News & Events
The baby boomer generation’s spending will reflect its values
The following commentary by Michael Adams and David MacDonald was published in the November7, 2015 edition of The Globe and Mail.>>>>>>>>>>>>>>
Baby boomers have left their mark on society at every stage of life, from their stampede through the education system to the “echo boom” they produced in their own fertile years. Now, as they move into the second half of their adult lives, they will make their presence felt again – not only by their sheer numbers, but with the manifestations of their values.
Values are motivated cognition: the deep beliefs that shape people’s perspectives and behaviour as parents, consumers, workers, citizens and spiritual beings. Had boomers’ values been the same as those of their parents, boomers would have made a difference in some ways but they would not have driven so much social, cultural and political change.
A key theme of the book Stayin’ Alive was that not all boomers are alike. There are four main segments of boomers, each with distinct values. As they move into later life, society will feel their sheer demographic size but it will also feel their values – particularly the values of the two segments most unlike their parents. These boomers are autonomous, experience-seeking and insistent about personalizing everything (up to and including their funerals).
Boomers have driven an evolution in Canadian society from materialism to postmaterialism; they are less likely to brag about their cars or watches and more likely to mention their adventuresome vacations and the restaurants they’ve recently visited. It is no coincidence that the idea of a “bucket list” has become ubiquitous in recent years. The 2007 movie by the same name may have spread the term, but the concept of racking up long-desired experiences in later life is more psychologically potent (and more plausible from both a health and a financial perspective) for postmaterial boomers than it was for previous generations.
The fact that boomers will be around to tick off bucket-list items for many years to come is a boon to them and their families, and a challenge for Canadian public-sector finances. Health care is already one of the largest line items in the federal budget, and it will grow as the ranks of those over 65 continue to expand. With fewer working-age Canadians paying into general revenues, it’s not obvious who will keep boomers’ hips swivelling and hearts pumping. Something may have to give in the form of tax increases, deeper deficits or diminished health care offerings (although boomers won’t take the last option lying down).
Many boomers, especially those working in knowledge jobs, will not retire in the traditional sense. They will mentor, consult and work on projects they find interesting or meaningful. Still, they will change the pace of their lives and have more free time. As they move into this quasi-retirement, they will seek experiences that offer them fun, learning and meaning. The business opportunities will be great in the fields of travel and education, and in enterprises that combine the two.
Although inequality affects them as it does other Canadians, boomers can generally expect decent standards of living, derived from a combination of inheritance, personal savings (including RRSPs), home equity, the Canada Pension Plan, Old Age Security and its Guaranteed Annual Income Supplement.
The business pages often feature ominous news about boomer debt loads. It’s true that boomers are carrying more debt into retirement than previous generations, but most have taken steps to ensure their financial well-being in retirement. Some will have to tap into their illiquid real estate wealth by downsizing, or considering reverse mortgages or home equity loans or other means of drawing on capital without losing their homes.
Our research also indicates that boomers are preparing to spend more modestly as they exit their peak earning years. This scaling back will put a drag on an economy that relies on consumer spending for GDP growth, but it means that boomers should be able to navigate the decades ahead with reasonable equanimity.
Some boomers’ secular, autonomous values will put another kind of drag on their financial lives, in the form of “grey divorce.” Environics found that the proportion of Canadians aged 65-plus who say they are divorced rose from 4 per cent in 1981 to 12 per cent in 2011. About a fifth of boomers born between 1955 and 1965 tell us that they are divorced, and an additional 14 per cent are remarried. Boomers are also the generation most likely to say they think retirement will introduce significant stress into their marriages.
Whereas “elders” (boomers’ parents) were more likely to “make it work” in marriage no matter what, whether out of religious conviction or fear of social stigma, boomers are less inclined to stay in unfulfilling marriages – and are less likely to believe there is any reward in the afterlife for doing so. Even a divorce with low legal expenses is costly for both parties: It splits pensions, RRSPs and other savings, and typically increases both partners’ cost of living. But values are powerful, and boomers have not historically hesitated to make theirs manifest in this world.
More affluent boomers will move into later life with wealth to spare, some of which they will transfer to their children and grandchildren for things like education and condo down payments. Many will do this while they are living, rather than in their wills.
There are a couple of reasons for this: One is that boomers will live longer than their parents, and so will be around to witness life stages of subsequent generations that their parents would have missed. Another is that more secular boomers are more likely to believe that whatever satisfaction they will gain will happen in this life – they won’t be looking down from a fluffy cloud as their bequests flourish after their deaths. They want the gratification of seeing the effects of their gifts with their mortal eyes – on their families, their alma maters or the hospitals that saved their lives or the lives of loved ones. For the foreign-born and their kids, many of whom are doing exceptionally well in Canada, there are myriad opportunities to invest in family, communities and projects both here and “back home.”
Boomers will be much less likely than their parents to write a will that divvies up their money between family and a religious institution, put the document in a safe place and call it a day. In their bequests, as in so many previous stages of life, boomers want to help drive the project and they also want to be around for the party afterward, to enjoy that glass of chardonnay or that newly legalized joint.