More than five years have passed since the Great Recession formally ended in June 2009. But for many Generation Xers, it’s still not over as those born between 1965 and 1980 are still digging their way out of the debt they accumulated before 2008.
According to new research from the Federal Reserve Bank of St. Louis, the unlucky members of Generation X — who were at the cusp of their careers and just starting to build their families before the financial crisis hit — borrowed heavily in the years before the recession and they’ve been aggressively paying it down ever since.
But despite half a decade’s worth of steady payments, many 30- and 40-somethings still aren’t done knocking out their debt and that’s causing them to contribute significantly less to the economy than they would otherwise. “Families that are reducing their debt are, by definition, not spending all of their income,” write William R. Emmons and Bryan J. Noeth in an August 2014 issue of the Fed publication, “In The Balance.”
Now, economists are warning that the years-long recession hangover, combined with stagnant wages, could mean we’re in for an even longer recovery than experts predicted. “Given the evidence discussed here of widespread ongoing debt declines among younger families, overall economic growth will be dampened for some time,” write Emmons and Noeth.
Gen Xers are in an especially tricky position — making it even harder for them to fully bounce back from the sharpest downturn since the Great Depression. By the time the financial crisis hit, this “Slacker” generation had borrowed substantially more than the generations before them borrowed at the same age. “On average, by 2008, members of Gen X had accumulated about twice as much total debt at a given age as birth-year cohorts observed at the same age in 2000,” write Emmons and Noeth.
But just as they were getting established in their careers and moving up the middle-class ladder, the housing market bottomed out beneath them. The job market shrank and credit became increasingly tough to get. Making things worse, wages have been sluggish for years, making it harder for indebted consumers to repair their finances at a faster clip.
According to an August 2014 survey from the Transamerica Center for Retirement Studies, just 12 percent of Generation Xers say they’ve “fully recovered” from the Great Recession. An equal number say they lost their jobs during the recession, hurting their retirement savings. A quarter of Generation Xers accepted a pay cut or had their hours reduced, while 4 percent were forced out of their homes.
It’s no wonder then that so many 30- and 40-somethings are anxious about their finances. According to the same study, 85 percent expect their generation to have a harder time attaining financial security than their parents.
Analysts frequently debate which generation was hit hardest by the recession, with some claiming that the debt-plagued millennials were given the rawest deal, compared to other generations. But the Slacker generation can also make a pretty good claim for the title.
After all, not only did their net wealth shrink by nearly half between 2007 and 2010, their long-term prospects diminished, too. And unlike millennials, most members of Generation X don’t have several decades to catch up before they hit retirement.