[lost generation] the coming boomer problem

Gordon Brown's "theft" of the pensions angered most of us but it also hid another disturbing truth:

Unless the bulk of the population starts to put money aside for retirement, the UK is heading, as the demography really kicks in a decade from now, for fiscal meltdown, to say nothing of the prospect of millions of our pensioners living in poverty.

We can try to put that down to the current economic climate and the impossibility of saving but the truth is that there were two other factors in there:

1. The huge gap between income and cost of things, e.g. housing, cars, this gap filled by kindly banks offering credit at exorbitant rates, let alone bank charges and what's more, offering it to sub-primes;

2. Rampant consumerism, fed by the media, advertising and the Joneses down the street. Where once a couple saved for a year for a holiday, now even petrol was paid for on the card.

No one said it could last but the Fed and other central banks knew full well it couldn't, as well as the government. The FOMC October 2006 report illustrated that nicely with their projections of lowered interest rates and other goodies.

One issue which has been largely forgotten in the mess but which was popular just after the turn of the millennium was the generation war between the Boomers and Generation X. In hindsight, much of what the media wrote at the time was wide of the mark but some was on the money. Here are some blasts from the past, largely in an Australian context but having relevance in The U.S., Britain and Canada as well:

Only 20 per cent of Boomers will have enough money when they retire and they’ll need to be supported by the community. Australian Treasurer Peter Costello said on December 19th, 2003, "We must start confronting what we call the ageing of our population. This is one of the greatest challenges facing our society today."

America recognized the problem too. Stephen McConnel wrote, in Open Spaces:

The essential message here is that the demographic bulge caused by the aging of the baby boomers will create much more severe conditions than our politicians are willing to admit and deal with. The authors believe that we are not being told the full extent of the liabilities which face the country in the form of future Social Security and Medicare obligations.

Ditto Britain. And with women's newfound independence, they therefore also come under the spotlight.

Bernard Salt, a professional forecaster and partner at accounting and business advisory firm KPMG, advised, in 2003, on the Australian situation:

At the moment, 2.4 million Pre-Boomers (born 1931-1946) are supported on the pension by the taxes of 4.1 million Baby Boomers. But when the boomers leave the workforce, the pensioner numbers will jump by 60 per cent, while the number of taxpayers will stay more or less the same. There will be a massive shortfall of available money. The war will really hot up between 2010 and 2015.

There would also be, theoretically, if this was to be thought through, a new labour shortage but at the moment, of course, the opposite is the case, with more and more going on to the dole.

Peter Weekes, in the Melbourne Age, January 31, 2006, said:

And while boomers expected and received an inheritance from their parents, the survey found that only 23 per cent planned to carry on the family tradition.

Boomers will be the first SKI (Spend the Kids' Inheritance) generation but they were also the first generation to support their kids beyond 28, pay off their HECS and allowed them to live at home at mum-and-dad's expense while saving for a house. Most retired baby boomers were looking forward to travelling the world on their savings "guilt free".

Ross Gittins, at the Age, on March 31st, 2004, wrote:

Borrowing is about impatience. If you want to buy something but can't wait to save for it, borrowing allows you to have it now and save later as you repay the loan. But the price of impatience is the interest you pay.

AMP recently sponsored a study by the University of Canberra that found that, on average, people aged 50 to 69 who are still in the workforce (which means they'd mainly be the early boomers) have savings through superannuation of just $170,000, plus other savings of about as much.

Historically, one of the main ways Australians have saved is by paying off their mortgages. So much so that, during the '80s and early '90s, Australian households' repayments of principal exceeded their investment in new homes and renovations by 4 per cent of their disposable income each year. But since 2000 it has swung around, with our investment in new housing now exceeding our repayments of principal by 4.5 per cent of disposable income a year.

Mortgage interest rates halved over the course of the '90s. We might have expected the baby boomers, of all people, to seize this wonderful opportunity to pay off their mortgages early and start salting money away.

Not a bit of it. Like home owners of other ages, most of them used their increased borrowing power to attempt to buy a bigger and better home. Because so many people tried to "trade up" at the same time, however, their main achievement was to bid up the price of homes to double what it was (thus pricing their children out of the housing market).

In confirmation of the baby boomers' part in this, the Canberra Uni study found that workers approaching retirement age now do so with bigger mortgages. In 1986, such people averaged 94 per cent equity in their home. By 2001, the equivalent group was down to 85 per cent. Separate evidence shows the baby boomers have been prominent among the hordes of people making negatively geared property investments.

Bernard Salt, in The Big Shift, also mentioned:

Mark Davis' 1997 book 'Gangland' specifically targets boomers in the media for locking out bright young Xer talent. The festering mood of Xers is summed up nicely on the book's cover by a quote about boomers by Xer comedian Tony Martin: "Let go of the wheel you old farts and let someone else have a drive."

An AAP article from December 15, 2003, stated:

University of Queensland researcher Dr Malcolm Johnson has found the cognitive age of many baby-boomers was 10 years below their actual age.

"It is quite common for a 50-year-old to think, act and feel like a 40-year-old," Dr Johnson said. "This denial of ageing may subconsciously postpone the recognition of a need to plan for retirement, resulting in insufficient income at a time when they really want to explore new lifestyle options. "The bottom line is that 70 per cent of baby-boomers believe they will need an income exceeding $30,000 per year in retirement, but only 20 per cent expected to receive this amount."

It's not just an Australian problem, it seems. The article goes on:

His research confirms a Canadian study in which people ranked talking about money matters with family as difficult as talking about death, with more than one-third avoiding all family money discussions.

The Economic Voice urges people to examine their pension situation but how many will?

And what of Gen X, still young enough to do something about it?

A report from the National Centre for Social and Economic Modelling and AMP shows that 25 to 39-year-olds control just 19 per cent of Australia's cash, financial, and property assets, down from 27 per cent for the same age group in 1986.

The centre's director, Ann Harding, said the drop was one of the most worrying problems facing generation X, arguing that soaring house prices and Higher Education Contribution Scheme debts had undermined their ability to build up wealth.

In June this year [2004] the average member of generation X had assets worth an average $101,000, compared with $231,000 for those aged between 40 to 54 and $281,000 for those in the 55 to 64 age group.

As we've seen though, the oldies are blowing much of that money and are dangerously short of retirement funds, along with the demographic problem of fewer in the workforce being able to support their retirement, on top of the millions going on to the dole, the inevitable higher taxation on the workforce and its jettisoning of more workers into the ranks of the unemployed.

The implication for the Boomers is inescapable and has been mooted since the early noughties - they're going to have to keep working and working, maintaining the pressure on the following generations, causing a backlash which will see fewer and fewer employed and with little savings, the country, all western countries, have a very big problem on their hands.

The government knows this and will have to come up with new schemes for the new Lost Generation whose increased medical needs alone are going to burden the taxpayer. Solution? Use the current economic depression to make drastic cuts to benefits, the NHS etc. and effectively cut the boomers adrift, trusting that aged people can't kick up too much of a stink.

As the many thousands in this position can't very well lie around on the streets, dying of starvation, a new hostel culture will be born, with Boomers competing with the ageing chavs and ASBOs for places. It will be bitter until the Boomers eventually die off by around 2018.

And what of the current generation? Marty Beckerman wrote a book called Generation SLUT [sexually liberated urban teens] in 2004 and mentions, about his own generation today that:

We’re a generation devoid of purpose, heroes, morals, standards, or ideals, and this has led to shallow kids having shallow, loveless sex in a haze of alcohol and social pressures and hating themselves for it to the point of neurosis, psychosis, and suicide.

If there are elements of truth to the ASBOs and Chavs, is it going to get better or worse for them? How are their job prospects in a country not producing anything any more and with a shrinking base of working age people?

Major solutions need to be found soon. I wonder if the EU has taken this into consideration in their takeover of Britain, post-Irish Lisbon 2?
.