I’m so privileged in my work to meet and do business with a wide, wide range of people. I have all kinds of clients, and I love working with every single one of them. And I’m fascinated by them, like I am by all the people I meet at home or on international travels, because they are all so different.
Yet, there are commonalities, shared behavior and interests among them, usually split into the widely recognisable generational boundaries. So I’ve been fortunate enough to learn about the so-called Baby Boomers, Generation X and Millennials, and how money habits vary from one to another. And do you know what? There’s lessons to be learned from all of them.
How Do The Generations Differ In Their Approach To Money?
Firstly, let’s iron out the boundaries between the generations that I’m going to be thinking about.
The Baby Boomers were born between 1946 and 1964, so at the time of writing this they’re around the age 57 to 75. Generation X were born between 1965 and 1979, making them between 41 and 56 now. Millennials were born between 1977 and 1995, so they’re now between 26 and 40. Identify with any of those? Let’s see if you still identify with them when we’re done talking about their money habits!
Millennials And Their Money Habits
Millennials are all about instant gratification. They live in the here and now, and what they can’t afford, they borrow or lease or rent.
Despite a lack of focus on assets, they represent the highest-spending generation in 2020. They don’t have a huge amount of disposable income, and what they have, they’re more likely to spend rather than save for the future. Millenials are likely to be shouldering a large amount of debt, and they’re more likely to be renting property rather than buying.
They need more help than any preceding generation with understanding finance; it’s not taught in mainstream education and the financial challenges they face are unique because the consumer world around them is so different to that of previous generations. They’ve never lived in a world with high interest rates, so saving has never been particularly appealing, and they are easily tempted by influencers and advertisers to part with their cash.
Interestingly though, as a generation, Millennials are going to hugely benefit from The Great Wealth Transfer – the biggest passing of money between generations ever. As a collective, they stand to inherit $68 trillion from Baby Boomers by the year 2030 so their financial landscape is set to change significantly and suddenly. They’re going to need lots of good financial advice to deal with the transition and to build saving and investing into their financial picture.
GenX – The Struggle Is Real?!
Generally, GenX-ers don’t have bad money habits, but they don’t generally tend to have much money. They may have pulled a very short straw, really. People of this generation have generally been struggling to save for their retirement and unlike previous generations, they missed out on private pension plans.
The Millennials who follow them are younger and have more working years left, but have already accumulated a similar amount in their 401ks. 33% of millennials are actively contributing to a 401k, which increases only very slightly to 36% for the GenX-ers. But 401ks are probably the only retirement fund a GenX-er has, and the ones who are contributing to them are struggling to max them out.
The Millennials, after inheriting wealth from their Baby Boomer parents, will presumably be investing and taking care of their own retirement. So GenX-ers haven’t had the luxury of either pensions or a hefty inheritance, and they’re running out of time to put together any alternatives. Less than 40% of GenX-ers have worked with a financial advisor, so they’re winging it with what they have. And they’re just not thinking enough about their retirement plan.
And while GenX-ers are not the extravagant spenders that the Millennials or the Baby Boomers are, their current lifestyles are far more costly than what they’re going to be able to afford post-retirement. Don’t forget, Social Security itself is forecast to be depleted by 2034, before all GenX-ers will have hit retirement. The world could all of a sudden look very different.
GenX-ers may struggle more to upgrade their homes, and Baby Boomers are likely to own their home outright, and have a second home too. The financial stress on GenX-ers is much greater than in the previous generation, and on even the Millennials who have a more aloof, laidback attitude to money.
It’s this financial stress that may well be responsible for the higher divorce rate in the GenX group. GenX-ers are most likely still dealing with expenses related to bringing up their children, and these costs grow decade-on-decade. While Millennials may be struggling under the weight of student debt, GenX-ers may still be paying into 529 plans and doing what they can to prepare for their kids’ continued education.
Baby Boomers – The Lucky Ones?
Baby Boomers lived a lot of their working lives in an unrecognisable financial landscape, and that defined their money habits very differently. They are, the older ones especially, much more likely to have worked for one firm or business all their lives, and really made the most of the increasing income and benefits packages that go hand in hand with doing so. A great many of them bought a home while they were relatively young, and watched its value absolutely soar.
They’re looking forward to a retirement that’s well-funded by a pension plan and a maxed-out 401k. Baby Boomers are spending money on luxury, big-ticket items, while GenX-ers are generally still trying to find the cheaper way to do things. GenX-ers, for example, are much more likely to buy secondhand cars or lease them, while Baby Boomers are driving new, luxury cars and splashing out on sports cars.
While GenX-ers are having a hard time meeting all their expenses and considering side gigs to increase their income, Baby Boomers are much more likely to have a large investment portfolio and love to talk about good tax strategies. It’s very much a case of Gen-Xers frantically treading water to stay afloat, while the Baby Boomers sail on by, on their luxury cruise holidays.
Everyone Could Do With A Bit Of Help – For Different Reasons
Of course, the above are somewhat generalized stereotypes, and everyone’s stories are different. But the overarching trends are striking.
Baby Boomers accumulated wealth more easily, and often need help with tax-efficient investment strategies and managing a diverse portfolio. They also need help, typically, with their estate planning. They are the ones at the giving end of the Great Wealth Transfer, after all.
GenX-ers still have time to pull their retirement into shape, seek out that next promotion, and make the most of catch-up payments into their retirement accounts. These years are absolutely crucial.
Millennials have little in terms of assets, but at the same time, have everything they want. Those hitting the far end of their 30s really do need to be starting to think more seriously about their financial future, and how to make the most of any inheritance that’s coming their way. That inheritance will most likely need to make up a large part of their retirement fund.
If you need any help with your financial plan and with identifying and redefining your money habits, please do get in touch. Let’s make an appointment; this is the kind of work that I live for. I will be extremely happy to meet up with you, discuss your current circumstances and help you to plot out your future, whichever stage of life you’re at. Nothing will come as a surprise to me, I promise you. The chances are I already work with someone pretty similar to you after all.