It reports that economists are struggling to get to grips with a surprising global trend.
In aggregate, the Boomer generation – born between 1946 and 1964 – is the wealthiest the world has seen.
Economists (the boffins, not the magazine) had assumed that, in retirement, Boomers would be unleashing their wealth on the world
The Economist cites the classic model – called the “life-cycle hypothesis” – that economists use to plot spending patterns based on demographics.
Developed in the 1950s, it assumes that individuals plan their spending across their lifetimes. They take on debt when they are young, assuming future income will enable them to pay it off. Then they save during middle age to maintain their lifestyles when they retire.
In short, as The Economist puts it, “in old age, they spend more than they earn, funding their lifestyles by selling capital (such as houses) and eating into savings”.
Based on that theory, there have been all sorts of concerns and articles written about a wave of Boomer wealth being unleashed. These have included the prospect of mass selloffs of large suburban homes and rising levels of consumption pushing up inflation and driving up global interest rates.
But new research suggests it isn’t happening and the traditional model is breaking down.
Boomers are still saving.
They aren’t selling their homes or unlocking capital with reverse mortgages at anything like the levels predicted a decade or so ago.
Many are choosing not to retire and to keep working into their late 60s and early 70s.
Their spending and saving behaviour suggests they still live with the burden of financial stress. Or that they feel they do... which might be more to the point.
There’s no doubt inflation has been tough for many older people on fixed incomes. Through the first phase of the pandemic, young people were able to leverage the tight labour market and their job mobility to boost their incomes.
But that phase didn’t last.
Higher interest rates pose less of a problem for older generations; in fact, they boost savings. And the biggest economic risk in a recession is losing your job.
That, too, affects age groups disproportionately. The unemployment rate, at 4.3 per cent, still sits well below the historical average of 5.5 per cent.
But youth unemployment figures typically run at three times the average, according to Stats NZ.
Data out this week from credit agency Centrix paints a stark picture of the generational differences in this tough economy.
“The cost-of-living crisis has not impacted everyone equally, as evidenced by consumer arrears, which are a sign of financial stress,” Centrix managing director Keith McLaughlin said.
A clear divide had emerged since 2022, “a tale of two economies”, he said.
Consumers under 25 were among those hardest hit, as they were more likely to experience cashflow problems and had limited savings to rely on.
But consumers aged 40-49 were increasingly experiencing debt stress, with many having home loan commitments and grappling with higher mortgage rates.
“In contrast, consumers aged 50 and above are faring better, with lower levels of arrears since 2020,” he said.
Let’s be fair here and point out that the divide seems to put my generation (Gen X) on the same side of the divide as the Boomers.
Older generations are not only handling the economic downturn better than younger ones, but it looks like we might actually be in better shape than we were before Covid hit.
At the least, we can say that fewer of us are dealing with the acute financial stress of the variety that has debt collectors knocking on the door.
That’s probably not surprising given that we oldies are more likely to have our mortgages under control and some levels of savings as a back-up if we face a short-term squeeze.
So what gives? Why aren’t Boomers out there living it up, lifting the economy out of recession?
The Economist offers three factors: “bequest motives”, the Covid-19 pandemic and worries about aged care.
The first factor implies Baby Boomers are concerned that tougher economic conditions mean they need to leave more to their children.
It’s a bit of a Catch-22, of course: if they collectively spent it all, the economy would boom and conditions wouldn’t be so tough.
The pandemic may have had an effect, making people more cautious and conservative generally. The psychological and social ramifications of that trauma are still being understood. There’s plenty of work being done on how it has affected young people – but less work on the impact on older generations.
Finally, there is the fear of the financial costs of late-stage aged care. The Boomer generation is the first to seriously contemplate en masse living to 100 (or into their 90s at least). They are also less likely to want to (or be able to) rely on family for care.
The good news in all of this is that fears a mass Baby Boomer spend-up would cause a fresh wave of global inflation look unfounded.
The conservative financial approach of the Boomers means that – once this interest rate cycle plays through – we are more likely to head back to the low-inflation environment we experienced through the first two decades of this century.
The bad news is that we may also be facing another period of low, slow economic growth, which isn’t great for economies trying to create wealth and address inequality.
