Monday, 28 July 2014

Why Baby Boomers are Rich - They Worked Hard for the Money

So you'd better treat them right.

The reason I have so far avoided discussing the disproportionate wealth held by the Baby Boomer generation (1945 to 1964) with my parents is that I know how they will cut me down.

"We worked hard for it." They'll sniff dismissively at me (Gen X, 1965 to 1984), further implying that I do not have 'it' because I have not worked.

I could throw up many reasons for my generation's relative failure: relatively insecure employment, declining public benefits, the opportunity cost of education instead of early entry into the workforce. But they would seem like excuses to those who recall times when they could walk out the door of one employer straight into another.

So what exactly is the wealth premium on a life of stoic employment?

Regular saving will result in a net wealth that grows exponentially. So you'd expect the same at least across each generation. Furthermore, if Baby Boomers were significantly more diligent, their individual net wealth would be even more pronounced.

Household Wealth and Wealth Distribution, Australia 2011-2012 Table 25, Age of Reference Person

Household Wealth and Wealth Distribution, Australia 2011-2012 Table 25, Age of Reference Person

Age15-2425-3435-4445-5455-6465-7475 and overAll households
Birth Year (From)198819781968195819481938
GenerationGen YGen X/YGen X (1964 – 1984)Boomer (1946 to 1964)BoomerGreatest
Mean net worth$115,568$247,153$572,097$872,805$1,086,365$1,007,645$786,879$728,139
Median net worth$40,316$136,638$357,995$566,661$723,623$638,509$542,080$434,234
Mean income (gross per week)$1,548$2,073$2,239$2,306$1,881$1,065$746$1,847
Median income (gross per week)$1,357$1,767$1,894$1,927$1,425$723$584$1,442
Unemployment Rate (Non Indigenous)13.5 to 9.1 %4.9%4.1%3.5%3.9%Population Characteristics, Aboriginal and Torres Strait Islander Australians, Australia, 2006
Estimated Persons in Population (thousand)788.13728.45663.15240.33490.91967.91310.3
Difference on previous semi-cohort
Mean net worth113.86%131.47%52.56%24.47%-7.25%-21.91%
Median net worth238.92%162.00%58.29%27.70%-11.76%-15.10%
Mean income (gross per week)33.91%8.01%2.99%-18.43%-43.38%-29.95%
Median income (gross per week)30.21%7.19%1.74%-26.05%-49.26%
In fact, the generation with the largest percentage wealth gap between themselves and their antecedents is (drum roll) Generation X! There is a greater gap between Gen X and Gen Y than there is between Baby Boomers and Gen X, making a somewhat linear progression, where I expected an exponential one. Inflation does not cut it as an explanation because firstly, Baby Boomers are more likely to be employed than other generations, and at current - if not higher - pay rates. Secondly, inflation cuts both ways: salaries were smaller when Boomers entered the workforce, but so were expenses like houses, leaving plenty of room for savings.

The UK data used by David Willets MP in his London School of Economics presentation (linked above) also displays the Gen X-Gen Y wealth gap as the largest.
Hills Equality Report table 8.1, from ONS Wealth and Assets survey 2006 – 2008

Hills Equality Report table 8.1, from ONS Wealth and Assets survey 2006 – 2008

Birth Year (From)198419741964195419441934
GenerationGen YGen XGen X (1964 – 1984)Boomer (1946 to 1964)BoomerGreatest
Wealth per person by age£12,900£65,900£174,900£287,800£416,100£306,000
Difference on previous semi-cohort410.85%165.40%64.55%44.58%-26.46%

That's not to say those (us) Gen Xers - often characterised as passive-aggressive dropouts - have nothing to complain about. If volatility increases in labour and capital markets then Gen X may not be able to replicate even the Baby Boomers' modest success by the time they attain the same age.

I speculate that Baby Boomers are perceived to be wealthy primarily because their wealth has crystallised, whereas younger generations' wealth is still potential and uncertain. Furthermore, Boomers are a huge demographic, so they are wealthy as a cohort, even if they are not individually so.

Perhaps this is a typically caustic Gen X thing to say, but I am glad Baby Boomers did not work harder, for they would have ended up with a greater share of the wealth.

Aah, I can hear my Boomer parents' response: "We were wealthy but we spent it all on you."

How deftly the sense of accomplishment is again leeched from one generation to the previous. I sincerely mean 'well played', when I say, "Yeah. Like, whatever."

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