Baby Boomers : Few Cash In on Image of Affluence

As a computer analyst earning more than $32,000 a year, 31-year-old Bill Mitchell could be your typical affluent baby boom professional. But, rather than enjoying the glow of his career success, Mitchell is increasingly frustrated.

After paying rent on his Hermosa Beach apartment and other expenses, he, his wife and two young children have little money left over to enjoy the good life, he said. They can afford to eat out only about once a week. And he has little left over to save or invest in stocks, bonds or what he really wants--a house.

“I’m making more money than my dad did ever in his life, but I can’t afford a home and he could,” Mitchell said, noting that his car payments of $260 a month were more than his father’s house payments at $150 a month. “It’s frustrating. I’ve got a good and stable job with potential for upward mobility, but yet with just one income, to get a real nice home would be a hard situation.”

Stereotype Unrealistic

Many of the 76 million Americans born during the so-called baby boom during the two decades following World War II would find Mitchell’s case painfully familiar. The popular stereotype of baby boomers as free-spending, self-indulgent, affluent young urban professionals (yuppies) driving BMWs, buying video cassette recorders and taking Club Med vacations is far from reality for the bulk of the generation, according to economists, policy-makers and other experts.

Instead, baby boomers are being squeezed by multiple economic forces: a labor market crowded by their massive numbers, the national shift of employment from manufacturing to service industries, slower economic growth, higher inflation, higher real interest rates, higher taxes and other factors.

Baby boomers are finding it harder to afford homes and, despite their image as free spenders, have been actually spending less on luxuries than their predecessors did a decade ago.

Adjust to Predicaments

Many economic, social and demographic changes of the last decade--smaller homes, more women in the work force, later and fewer children per family, adult children leaving their parents’ homes later, a lower savings rate and higher consumer debt--are attributed at least partly to baby boomers adjusting to their financial predicaments, many experts contend.

“While the middle class as a group is not disappearing, the young middle class (principally the baby boomers) has experienced a dramatic decline in its ability to pursue the conventional American dream: a home, financial security and education for their children,” said a December report prepared by the Urban Institute, a Washing ton-based think-tank, for the congressional Joint Economic Committee.

“The whole idea of the baby boom as a group of super-affluent yuppies is a gross distortion,” said Sandra Shaber, a consumer economist at Chase Econometrics, a leading economic research firm.

In fact, a typical young family headed by a person between 25 and 34 hardly fits the yuppie stereotype, the Urban Institute report said. It consists of a husband and wife and one child under age 12 earning a median pre-tax family income of $25,157, “hardly enough to buy a BMW and eat out regularly,” the report said.

Despite a higher incidence of two-income families and higher educational levels, average income for such families fell 14% between 1973 and 1983, according to the Census Bureau. That makes baby boomers financially worse off than their counterparts at the same age 10 to 20 years ago, economists say.

Such a trend has far-reaching psychological, social, economic and political implications.

The inability of many baby boomers to quickly match their parents’ status--suburban homes, providing for two or more children--is leading to a growing disillusionment in the generation and even might be a factor behind the growing divorce and suicide rate, some experts argue.

Baby boomers’ lower savings rate, if continued, could depress future investment in business and technology. Their high rate of borrowing through credit cards and other debt instruments--seen as a major force behind the recent ballooning of consumer debt--sparks fears that they may be overextending themselves and may have to cut back spending, which could throw the economy into recession, some economists fear.

‘Generational Equity’

The plight of baby boomers and their children also is increasingly injecting issues of “generational equity” into debates over policies governing taxes, the federal deficit, Social Security and other issues--particularly since baby boomers account for nearly half of all adults of voting age.

One example of the growing interest in generational equity is the formation last year of a special-interest organization, Americans for Generational Equity, co-chaired by Sen. Dave Durenberger (R-Minn.) and Rep. James R. Jones (D-Okla.) to promote reform of Social Security and Medicare and other policies.

“A number of disturbing trends now indicate that the immense baby boom generation . . . will collectively face a disastrous retirement, and that its children will, in turn, be much more heavily burdened with the support of its parents than any other generation in our nation’s history,” the group argued in its statement of purpose.

The group pointed out, for example, that given baby boomers’ propensity for having fewer children, there will be far fewer workers to finance the Social Security benefits of baby boomers when they reach retirement age--and those workers will be taxed at a far higher rate than now.

Baby boomers’ children also are suffering financially. About one of five of the nation’s children are living below the poverty level, a rate far above that for the nation’s elderly--a dramatic reversal from 15 years ago when the elderly had higher poverty rates than children. Analysts are concerned that these children from low-income families will become low-income adults unable to make full contributions to the Social Security system, reducing the funds available for baby boomers’ pensions.

Social Security Changes

“Baby boomers can count on some Social Security, but not the present Social Security system,” argues A. Haeworth Robertson, a former chief actuary of the Social Security Administration and now a managing director of William M. Mercer-Meidinger Inc., a leading employee-benefits consulting firm. “The benefits are likely to start much later and will probably be smaller than they are now.”

Growing awareness of baby boomers’ economic plight also is causing businesses to reassess marketing and advertising strategies. Some companies that tried to tailor advertising campaigns exclusively to affluent yuppies “have come to realize that there really aren’t enough of them out there to sustain such a marketing drive,” said Peter Kim, director of consumer information for J. Walter Thompson USA, a major advertising agency.

The agency, in a recent study entitled “The New American Consumer” based largely on Census Bureau data, said that about 42 million, or 72%, of employed baby boomers aged 21 to 39 are working primarily in low-paying, service industry jobs earning an average income of about $10,000 a year. By contrast, the study says, there are only 3 million yuppies earning an average income of about $39,000 annually.

Another 11 million baby boomers are what J. Walter Thompson calls “would-be’s”--those with educational levels and life-style aspirations similar to those of yuppies, but without yuppie-like incomes. Most of these would-be’s are schoolteachers, social workers, dental hygienists and other relatively low-paid service workers who “will never generate the necessary earning power” to become yuppies.

Indeed, advertisers are increasingly recognizing that the Americans with the greatest spending power are pre-baby boomers between the ages of 40 and 60, who enjoyed the robust growth of the 1950s and 1960s and acquired homes before the big interest-rate and price run-ups of the 1970s, says Alan J. Gottesman, advertising analyst with the investment firm of L.F. Rothschild, Unterberg, Towbin.

Fewer Luxury Goods

Baby boomers, the Urban Institute report said, have been spending less on luxury goods than people of similar age a decade ago. A typical young family in 1981 spent 14% less on furniture, 30% less on clothes, 15% less on personal care and 38% less on charitable contributions (adjusted for inflation) than a similar family in 1973, the report said.

Key to this plight is the higher cost of home ownership, experts say. Home prices have increased faster than inflation in the past decade, while mortgage rates are near historical highs, adjusted for inflation.

The Urban Institute report noted that in 1983, a typical 30-year-old man needed 44% of his paycheck to cover a typical mortgage, compared to only 21% 10 years earlier. Accordingly, the rate of home ownership has declined to 63.8% of American households from 65.8% in 1980, which translates into about 2 million families that would have been expected to become homeowners that instead are renters, George Tresnak, economist for the National Assn. of Realtors, said.

This difficulty in buying a home--even with two incomes--is a major source of frustration among baby boomers, particularly since many of their parents were able to buy homes on just one income, many social scientists say.

“So many youngsters came from affluent homes, they also have expectations of having a home in the suburbs and two cars,” said Fabian Linden, executive director of the Consumer Research Center at the Conference Board, a business research organization. “These kids walk out and expect to duplicate what they left. But they can’t do that instantly.”

Help From Parents

“I don’t know of anyone in my age group and income bracket who’s able to buy a house without having money left to them by their parents or having their parents loaning them the down payment,” said a 31-year-old Los Angeles attorney, who was able to make a $46,000 down payment on a $232,000 house in Beverly Hills only because she received a large sum from her father. But nearly all her other friends are renting, she said, and “they are very angry. They make out their $1,200 rent check every month and it’s just money out the window.”

“People are more disillusioned,” she added. “They feel that making a lot of money would bring them instant happiness, but it hasn’t.”

“It’s very frustrating for me to think about the amount of money it takes to buy a house,” said Richard Reeves, 34, a Sepulveda, Calif., wine salesman who earns about $25,000 a year to support his wife and 10-month-old child. Those of his friends who have bought homes “had to deny themselves a lot of pleasures,” such as vacations and children. “I don’t think that kind of denial is worth shortening the time it would take for me to buy my own home.”

To be sure, baby boomers’ financial condition could improve as they grow older and move into higher paying jobs. The low birth rates since 1964--which created the so-called baby bust generation--are likely to result in less competition for entry-level jobs over the next decade. That could raise wages and benefit baby boomers as well.

Many baby boomers also are in line to inherit wealth from their affluent parents. Consumer analyst Linden pointed out that the 40% of the population over age 50 holds 77% of the nation’s financial assets. “Never before in this country has any generation stood to benefit from such a high level of inherited wealth,” Linden said of the baby boomers.

Grow Out of Problems

And if the economy returns to growth rates and productivity increases similar to those of the 1950s and 1960s, “this generation would simply grow out of its problems,” said Richard C. Michel, director of the Urban Institute’s income security and pension policy center and a co-author of the institute’s study of baby boomers.

But many economists point out that there are few signs that robust productivity growth is returning. And even if it does, it may not translate into better times for baby boomers. That is at least partly due to the shift from high-paying manufacturing jobs to lower-paying service jobs.

“A laid-off steel worker in 1984 had very little prospect of quickly restoring his former wages through promotions in a new service sector job,” the Urban Institute report said. “His plight was thus far more serious than a laid-off steel worker in the 1960s,” who could find another manufacturing job that would eventually restore his old wage level.

The baby bust could also hurt baby boomers. With fewer younger people in the population, for example, there could be reduced future demand for housing, which would depress housing prices and thus make it harder for baby boom homeowners to increase their equity as homeowners who bought before the mid-1970s did.

However, many experts contend, baby boomers have adjusted to their difficult prospects and will continue to do so. USC economist Richard A. Easterlin argued that by continuing to have fewer and later children and more working wives and mothers, baby boomers have more than offset their declining real incomes. He said that while baby boomers’ real income per household has declined in the past decade, their per-capita income has not, simply because they have compensated by having smaller families.

‘Psychological Stress’

But these and other sacrifices, coming amid baby boomers’ high expectations, have led to “greater psychological stress” among baby boomers, which in turn could be a reason for higher suicide and divorce rates, Easterlin contended.

Even higher-income yuppies express frustration at how little they are able to save or invest despite their relatively lofty earnings.

“I have a lot more money than my parents had when they were my age . . . but it seems that my parents were able to put away more,” said a 28-year-old unmarried Los Angeles attorney making $52,000 a year, far above the average for his age. Despite his high income, he said, he has little left over for savings, cannot afford the down payment on a home and has run up four of his six credit cards to the maximum borrowing limit, factors that partly explain why he did not want to be identified by name.

And, he said, his higher salary has come at the expense of long working hours, sometimes seven days a week, affording him little time to enjoy exotic vacations or other pleasures.

“My parents definitely had a lot more free time to do a bunch of things, like take us kids on trips,” he said. “If I had a family right now, I don’t see how I could do half of the things they did.”

Others echo those frustrations.

Electronic Gadgets

“Part of the problem with our generation is that there are so many things around--VCRs, electronics. They weren’t as much of a factor when we were growing up,” said Pat Gallegos, 33, an independent lighting consultant from Northridge who considers himself among an army of frustrated baby boomers.

“We’re supposed to be part of the yuppie baby boom generation; we’re certainly supposed to be able to easily afford these things, but the reality is that it (the good life) is not as easily accessible as one would think,” he said. “My parents weren’t well off, but there always was enough to go around for us six kids.”

Gallegos, who started his own business after being laid off from a $25,000-a-year job at Walt Disney Productions, finds that building a nest egg has been difficult.

“We realize the necessity of it, but there’s just not any extra money available right now.” Any extra money he gets, he said, he tends to put “into a new brochure, flyer, trips to see clients” or other things for his fledgling business.

Makes Heavy Sacrifices

Harry Rahman, 38, an engineering project coordinator at Hughes Aircraft who makes about $23,000 a year, said he has sacrificed heavily to make ends meet for himself, his wife and three children.

“We don’t go out at all. Our big splurge was buying a VCR. That was our Christmas gift to the whole family.”