The damage inflicted on U.S. households by the collapse of the housing market and recession wasn’t evenly distributed. Just ask Jason and Jessica Alinen.

The couple, who lives near Seattle, declared bankruptcy in 2011 when the value of the house they then owned plunged to less than $200,000 from the $349,000 they paid for it four years earlier, just as the economic slump was about to start. Jason even stopped getting haircuts to save money.

“We thought we’d have a white picket fence, two kids, two dogs, and we’d have $100,000 in equity,” said Jason, 33, who does have two children. “It’s just really frustrating.”

For households headed by someone 40 years old or younger, wealth adjusted for inflation remains 30 percent below 2007 levels on average, according to research by economists at the Federal Reserve Bank of St. Louis. Net worth for older Americans has already recouped the losses.

Such a generational divide has negative implications for consumer spending, which accounts for almost 70 percent of the economy. Younger households tend to spend a greater share of their incomes in furnishing new homes and buying automobiles, in contrast to their older counterparts who save more as they inch closer to retirement.

“These changes going on with individual balance sheets could have impacts on the whole economy,” said William Emmons, an economist at the St. Louis Fed who co-authored the study published in February with Bryan Noeth. “Maybe this is one of the reasons that it’s been so hard to understand this weak recovery. Not enough people are looking at these.”

More Exposed

Young families were more exposed to the real-estate slump because homes represented a larger share of their wealth before the crisis, much of it financed with debt, according to Emmons and Noeth. As property values plummeted and jobs dried up, many found they were unable to make loan payments, so, like the Alinens, they deleveraged or faced foreclosure.

Homeownership rates for 35 to 44 year olds dropped 6.3 percentage points to 60.9 percent as of the fourth quarter 2013 from the end of 2007, Census data show. For households under 35, the rate dropped 4.2 points to 36.8 percent. Meanwhile, 71.3 percent of 45 to 54 year olds and 77 percent of those 55 to 64 own a home.

The average value of housing on young families’ balance sheets remains about 35 percent below its 2007 level, the St. Louis Fed paper estimates.

Impact on Spending

The collapse in housing wealth accounted for about 40 percent of the shortfall in consumer spending between 2006 and 2009 relative to its previous trend, Princeton University’s Atif Mian found in a June 2013 paper. The current rebound in home prices won’t provide the same positive impact on spending it once did through what economists call the wealth effect, according to Mian.

“The types of homeowners that would normally spend out of their housing wealth are no longer homeowners,” Mian and the University of Chicago’s Amir Sufi wrote in a March 7 blog post. “The ‘housing as an ATM’ channel is not nearly as strong as it was from 2002 to 2006.”

Families headed by 25 to 44 year olds accounted for 35.3 percent of all consumer spending in 2012, according to data from Consumer Expenditure Survey. Those led by someone older than 65 accounted for 17.1 percent of all purchases.

“The fact that their wealth levels are down, that they’re less likely to own homes, that they’re not even comfortable setting up their own households as renters, that has consequences,” said Richard Fry, a researcher at Pew Charitable Trusts in Washington, referring to younger households. “They’re not buying cable packages, they’re not buying mops and brooms from Home Depot.”

Missing Rebound

With fewer young people owning homes, not as many are benefiting from the rebound in home prices, Fry said.

“I am concerned that the decline in home ownership is secluding Millennials from building wealth, at least in the traditional American way,” Fry said. “There’s at least a warning flag out there.”

Household wealth for those under 40 remains below 1989 levels, according to the St. Louis Fed paper.

The disparity goes beyond housing. Younger households’ incomes declined sharply in the recession and the rebound has been plodding. For young American families at the middle of the income scale, earnings were down 2.3 percent as of 2010 from the 1992 to 1995 average, based on a St. Louis Fed study from 2012. Families overall saw a 9.4 percent increase in the period.

Worse Recession

“Young adults had a worse recession than older adults did,” said Jed Kolko, chief economist at real estate website “Even though young adults have been going back to work in the past year, they’re still much less likely to be employed than they were before the recession.”

What’s more, heads of households under age 40 aren’t benefiting as much from a boom in equity prices, which have hit record highs this year. About 27 percent of 18 to 29 year olds owned stocks as of April 2013, compared to 61 percent of 50 to 64 year olds, a Gallup poll found.

The outlook isn’t all negative. Households headed by younger people have made progress paying down their overall debt since the crisis, said Emmons, the St. Louis Fed economist. Between 2007 and the third quarter of 2013, the group’s average total debt declined 23.7 percent, Emmons estimates, while that for 40 to 61 year olds dropped 10.2 percent.

“There’s been more deleveraging, more shedding of debt by younger families, which is actually a positive in terms of their net worth,” Emmons said.

Financially Healthy

Joe Carson, director of global economic research at AllianceBernstein LP in New York, said even if younger households haven’t rebuilt their wealth to pre-recession levels, it doesn’t mean they aren’t financially healthy and ready to spend.

“Many people thought that was an artificial peak to begin with given overvalued housing,” Carson said. “To even be coming close to that is, to me, a bullish signal.”

That said, young families burned by loan defaults and foreclosures during the housing crash may lack the access to credit they need to buy houses and purchase other items, so their frugality may not soon end.

Plus, America’s youngest adults have continued to take on a different type of debt: borrowing for education. Among households with installment debt, those younger than 35 held about 66 percent of it in student loans, compared to 36.1 percent for those 45 to 54, based on the Federal Reserve’s 2010 Survey of Consumer Finances. That could stall purchases from autos to homes.

Student Loans

“Tight credit standards and student-loan debt has had a dampening effect on the entry-level buyer,” said Martin Connor, chief financial officer at luxury homebuilder Toll Brothers Inc. during a March 3 presentation.

The Alinens, who work with a credit counselor, moved to a less expensive house to escape their negative-equity and went through bankruptcy. They’re now struggling to keep their current place and have had their monthly mortgage payment modified, partly because Jason lost a job in 2012 and is now making less than he’d expected to earn. The $100 reduction isn’t enough to help much, he said.

Damage from a cracked pipe in their new home added more than $40,000 worth of repairs to their burden. For them, a return to the old pattern of wealth building and consumerism is far off, and Jason Alinen said it’s more likely the family will end up renting.

“We work full-time jobs, we see our kids for two hours a day,” he said. “It’s just not like these people a decade ago.”