"Have Baby Boomers Traded their Children for Material Wealth?"

By Chris Paul

Introduction

The baby boomer generation occupies a unique place in today’s economy in that its decisions have and continue to impact our daily lives. We have witnessed the rise and fall of certain industries that have geared products towards the baby boomers at various points in their life cycle. While baby boomers faced tight labor market competition upon their arrival into the workforce, they have persevered, turning unfavorable conditions into economic prosperity. They have seen their material wealth increase significantly from that of their parents, but at what cost? Have baby boomers lost another type of wealth in their quest for financial success? These are questions that economists such as Richard Easterlin and Diane Macunovich have devoted much of their effort towards answering.

What is Material Wealth?

Material wealth is difficult to measure in finite terms for it encompasses so many aspects of ones life. It also depends largely on an individual’s view of material importance. In generic terms material wealth can be viewed simply as a measure of one’s annual income. Over a person’s life cycle one can typically expect to see income increase with age up to the point of retirement. In order to make quantitative comparisons of how children are doing relative to their parents, comparisons need to be made at the same age. Thus if the baby boomers income profile is consistently above that of their parents, we can assume that these boomers have achieved a level of higher economic status.

A variant of the pure income measure is the income per adult equivalent (IAE) which is designed specifically to reflect the impact of such demographic factors as; relative wage, unemployment, the number of earners, and children per household, on the cohort’s average income. The objective of using the IAE is to obtain a more accurate measure of differences in households and trends in times of economic prosperity by allowing for variations in household size and composition, and for economies of scale in consumption.

Another measure of material wealth is the comparative savings rate, due to the fact that income influences wealth accumulation via savings behavior. While popular myth purports that the savings rates of baby boomers are substantially less than that of their parents, studies have shown that in fact savings rates of both generations are roughly comparable. In a study of the savings rates of 25-44 year olds in the 1980’s (the boomers) only a slight decline was observed from the rates of the same age in the previous two decades.'

A third measure of material wealth and perhaps the single most important measure of personal wealth is home ownership. Home ownership rates do not compare well with rates of ownership in parental generations. These differences reflect changing attitudes and perceptions involved in demographic behavior such as the reduction in family size and the formation of fewer formal unions between couples. Results show that baby boomers are not doing nearly as well with regard to home ownership as they are with income status. Although this smaller proportion of home ownership among the baby boomers has partly to do with the fact that mortgage rates remained abnormally high in the mid-1980’s as the boomers were moving through their prime buying years.²

It is plain to see that many measures of material wealth can be used to measure material wealth among the baby boomer generation, but economic gains are moderated by family circumstances and priorities which have altered dramatically from that of their parents.

Costs of Economic Prosperity

To say that the baby boomer generation has met with great success despite unfavorable labor market conditions, while correct, would be understating a grossly misinterpreted situation. The economic gains and the accumulation of wealth has come at a price that perhaps will not become relatively significant until the boomers begin to reach the retirement age. Here it is important to note that financial success has meant that, in general, more boomers have remained single while more in unions have remained childless. When boomers have had children they have been in fewer numbers than their parents. These decisions carry importance in that they could affect the baby boomers on another level as they enter into the retirement years. For baby boomers, the number projected to have never been married is considerably higher than for the same age cohort of their parents. Also, boomers are more likely to have a higher incidence of broken unions resulting mainly in divorce than their parents. Current projections for baby boomers who have never been married or in broken unions are estimated at 30% - 40%.' Not only are boomers less likely to be living with a spouse, but they will have fewer children as well. Projections such as these are considered accurate as the leading edge of the boomer generation is now reaching the end of their reproductive years. Fertility rates of the boomers have also corresponded and reinforced this projection. Lastly, increases in the number of hours worked has had a significant impact on both leisure time and privacy within households. Evidence supports the notion that baby boomers are more inclined to work longer hours rather than devote that time to themselves and their families. This increase however is not limited solely to the male boomers. The rise of female participation in the workforce has greatly changed the essence of the traditional family, and family values/roles.² The loss of personal time has shown its effects in the number of boomers who have been in broken marriages and the presence of fewer children in the family.

While generally baby boomers have not maintained the same demographic patterns as that of their parents, differences within the baby boomers do exist in accordance with income class. Evidence suggests that within the boomer cohort differences between low and high income groups compared to the parental generation make the boomers much better off in some cases and worse off in others.

In terms of income, the highest income segment of the boomer generation surpasses the parental general by almost twofold. However, the lowest income segment of the boomer generation presents a different story. For this segment income levels remain the same or decline irrespective of age. In contrast, the parental generation had the benefit of income growth in their middle years, before the growth in inequality flattened their income profiles. As a result of this, if one assumes that incomes of all cohorts remain flat into retirement, the boomers’ early advantage largely disappears.²

With regard to savings, lower income boomers generally save less than high income boomers due to increased financial burdens and economic pressures. In addition, tight labor markets, which tend to drive wage rates down, have shown to have a greater adverse affect on lower income groups than their upper income counterparts. We have already seen that at any age baby boomers are less likely to be in intact marriages, a figure which is true across income distributions. However differences among the boomers do exist with regard to family circumstances. Among those boomers not in intact unions, a disproportionate share of upper income boomers are shown to never have been married. In comparison, in the lower income group there is a disproportionate share of persons coming from broken marriages, especially divorced persons.' Figures for all income classes suggest that as baby boomers move into retirement they will be less likely to be living with a spouse and are more likely to have fewer children than their parents.

Conclusion

The effects of enhanced financial success of the baby boomers can be witnessed in the number of boomers who have never been married or have been in broken unions. Greater numbers of baby boomers have had fewer children than their parents, while more boomers have chosen to live together rather than marry, mainly for economic reasons. These decisions with regard to family circumstances are important in that they could potentially impact boomers in their later years. For many in the boomer generation, retirement income will not be a central concern, even in the face of increased costs in assisted care facilities and medical expenses. Rather the role of the family both as a means for support and a foundation for primary care is in jeopardy. Fewer children translate to an increased financial and temporal burden for children of the baby boomers. These children will need to devote greater amounts of their time to caring for their families rather than apportioning that time for parental care to a number of siblings. This becomes increasingly difficult when one considers the physical location of the parents to the siblings, and the lack of proximity to each other in certain cases. Coupled with the fact that greater numbers of baby boomers will enter retirement without a spouse, it could mean that boomers will increasingly find that they have no one with which to share their accumulated wealth.

Lastly, as a final thought, it is important to note that economic well-being is not the same as total well-being. Over the course of several decades the baby boomers have raised their levels of economic well-being, and when speaking of the success of the baby boomers, this is what we are referring to. However, although the baby boomers may look better than their parents in terms of economic affluence, it is by no means a guarantee that they would fare as well on a more comprehensive gauge of welfare. The analysis in this paper itself suggests that the baby boomers’ have been able to achieve this level of economic success at the expense of non-economic aspects of welfare such as family life, leisure, and personal time.

REFERENCES

Richard A. Easterlin, Christine M. Schaeffer and Diane J. Macunovich, "Will the Baby Boomers Be Less Well Off Than Their Parents? Income Wealth and Family Circumstances Over the Life Cycle in the United States" in Population and Development Review, Volume 19, Number 3, September 1993, pp. 497-522.
Richard A. Easterlin, Christine MacDonald and Diane J. Macunovich, "How Have American Baby Boomers Fared? Earnings and Economic Well-being of Young Adults", 1964-1987. In Journal of Population Economics, Vol. 3, 1990, pp. 277-290.