‘Pretty stingy’: Baby boomers are failing to spend their massive wealth — what’s driving this trend and why experts say they won’t change anytime soon
Over the years, baby boomers have accumulated a lot of wealth. Indeed, they’ve accumulated half (52%) of all the net wealth in the U.S. worth a total of $76 trillion, according to Federal Reserve data.
So why are baby boomers so tight with their money?
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The Economist shed some light on this character trait in a recent episode of “The Intelligence.” Interestingly, it found that baby boomers were stingy regardless of geography — from the U.S. to Italy to Japan.
“The big question we’re looking at isn’t why baby boomers aren’t spending a lot. It’s why they’re not spending very much at all,” says Colin Williams, a senior economics writer at The Economist, on the podcast. In answer to that question, The Economist identified three main factors that have led to this phenomena.
Three reasons why baby boomers are saving their pennies
The first reason has to do with leaving something behind for their children (or grandchildren). From the end of World War II to the 1970s, many of today’s baby boomers benefitted from stable jobs and a strong economy. So, “a lot of people in that generation feel a bit of an obligation to pass on as much as they can to their children,” says Williams.
The second reason has to do with the COVID-19 pandemic. With a higher risk of death or serious complications, many older people developed “hermit-like habits,” says Williams, and there’s evidence “those behaviors have largely persisted.” So, by avoiding big-ticket expenses like cruises, they’re “accumulating wealth almost by accident.”
The third, and perhaps most important, reason has to do with longevity. If you’re retired at 65, you could potentially live another 35-plus years, and you want to be able to live comfortably during those years. In a report by Corebridge Financial, 54% of Americans say they expect to live to 100, but only 27% believe their savings will be enough to last their lifetime.
They might also have concerns about paying for medical expenses or long-term care in the latter years of their retirement. So in a way, says Williams, they’re saving for their own care costs. And, in some cases, they might even be simultaneously supporting their parents from the silent generation.
“There’s a lot of competing demands for their money,” says Williams. “And so, in the short run, they’re thinking ‘I really can’t spend what I have.’ What that means for the rest of us is that we can probably expect boomers to remain pretty stingy for some time yet.”
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What this means for future generations
Since boomers control so much wealth, what they do with their money can influence inflation, interest rates and economic growth, The Economist argues. While decades of saving for retirement “has helped drive down interest rates,” economists speculated that baby boomers would then “open their wallets” in their retirement years.
But, it appears this won’t happen anytime soon. So what does that mean for future generations?
It’s already impacting the housing market. There’s currently a housing shortage of between 4 and 7 million homes in the U.S., according to a Pew survey — and homebuyers can expect to pay more for anything that’s available. That’s forcing many people to rent, but the same Pew survey finds that one-quarter of Americans are spending more than half their income on rent.
Yet, a Redfin analysis found that empty-nest baby boomers own 28% of homes with three bedrooms or more, while only 0.3% of Gen Z with kids own large homes.
So while many large houses have unused bedrooms, more than three-quarters of American homeowners aged 60 and over are considering staying in their current home as they age (if they’re not already), with more than half (51%) saying they have no reason to move.
On the flip side, we’re on the cusp of a generational wealth transfer from baby boomers to Gen X, millennial and Gen Z to the tune of $53 trillion, according to wealth management firm Cerulli Associates. But the bulk of that comes from households that are already wealthy.
And with the baby boomers expected to live much longer lives, and the ballooning costs of long-term care, younger generations may have to contend with a smaller inheritance than they were anticipating.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
