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Forget Boomers and Millennials — Here's Why Gen X Has the Most to Worry About

In the battle of the generations, who's the biggest loser?
If you go by numbers alone, Millennials may come first to mind. They have the worst unemployment rate, lowest credit scores, and are saving the least for retirement.  And then there are the Boomers, aka the sandwich generation, who not only have to financially support their jobless adult children but will wind up losing $300,000 in wages and benefits over their lifetime caring for their aging parents.

In our opinion, however, Generation X is worst off by a landslide.

Confronted by a rapidly growing income gap, depleted retirement savings and sky-high debt loads, people in their early 30s and mid-40s faced some of the biggest financial hurdles of any other generation this year.

We took a look back to see just how far Gen X has come since the recession — and how far they have left to go.

The real 'Gap' generation

The income gap in America has reached Grand Canyon-sized proportions, but in no generation is the middle class shrinking faster than Gen X, which has seen its income gap — the level of inequality between the richest and poorest people — grow at a rate of 21% over the last two decades alone, according to a new report by Bankrate.com.

That’s twice as fast as both millennials and older boomers, often considered the two generations that suffered the most during the Great Recession. In reality, it wasn’t the youngest or even oldest Americans but Generation Xers — those born roughly between 1965 and 1980 — who were in the most vulnerable financial position when the recession hit.

“There’s a lot of conjecture about why this particular age group [is getting hit] the most, but I think when you really look at what’s happening it’s easy to understand,” says Judy Martel, senior editor at Bankrate.com.

For starters, before the housing crisis brought about the Age of the Renter and effectively put homeownership out of style, it was the “Reality Bites” generation, in their early 30s and 40s, who were starting families and snapping up homes at the peak of the housing bubble.

When the real estate market went bust, they were hurt most, watching their home equity tank by 27%, compared to early boomers’ loss of 14% and seniors’ 19%, according to a May 2013 report by the Pew Research Center.

All in all, Generation X lost a whopping 45% of their overall net worth, the most of any other generation. It’s not that older boomers didn’t have mortgages and cash-strapped millennials at home to support, but they at least had a couple of decades’ worth of savings and were better equipped to manage their debt ahead of the recession.

For many Gen Xers, the recession hit at the precise time they should have been close to the peak of their earning potential, moving into higher positions at work and beefing up their personal bottom line. The financial crisis had all but stymied that crucial period of growth.

“They were just starting out in their careers and were on their way and everything hit them at once in terms of job promotion and wage decreases,” Martel says. “If you look at the the labor market, it’s still struggling.”

Leaning on debt 

With the all the ballyhoo over the nation’s $1 trillion student loan debt crisis and what it means for 20-somethings, you’d think millennials would carry the heaviest debt burdens. They do carry a sizable chunk — about 40% — but nearly 50% of student loan debt is actually held by borrowers age 30 to 49, according to a June 2013 Urban Policy Institute study.

Debt is obviously a problem when you don’t have the assets to pay it off, and unfortunately for Gen X, they often come up short. While boomers and seniors had assets four and 27 times higher, respectively, than their total debt after the recession, Gen Xers only carried just twice as much in assets as debt, according to the Pew study.

As a result, Gen X has struggled to whittle down their debt load, and it shows in their credit history.

When it comes to overall debt, a November report by Experian shows that Gen Xers are deepest in the red. Since 2011, they've taken on more debt than any other generation. They carry more than $30,000 worth of credit card debt today, up from $26,000 in 2011. By comparison, millennials today carry $23,000 on plastic and boomers carry $29,000. Gen Xers also carry the most debt per credit card, averaging $5,343 per card in 2013, up from $4,489 in 2011.

And when those bills come due, Gen Xers are least likely to be able to make their payments on time, Experian found.

They’ve got the credit scores to show for it, too. Only millennials’ average a lower credit score (628) than Gen X (653). Both scores are lower than the national average of 681, but youngsters can at least blame some of their shortcomings on a shorter credit history.

Falling behind on retirement

The fact that the recession hit when older Gen Xers should have been entering their highest earning years hasn’t boded well for their retirement accounts.

One of the common reactions to a financial uncertainty is for investors to get more risk averse, and Gen X’s caution could be costing them. Forty percent of this age group have 50% or less of their investment in stocks, making for a portfolio that’s “too conservative for their age,” according to a December report by Fidelity.

On top of their lower tolerance for risk, Gen Xers aren’t contributing nearly as much as they should to retirement funds. Nearly 60% said they are saving less than 10% of their income for retirement, and 43% of those are contributing less than 6%. The ideal retirement savings rate for most people is between 10% and 15% of their income, according to Fidelity.

Their retirement time horizon is a little off by some counts, too.

“Younger generations are really underestimating the age that they’re planning to retire,” says Lauren Brouhard, senior vice president of retirement for Fidelity. “On average, they’re planning to retire at age 65 and the reality is that we’re all living longer have higher expectations of being active in retirement, which can really create a financial squeeze. People need to have a more realistic expectation of how long they’ll continue to work, whether they’ll work part-time in retirement, and so on.”

The outlook for Gen X in 2014

So where does Generation X go from here? The good news is that millennials aren’t the only ones with time on their side, and the challenge for Gen X will be to maximize their working years in a way that not only helps them achieve their goals but also makes up the ground they lost during the recession.

Financial Finesse, a financial education firm that offers guidance to employees of Fortune 500 companies, takes an annual look at the challenges facing each generation.

Their 2013 data isn’t in yet, but we spoke with Eric Carter, senior resident financial planner at the firm, who’s taken an early look at the report and says it looks like the tide may be turning somewhat in Gen X’s favor.

“I’m very cautiously optimistic [for Gen X],” Carter says. “They’re still the furthest behind other generations but one of the things that came out in our research is that they are the most aware of the difficulties they’re in. They know they’re in trouble.”

It may not sound like much but in the emotional roller coaster that is personal finance, self-awareness is often the most important step toward getting your finances together.

Says Carter: “The question is, will they improve in 2014 and will it be enough? That’s something we aren’t going to know for a while.”


We’d love to hear how other Gen Xers fared in 2013: mandiw@yahoo-inc.com.