Wealth study leaves out one important asset

If you've wondered where the impetus behind the "occupy" movement originates, a new Pew Study may offer some insight.

According to an analysis of census data, the net worth of a household headed by a person 65 or older has a net worth 47 times greater than a household headed by someone under 35.

While it's normal for people to accumulate assets as they age, the gap is more than double what it was in 2005 and five times what it was 25 years ago, when it stood at 10 to 1.

The report was issued just in time to support "means testing" for Social Security, Medicare and other entitlements as a special congressional committee struggles to find more than a trillion dollars in budget cuts over the next 10 years.

"It makes us wonder where the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them," said Harry Holzer, a labor economist and public policy professor at Georgetown University.

But the wealth comparison overlooks one resource younger people have in abundance compared to retirees -- time.

Yes, many young people are saddled with mortgages on homes they really couldn't afford in the first place, and homes have returned to their more traditional role of providing shelter rather than serving as a guaranteed growth investment.

But young people still have time to change their lifestyles and means of income, options that are closed to retirees and older workers.

Small changes can make a big difference, provided one has enough time. As Christian financial adviser Dave Ramsey likes to point out, giving up smoking, at $3 a day habit, saves $90 a month. Invested at 12 percent from age 16 to 76, that would yield $11,622,000 million. Granted, you can't get those types of interest rates in a savings account, but long-term stock market investments can easily yield those numbers.

Giving up a $5 gourmet coffee a day can translate into $19 million, and brown bagging it instead of buying an $8 lunch is worth more than $20 million over 60 years.

He also likes to use the example of a young man who saves $167 a month, $2,000 a year from age 19 to 26 and then stops, and a man who starts saving $2,000 a year at age 27 and stops at age 65. The first man winds up with $2.288 million after an investment of only $16,000, while the second has $1.532 million and never caught up with the first.

Rather than being used to penalize older Americans who can no longer change their financial trajectories, the Pew Study should serve as inspiration for younger people to change theirs.