abolishing much government at least at the federal level. This also means a precious metals backed monetary system as required by the Constitution.

    This also means letting the free market work and ridding one’s self of the idea that government is here to subsidize everyone’s education. If corporations need more people with a 4 year degree, then they will find a way to create those individuals. Don’t believe it? Look at the resurgence of watchmaking schools created by major watchmakers; an occupation that was said to be nearing death by the federal government’s jobs publication.

  32. I think your interpretation of the data is too narrow. In a broad sense, the study illustrates the decline of economic mobility. So, men are increasingly unable to “pull themselves up by their bootstraps.” Retrenchment of class systems and the like. It doesn’t have to be strictly about numbers.

  33. I’m 21 and I make more money then my parents NOW, and my dad brings in 2 paychecks one retire check from the Air Force as a senior enlisted, and now a government employee (with housing allowances) and my mom as a nurse…How I’m successful in sales that’s how.

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