Boomers Fret About Debt but Still Heap It On

Everybody worries about the finances of the baby boom generation. Surveys indicate that its members save little money but worry about retirement and their kids’ educations. One study says they’re more prosperous than their parents were; another says they’re not. It’s said they can barely afford today’s housing and fuel but overbuy luxuries on credit.

The 77 million baby boomers, born 1946 through 1965, are almost a third of the U.S. population and a legitimate focus of concern. “The very size of the generation makes it powerful in terms of spending,” said Thia Golson, editor of the monthly “Boomer Report” published by Find/SVP, a New York firm providing information services to corporate clients. She added: “But their numbers will be a liability later, when there aren’t enough nursing homes, Social Security money or children to take them in.”

In fact, there’s some problem now, if indeed the boomers already have money troubles. Everyone with something to sell, including loans, wants to market it to the boomers; few consider the future financial health of their golden goose. “Nobody can make money telling people to save,” observed Robert Ortalda Jr., a Redwood City, Calif., financial consultant.

The studies bring a mix of good and bad news. Family income has “stagnated,” according to a 1985 paper, “The Economic Future of the Baby Boom” produced by the Urban Institute in Washington. “In the decade from 1973 to 1983,” co-author Richard Michel said, “inflation-adjusted earnings went up only 16% for young men passing from age 25 to 35,” compared to more than 100% for those in that age group in the 1950s and 1960s. Men who aged from 40 to 50 in 1973-83 saw their earnings decline 14%, compared to gains of at least 25% made by men of the earlier generations.

Changing Jobs an Issue

Still, baby boomers “have more money,” says Fabian Linden, who wrote the 1987 report “Baby Boomers in Mid-Passage” for the Conference Board in New York. The average income of someone in the 25 to 35 age bracket in 1985 was $26,000, compared to $16,000 (in 1984 dollars) in 1955. For those 35 to 45 years old, the figure was $35,000, compared to $15,000 in 1955.

There’s further agreement about future problems. Many baby boomers can get substantial wage increases only by changing companies, which means, Ortalda said, “that they don’t build up a pension.” What’s more, there’ll be no boom-size younger generation to pour in the contributions when the boomers must turn to Social Security.

‘Outrageous Expectations’

Unfortunately, they don’t save--not compared to their counterparts in Europe or Japan, or even to their own Depression-forged parents. They worry about the future: a 1987 Rolling Stone survey found that 44% worried about money for retirement, 38% about just making ends meet and 44% about money for children’s college. But often they “don’t do anything about their retirement, or about their kids’ college education,” Ortalda said. “I see people scrambling to get a college fund started--when their kid’s already 14.”

Nevertheless, they’re spending--on vacations, electronic equipment, eating out. Many analysts chalk it up to the character of the Me Generation, whose parents worked hard to give them everything. “Baby boomers saw how their parents thrived, moved ahead and prospered, and came (to adulthood) with outrageous expectations,” Linden said. Their parents’ predisposition was conservative, says Ortalda. The baby boomer spends, “saying, what the hell, I’ll make more later.”

Some say it’s not all their fault, given the increased costs of housing, gasoline and other necessities. In the 1950s and ‘60s, the Urban Institute found, the monthly mortgage payment on a median-priced house was about 15% of a 35-year-old’s gross monthly income; in the early 1970s, it was 21%; in 1983, it was 44%.

As for the demands on discretionary income, “there’s lots more to buy,” Linden said, “an extraordinary abundance of ways you can spend your money.” And there is pressure to spend, from sellers and from lenders who invented, then pushed the kind of escalating, open-end loans (credit cards, lines of credit, home equity lines) that permit continual additions to the debt and minimum payments on the balance.

The result is a generation with “an enormous run-up in debt compared to their income,” Michel said. They’re better off than their parents in the relationship of debt to net assets--usually concentrated in the home--but unless they liquidate, that doesn’t pay bills. Much is “revolving” debt, that category of high-interest credit loans that in the last decade went to 27% from 18% of all consumer installment credit, which now totals $694 billion, according to the Federal Reserve Board.

Credit cards are only the tip of an iceberg, but a good tip-off: “I think someone with permanent credit card debt which they’re not paying off has got a problem,” Ortalda said. “It’s not pathological, like a spending disorder. It’s just that baby boomers have no bearings, no sense of their limits, of where to stop. Their credit (accounts) are just (an indicator) of the fact that they can’t handle expenditure.”

‘Strict Spending Diet’

They certainly can’t handle crises: 75% of the people in real financial trouble got there because of losing a job or medical expenses or divorce, according to Donald Badders, president of the National Foundation for Consumer Credit in Silver Spring, Md., an umbrella organization of 426 consumer-credit counseling services. “They keep thinking the situation is going to correct itself and don’t change their way of living,” he said. They continue to charge, he said, and go on “using the cash feature on one card to pay off another.”

One solution is planning, in manageable increments--another habit not ingrained in the post-war generation. Ortalda’s “financial sanity” program, for instance, “terms out” credit debt--by imposing a payoff schedule that works like a term loan--and emphasizes monthly saving instead of periodic leaps into lump-sum investments. Badders’ group recommends “a strict spending diet” of paying off debt and buying only “on a 30-day basis,” except for occasional, planned big purchases (washer-dryer, car).

This is old-fashioned budgeting. It’s something the boomers’ parents certainly would understand, and may mistakenly have tried to save their offspring from.