Boomers in Trouble: The Unheralded Economic Mega-Trend, Part 2

<< Read Part 1

Yesterday we discussed the Boomer generation and how they’ve driven every economic/ financial development of the last 30+ years.

Today, we’re going to analyze how the Financial Crisis has changed Boomer sentiment, spending behavior, and investment strategies. Ben Bernanke, Barack Obama, and the rest of the government can implement whatever policies they like, but if the Boomers aren’t buying it… it ain’t gonna work.

And right now, the Boomers are FED UP.

Let’s consider where Boomers sat before the financial crisis occurred. In early 2008, Boomers:

• Controlled $13 trillion (50%+) in US investable assets
• Controlled 50% of all discretionary income
• Purchased 43% of all new cars
• Accounted for 79% of all leisure travel spending
• Ate out four to five times a week

In simple terms, Boomers were THE money flow for the US. In light of this, for the US economy to get back on track any time soon (whether it’s through Stimulus, job growth, etc), Boomers need to participate in a big way.

The only problem is that they won’t.

During the recession in the early ‘80s, Boomers were just entering the work force (ages 16-34). The market demographic was technically still in its infancy and growing in economic clout.

In the recession in the early ‘90s, Boomers were ages 26-44. Now controlling most of the wealth in the US they could take a hit and come right back buying more stuff, using their credit cards, and investing in stocks and other investments.

Moreover, in the brief recession in the early ‘00s, Boomers were ages 36-54. The younger Boomers were just coming into their own, looking to buy homes, advance their careers, etc.

Which brings us to today… on the verge of 2010… when Boomers will be ages 46-64 and focusing on one thing: RETIREMENT.

Having just lost 18% of their net worth, potentially lost their jobs, and with record amounts of debt (one in five of Boomers owe more than $50,000 in non-mortgage debt), Boomers are no longer looking for growth or gains, they’re looking for security. Dreams of retirement are no longer soon to be realized (if they will be realized at all). And several key myths have been broken:

• Myth #1: You can’t lose money with real estate
• Myth #2: Stocks ALWAYS offer the best gains in terms of risk/reward.
• Myth #3: Social security and medicare will work

Indeed, if one were to describe the Boomer market demographic in one word, it’d be “disillusioned.” And you can see this disillusionment playing out in the financial markets.

First and foremost, many commentators make a big deal about the S&P 500 clearing 950… well that simply brings stocks back to where they were in July 1997. Boomers (who then were largely in their 40s then) have essentially seen NO GROWTH in their 401(k)s in 12 years. That’s simply astounding when you consider that 1997-2007 saw two of the largest investment bubbles in the history of mankind.

Boomers aren’t too happy about all of this and have begun looking for new sources of investment advice. According to the Financial Times, the number of inquiries on changing asset managers rose 40% during the first five months of 2009. Indeed, Charles Schwab reports 69% of the firm’s new clients said they jumped ship from full-service brokerage firms to independent advisor shops because they had lost trust in their previous firm.

Boomers are also giving up hopes for retirement and instead are taking on more work. The (American Association of Retirement Professionals) reports that 24% of Boomers have postponed retirement. David Rosenberg of Gluskin Sheff adds that the 55+ age demographic is the only segment of the US population that is gaining jobs.

Boomers are also spending a lot less than they used to. The afore-mentioned AARP survey shows that 56% of Boomers are postponing a major purchase. Unit sales of sailboats is down a third in the first five months of 2009. Year over year, auto-sales for May 2009 were down in double digits ranging from 21% (Ford) to 38% (Toyota); remember Boomers accounted for 43% of purchases of new cars in 2007.

This slowdown in spending pertains to just about any other high-end part of the retail market. Wine sales for bottles priced above $25 are down 12% year over year. Swiss watches are down 24%, The list goes on and on.

Folks, we are experiencing seismic shifts in consumer spending patterns. The US consumer (the Boomer) is NOT coming back. Boomers are trying to simply get by with less, working longer than they’d hoped, spending less, and saving more. These patterns are here to stay (remember Boomers outspent younger generations by 2-to-1 during the last decade) until someone implements changes that create sustainable job growth (an ultimately wealth) in the US.

Good Investing!

Comments

[Solution:]

This article failed to consider the global effect to the US market.
It is true that US will consume less, but hopefully the foreigner, especially those have just tasted the sweet of the captialism, will pick up the consumption. I think Japan in 80's-90's is a different story. Japan was a heavy export country. That market was serious invaded by Taiwan, Korea, Singapore, the later China, India, Vietnan, etc. They lost their maret share.
There is not without hope for US in the future. US future will be revived by the following facts:
- Consumption will pick up by foreigner, export industry will survive.
- US dollar continue to depreciated that help export.
- Crash of US dollar to alleviate the US debt.
- Low value of Dollar and good earning from export will lift US market.
- Political stability, cheap dollar, superior technology will make US stock attarctive to foreigner.
- Lower housing value and great environment will attract foreigner to invest real estate in US and lift housing price.
- Successful green energy policy will make this country the world leader again, and remove dependency of foreign oil.

Happy retiring, Bommers !

Jul 15 04:37 PM

[theblindtib...:]

You are right on the money. The Boomer is traumatized. She is like someone you pull out of a car wreck. Dazed. Bewildered. Befuddled. Meanwhile the market roars. Up 3% today on Intel’s “great results”. Intel is up 12% is quarter over quarter. Sounds good right? Of course later in the conference call we hear this translates into 15% down year over year. “A vast improvement on 26% down in prior quarter” the market responds. Inside the seam of this sequined prom gown we find Intel shed 2,000 jobs this past quarter. Among these many Boomers who are not coming back to this dance of musical chairs anytime soon. We are living in a fiction wrapped in denial at this moment in our history. The market continues to use metrics that speak to business as usual. Meanwhile Russia reports 10% drop in GDP over the first 6 months. I am sure somewhere, some pundit is now penning why this is good news and portends of a recovery to come.

Jul 15 04:44 PM

[whidbey:]

Wonder if generational Greed and Disregard of Society have turned and bitten this generation in the ass? I used to teach in a good university and most of the boomers did not show up very often (no attendance, just tests), and they did show they were often stoned. I nearly passed out in a lecture well one day when the pot smoke rolled down to the well and engulfed me. (free high?) And I recall coming back of Vietnam and being heckled by a few younger citizens. It is difficult to be mature when it feels so good to see another get a comeuppances, one richly deserved.
I sort of pity them. By the way they are terrible clients to manage money for; formerly big risk takers, dripping confidence.

Will, thank heavens I am above Schadenfreude.

Jul 15 04:46 PM

[User 353732:]

So the boomers face indefintely delayed retirement from economic value added, fewer vacations, more work, less consumption, more savings, more precarious healthcare and more general uncertainty? Previous generations called it real life and the human condition.
In fact, they face a journey that the overwhelming majority of Americans have faced(and been grateful for) since the founding of the Republic and an inconcievably better material life than virtually all human beings have witnessed in all history.

The disillussionment is a consequence of projecting into the indefinite future an aberrant and brief period in economic history.
What many boomers( not all boomers were or are delusional) are learning is that when you pretend or believe that the abnorm is the norm and the unsustainable is sustainable and high privilege and great good fortune are entitlements, it is reality and not you that wins.
Some boomers will become demoralized, bitter and vengful making themselves and those they touch miserable;others will exist in a state of denial for the rest of their existence; yet others will seek to grab what is not theirs (they will become even more predatory and selfish) but many will reexamine their lives, make important changes in priorities and lifestyles and , in my view anyway, respond positively and constructively. They will seek out the second chance and when it comes their way, they will take it.
Whether adversity is a curse or a blessing depends on what you make of it.

Jul 15 06:09 PM

[conceptwizard:]

Retirement is a thing of the past for a lot of the boomers. Many have been forced to work another period of time, many are worried that Social Security wont be there so are saving more. They really dont have any options but to pay down debt and try to fill an empty portfolio hole. This will keep the economy bouncing along the bottom for a long time. The biggest spenders are now the biggest savers. That has got to impact the Global economy.

Jul 15 08:26 PM

[johngonole:]

You can't have it all. Won't work out the way you've projected


On Jul 15 04:37 PM Solution wrote:

> This article failed to consider the global effect to the US market.
>
> It is true that US will consume less, but hopefully the foreigner,
> especially those have just tasted the sweet of the captialism, will
> pick up the consumption. I think Japan in 80's-90's is a different
> story. Japan was a heavy export country. That market was serious
> invaded by Taiwan, Korea, Singapore, the later China, India, Vietnan,
> etc. They lost their maret share.
> There is not without hope for US in the future. US future will be
> revived by the following facts:
> - Consumption will pick up by foreigner, export industry will survive.
>
> - US dollar continue to depreciated that help export.
> - Crash of US dollar to alleviate the US debt.
> - Low value of Dollar and good earning from export will lift US market.
>
> - Political stability, cheap dollar, superior technology will make
> US stock attarctive to foreigner.
> - Lower housing value and great environment will attract foreigner
> to invest real estate in US and lift housing price.
> - Successful green energy policy will make this country the world
> leader again, and remove dependency of foreign oil.
>
> Happy retiring, Bommers !

Jul 15 11:54 PM

[Moon Kil Woong:]

The US was facing a terrible demographic shift due to boomers anyway. At least when it comes to GDP and economic growth. The downturn only compounded an already bad thing. It also has compounded our Federal economic fall as peopple are becoming aware gaps in social security, medicare, etc. are all widening faster than expected on weaker government revenues.

Although you can't blame boomers for demographic trends the fact that boomers moved from free love to free wheeling spending doesn't reflect well on them. Having them wake up to the fact there is no free lunch is a little overdue. Certainly their kids know this well since they are picking up the tab along with TARP and stimulus debt. I suppose they will learn an important lesson as well, "Never loan your parents your credit cards."

Jul 16 01:30 AM

[Elvis Sinatra:]

On Jul 15 04:37 PM Solution wrote:

> This article failed to consider the global effect to the US market.
>
> It is true that US will consume less, but hopefully the foreigner,
> especially those have just tasted the sweet of the captialism, will
> pick up the consumption. I think Japan in 80's-90's is a different
> story. Japan was a heavy export country. That market was serious
> invaded by Taiwan, Korea, Singapore, the later China, India, Vietnan,
> etc. They lost their maret share.
> There is not without hope for US in the future. US future will be
> revived by the following facts:
> - Consumption will pick up by foreigner, export industry will survive.
>
> - US dollar continue to depreciated that help export.
> - Crash of US dollar to alleviate the US debt.
> - Low value of Dollar and good earning from export will lift US market.
>
> - Political stability, cheap dollar, superior technology will make
> US stock attarctive to foreigner.
> - Lower housing value and great environment will attract foreigner
> to invest real estate in US and lift housing price.
> - Successful green energy policy will make this country the world
> leader again, and remove dependency of foreign oil.
>
> Happy retiring, Bommers !

What are we manufacturing to export? Autos? TV's? Maybe some tractors...although Caterpillar isn't looking so hot right now. Sorry, we've lost too much industrial capacity.

And as to the "Foriegn Oil Reliance" myth...it will always be less expensive to pump oil overseas....it isn't cost effective in this country unless the oil prices are high.....and that's another can of worms.

Green Energy Policy? Ask the ethanol crowd how that's worked out so far.

I'll retire............to Belize!

Jul 16 01:54 AM

[cameroni:]

Oh Lord, Graham, you must be a boomer. Because only a boomer would have your insight on the issue. We were a bridge culture brought up on the savings mentality of our parents and the greater fears of our parents and grandparents memories of the depression and the Second World War.

We fought against the attitudes of thrift and cheapness that were revolting to us at a time of wealth and plenty and in a context of real social freedoms. We always felt though at the back of our minds that we could get by on less if need be and like our parents would struggle if necessary to make ends meet.

Boomers are a resilient class, opportunistic when easy money was to be made but also tough as nails at heart. We really never had to exercise our claws though because the currents of our generation treated us generously for the most part.

But Boomers are a practical and pragmatic bunch who bridged the gap between the modern, carefree and disenfrachised "x-box" era and the memories of the dirty thirties passed down to us by our parents.

We sense the trouble in the economy and the environment in a very personal way. We know we had it good. Even the best of all times. We worry about our global footprint. We are afraid of the future for our children and yet still feel we can make a positive contribution to changing the outcome of the world despite all the trouble in it.

And yes, Boomer's attitudes and beliefs can radically alter the outcome of this recession if they have real confidence in the future. I think it is because we think alike and want the world to turn out better for others than we had it for ourselves. Boomer's had the best of all worlds. They are also a generous lot at heart but especially want the everything to turn out well for their own families. That means making changes to allow change to progress smoothly.

I think you are very right in your assessment. Boomer's won't participate in the changes taking place now. Not in predictable ways. The reason is that boomer's see a way out for themselves that runs contrary to to the formula. They have a sense of other opportunities outside the system that allow freedoms that slavery to mortgages and 401k's don't consider.

Boomer's were not brought up in prosperity. They inherited it and so they rightly feel they can dis-inherit it too. Just walk away and not participate.

And therein lies the explanation for the very high and growing rate of bankruptcies even at a time when most people remain employed. Tribal loyalty is much weaker for the system as we know it than it is for our personal history and connections to our parents troubles and tribulations from the past.

We identify more with our parents loss than our creditors demands.

Jul 16 03:30 AM

[TeresaE:]

Yep, things are dramatically changing.

Just wait until forced health care hits and those same depressed Boomers (like me) aren't given their happy pills anymore.

Every policy coming out of Washington is guaranteeing two things: no retirement EVER for non-government union boomers, and the boomers children and grandchildren will be slaves to the "man" to pay for every benefit the boomers have gotten/will get.

The boomers are the FIRST generation in our history that is GUARANTEEING a lower standard of living for their children.

Jul 16 09:13 AM

[swaps:]

The boomers are 18 months behnd me and they have often been a pain in the butt.
So let them work longer. I have retired and they should work their butts off to help support me. Keep it up.
Let me add that the criticism of boomers though is a little overstated because facilitators and mass consciousness manipulators have been jerking them around like Pavlov's dog. To some exent we have all been subjected to that.
And naturally boomers were caught unprepared. As late as 2005 Fed Chairman Benranke - sic - assured the world there was no threat of any major job losses or meltdown. The hubris of the Fed had everything under control and closely monitored.
Boomers had it pounded into their brain that the Fed was good, the Fed would watch over them, the Fed would never cause another Great Depression like it did 80 years ago (actually the Fed's role in depression creation has been hidden from the boomers)
For 45 years I watched the news media gush over the Fed and intensely focus on every nuance as the Fed artificially manipulated rates up to destroy business and people and then artificially manipulate them down to bestow wealth and prosperity on the punch drunk work force.
The news media and the people who mindlessly absorbed its information, never asked why was the Fed allowed to do this over and over? A few of us asked, but we were just voices crying in the wilderness.
Of course, most of the wealth was accruing to the investment banking crowd who simply rode the elevator up, and then threw people out of the elevator (always more than were in there in fhe first place) on the way down.
But now the elevator isn't working and it's stuck on the second floor.
Boomers will just keep punching the button until they realize once and for all there is no one coming to get them up to the rooftop penthouse. Goldman Sachs is already there and those federally protected nation dismantlers have personal helicopters to get them in and out.
Meanwhile, battered Russia watches from the sideline and laughs. And China, which is moving into Russia without resistance, is plotting how to expand north from its base at the Panama Canal, an American made icon that boomers let Congress and their banker puppeteers give away. A symbolic passing of the torch of greatness, it turns out.
You see, boomers allowed the mass mind manipulators to convince them that the world should be different.
It is politically incorrect to resist.
The Italian communist Gramsci was correct. The West would never be defeated militarily. But it could be beaten through psychological warfare.
Boomers were skillfully programmed to end up like this.
Who is there to snap their fingers and get them to come out of the trance they know not they are in.

Jul 16 10:21 AM

[SAUBW:]

I am getting more than a little irked by the broad brush and really questionable assumptions people posting comments here use when referring to boomers (which is just an arbitrary description of an age group anyway). If you are a couple years younger or even 5-10 years younger did you do things much differently than so-called boomers and are more conservative financially? I don't think so! I also know of many people older than the boomer group that got so indebted on credit cards that they had to refinance houses repeatedly and even had to eventually sell them because they used up so much equity even living a relatively minimalist existence. But, if anything, the younger you are the more likely you ignored the tidbits of economic advice passed down from grandparents and parents as to the evils of debt (do as I say, not as I do)and got in far over your head on easier credit than boomers even could avail themselves of at the same age. I also resent the fact that some of these opinions lump all of us together as some sort of privileged generation. I started with nothing and worked full time jobs and part time jobs while going to school and paid for virtually all my education myself. I paid vast sums into Social Security over the last 40 years (worked since age 16). This is more paid in than my grandparents and parents paid in combined. And I'm still working, but less likely to get the promised benefits and if I do get paid they will be paid with weaker dollars and benefits based upon CPI calculations that get more laughable all the time . I resisted going bigger and bigger on houses the last 15 years because it seemed illogical to me that this could go on indefinitely. I had that "how can this debt spree go on" conversation with an older boomer friend many times during those years. If anything, it is our children and grandchildren that had it the "easiest" and have the most ingrained sense of entitlement (yes- we spoiled them so I will accept part of the blame for that...). But when people post nonsense appearing to attribute the bulk of the economic decline to boomers that seems ridiculous to me. When I have read lately about the boomer's sense of entitlement I consistently get the impression that the writer has the wrong generation in the crosshairs. They describe very few people I know of my age or the boomer group generally. So, other than boomers being a large demographic group, I believe that if anything they are more conservative and less inclined to blindly jump into excessive debt than younger groups. Kids nowdays think they know everything... Frankly, I place most of the blame for the likely deterioration in our children's prospects on a bloated over-reaching and irresponsible government (at every level, federal, state, local) working in cooperation with greedy financial institutions and the political class kow-towing to Utopian do-gooder morons. All this combines to eviscerate the middle class and it does not amke any differnece what year you were born.

Jul 16 10:32 AM

[OldLimey:]

I'm a boomer, albeit not in the US. Some facts to counter the stereotyping:

1. I don't and never have done drugs. (Free love also seems to have passed me by for the most part, but as this is a family show I'll move on.)
2. I have no debt, preferring to save.
3. I have never overconsumed. (I have, nonetheless, cut back on discretionary expenditure over the last year or so and see no reason to revert to the former pattern, modest though it was.)
4. I realised 30 years ago that neither my employer nor the state was going to be able to fund my retirement - so I did it myself.
5. I am not unique. Indeed, looking at the people I know it is those between 20 and 40 who seem to be the most devil-may-care overconsumers, not my fellow boomers.

It is not boomers as a whole who are responsible for the mess that future generations will inherit. It is the institutional structure created by a relatively small number of us. Specifically, the 'I want it all and I want it now' world that our leadership elite has created to enrich itself has been bought into lock-stock-and barrel by the 20-40s. The Boomers' sin has been to create an aspirations monster.

Jul 16 10:33 AM

[buoy:]

I have a hard time believing boomers will stop spending. They may slow down a bit, but after a lifetime of consumerism that would be a very tall order. You won't find boomers just drawing the shades and sitting in a rocking chair like previous seniors.

Jul 16 06:40 PM

[Dan in mpls:]

People do have short memories. The boomers who afford to spend will do so once they get used to having that smaller nest egg. The government for its part is hard at work creating the next inflation bubble which will put money in peoples hands. And dont forget how very many of us are on the government dole directly through government employment, pension or welfare (that includes social security). It wont be until the Chinese and others slow their purchase of our debt and nex taxes choke us that we will have a long term grinding downward of out great expectations.

Jul 16 09:04 PM

[growser7:]

This will sound like sacrilege, but if a generation is to be faulted, the blame needs to be laid at the feet of the "Greatest Generation". They are the ones who voted in the wealth-transferring legislation that will in the end choke us to death, and they have formed one of the most powerful lobbies (AARP) to squelch any reduction of senior entitlements---the "Third Rail." Current Soc Security and Medicare recepients are stabbing a fat hog, enjoying the best investment returns imaginable if their contributions are to be considered an investment. These progrmas are Ponzi schemes--and like all such affairs, it pays to get in early.

Boomers are dismissed as grasping and crass and venal. But it was their parents who sowed the seeds of destruction. I was playing T ball when the Great Society legislation was inacted, and was trying to get dates or was picking zits in the mirror when it was being liberalized again and again.

God has a dark sense of humor, laced with irony. The Boomers and their children are going to have to clean up after the Greatest Generation. Boomers aren't going to retire, many will live out their twilight years in poverty with the knowlege that their children will have it even worse.

I remember seeing a bumper sticker on an RV: "I am spending my children's inheritance." I didn't think it was funny then and I sure don't now. Moon Woong is right "Never loan your credit card to your parents."

Jul 19 12:03 AM

[Tresane:]

Isn't is great? We are still free to express our opinion, and man we have opinions. Since we have passed the "Boomer's" ages, I can be sorry for you. You did not cause the global economic melt-down. You were taken in by the clever crooks, who promised you a more secure retirement years for the use of your hard earned money. You learned a hard lessons. Trust no one with your money, remember Bernie Madoff.
The USA economy will eventually come back. The new Teckie Boomers, who are making 3 times the salary as their parents did, will be spending their new found wealth, or investing it smartly. Hang tough, all things passes with time, but a fool is one who never learn the lessons his life teaches him/her. If you can't pay for it, you can't have it. Live with less, you can't take the stuffs with you. Your kids don't want your "junks". simplify you will sleep well at nights.

Jul 27 10:35 PM

[437339:]

Growser7

You are correct . the " Greatest Generation " Boomers parents were for the most post self serving awlful people . They paid little into social security , rec'd by far the most benefits as food + energy were still in their COLA increases . The boomers took care of + co-supported their parents . Most women in this Greatest generation did not work + sat on their a** at home . The Boomers I know , myself included worked our way thru college , Worked our a** off + are sick + tired of hearing about " the boomers entitlements ". Entitlements hell -we paid into it for decades while the US government spent it past R Reagan unlocking The " locked social security fund ". DUH ? so now it's a crisis because the gubment has spent the money . WHY doesn't congress /senate take a pay cut + a cut in their benefits to help a budget crisis ?

Aug 04 10:15 PM