The share of people under age 30 who own private businesses
has reached a 24-year-low, according to new data, underscoring financial
challenges and a low tolerance for risk among young Americans. Roughly 3.6% of
households headed by adults younger than 30 owned stakes in private companies,
according to an analysis by The Wall Street Journal of recently released
Federal Reserve data from 2013. That compares with 10.6% in 1989—when the
central bank began collecting standard data on Americans’ incomes and net
worth—and 6.1% in 2010.
The Journal’s findings run counter to the widely held
stereotype of 20-somethings as entrepreneurial risk-takers. The sharp decline
in business ownership among young adults, even when taking into account the
aging population, adds to worries about business formation heading into 2015,
economists said. The number of new U.S. business establishments fell in the
first quarter of 2014, according to the latest available data from the U.S.
Labor Department.
It is difficult to pinpoint the precise reasons for the
decline in private business ownership among young Americans. One theory is that
they face more postrecession challenges raising money. Such fast-growing
sectors as energy and health care likely require a significant access to credit
or capital. The decline also reflects a generation struggling to find a spot in
the workforce. Younger workers have had trouble gaining the skills and
experience that can be helpful in starting a business. Some doubt their
ability.
The proportion of young adults who start a business each
month dropped in 2013 to its lowest level in at least 17 years, according to
the Ewing Marion Kauffman Foundation, a Kansas City, Mo., nonprofit that
focuses on entrepreneurship. People ages 20 to 34 accounted for 22.7% of new
entrepreneurs in 2013, down from 26.4% in 2003, it found.
The decline in young entrepreneurs is part of a broader drop
in private business ownership over the past 25 years. Between 2000 and 2012,
new business formation slowed even in such high-growth sectors as technology. Slowing
U.S. population growth since the early 1980s has reduced the supply of
potential entrepreneurs of all ages, and lessened demand for new goods and
services. Meanwhile, business consolidation has led to more formidable
competition for startups, making it harder for new entrants to gain a spot in
the market.
Overall, the U.S. “startup rate”—new firms as a portion of
all firms—fell by nearly half between 1978 and 2011. The costs of operating
many types of small businesses have come down in the past decade, with the
greater use of technologies that reduce labor costs. But young entrepreneurs
face formidable financial hurdles.
The average net worth of households under 30 has fallen 48%
since 2007 to $44,354. More than half of 18-to-29-year-olds reported one or
more financial problems in the past year. Their poorer financial condition
hurts young graduates’ ability to tap their own savings, draw equity from a
home or obtain bank loans to cover their startup or ongoing business costs.
Many banks that pulled back on small-business lending during
the recession that stretched from December 2007 to June 2009 have continued to
keep lending standards tight. The amount of small-business loans held by banks
increased by 1.8% in the third quarter of 2014 from the same period a year
earlier, according to the Federal Deposit Insurance Corp. But the beneficiaries
of the increase are more likely to be established companies, analysts said.
The decline in business ownership among young graduates also
reflects a relatively low appetite for risk. Young people have less confidence.
In an annual survey she oversees, more than 41% of 25-to-34-year-old Americans
who saw an opportunity to start a business said fear of failure would keep them
from doing so, up from 23.9% in 2001.
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