Elders Leading the Charge, Frugality-Wise

Up until recently, the wisdom of the elders didn't seem to count for much in the business and financial worlds. What mattered more was how much energy, optimism, and aggressiveness someone could bring to the table. That's not surprising, since many were convinced that crises and crunches were a thing of the past and had myriad incentives to shoot for the moon.

Now, of course, things are different,. People are suddenly paying attention to those with lots of experience and a knowledge of history. Under the circumstances, the fact that the gray-haired set is leading the charge, frugality-wise, as The Atlantic Business Channel notes in "Which Generation Has Cut Spending The Most?" should give pause to those who see economic recovery around the corner:

Yesterday, Gallup released the results a new poll. It explains how different generations have pulled back spending since 2008. The results are interesting, though not entirely unsurprising. I think you can learn a lot from the behaviors and attitudes of the different generations by looking at the differences in how they've reined in their spending.

First, here's the chart that Gallup provides in its report:

It's important to know what Gallup actually asked to get these numbers, so you can understand the context. They asked:

U.S. consumers to report how much they spent "yesterday," excluding normal household bills and major purchases such as homes and cars

It's a little unclear precisely what this means. But if I were asked this question, I would think it does not include fixed expenses, and essentially refers to variable spending on discretionary items.

As I mentioned, all generations are pulling back their spending. That's in response to factors like employment turmoil, uncertainty about the future and less credit availability. On a superficial level, it looks like all generations have had roughly the same reaction. But let's dig a little deeper.

Here's a graph I made, based on the data above. I wanted to see the actual percentage changes in spending. That's more meaningful to me than raw numbers.

I find this graph fascinating, especially because of its downward sloping nature. My first inclination was to say that, the younger the generation, the more unconcerned about the recession, since spending has been curbed less as you move from oldest to youngest. I would have expected this line to be more parabolic, where the oldest and youngest generations had cut their spending the least, while the Baby Boomers and Generation Xers had cut the most. I would expect that because the oldest generations are on a fixed income and generally retired while the youngest can more easily move from job to job without disrupting their lifestyle or family.

There's a temptation to associate spending in an economic climate like this to responsibility. It's responsible at a time of uncertainty to spend less than you would when times are good. This might imply that younger generations are less responsible than older ones. But I'm not sure this is entirely fair for the reason I describe above. The youngest generation does not have nearly as many responsibilities as a Baby Boomer or Generation Xer who probably has a few kids, mortgage, etc.

That means the real surprise is the Greatest and Silent Generations. But then, maybe this shouldn't be too shocking either. These are the Americans who lived through the Great Depression. They saw just how bad things could get, and it was likely a lesson they never forgot. So even though they probably have the least at risk during a recession, they understand the danger that exists better than any of the others.

Comments

[Marc]

And how about the younger generations having less 'choice' in discretionary spending? A holiday, for example, is much less discretionary for the working people than it is for the retired.

[roger]

Graph's & # don't mean much to me,they help but not much.
Reading the thermometer is one thing,"feeling" the cold or
heath is an entirely different proposition,as for the older
generation, he he.. how stupid they where.Just check their
voting record! ,think the country would be in the mess it is
in add they been wise & knowledgeable?

[HSpencer]

People in the past as well as now have voted for money, sex, and kicking God out of the country.
Of course, the choices were such as the vote had little difference, REP or DEM. The older folks (like myself at age 65) know very well what the 50's and 60's were like economically. It appears we will do well as we are back there now. Dust off those FHA235 home loans for homes in the $100,000 price range (comparable to $16,500.00 in 1970). Dust off those 36 month auto loans. Cut up the credit cards. Start saving in banks, jars, mattresses or what ever you feel is best. Some of us old folks never made the light year jump to the McMansion era. We will do fine.

[MichaelN]

I'm a 49-yr-old baby boomer AND a part-time mortgage broker (in one form or another since 1986).

My thoughts? My experience working with people and mortgages for 20+ years gave me a first-hand look at what I call "financial psychology."

Conclusion? Most of the AAA-credit people that I worked with (and, no, I've never done anything but "prime," fixed-rate loans!) live paycheck-to-paycheck and have no savings except for 401K's and home equity. They spent and spent as if there was no tomorrow!

Guess what today's economic climate has done to this group? Yep, they're shutting their wallets and, honestly, living with a certain amount of fear.

Me? Same house for 23 years and no mortgage for about 15 years. Use credit cards, but have never paid a penny in interest and reap great rewards. Savings? CD-laddering for us! My wife has always wanted "more" - nicer car, bigger house, etc., but all she says today is "thank you" for always keeping us, sort of, "on budget."

Our kids (18 and 15) were raised to be frugal, but sometimes, no surprise, rebelled. The 18-yr-old is now away at college and sees first hand, via roommates/dormmates, the benefits of frugality as they are using debt to pay for the expenses and we just write a check out of the college savings funds - set up 15 years ago.

Better still is that their peers are now adopting, relatively speaking, "frugality" and seeing it as a virtue. My son NOW sees things in a much different light as his financial upbringing is positively reinforced.

Like the generations shaped by previous "lean times," all of us are changing - including the youngest amongst us. This "cleansing" will make us a better nation and society - eventually - and I'm not overlooking the massive pain from unemployment and the debt that is being passed on to the next generations!

Therefore, thru the gloom and pain...........I'm an optimist!

[Plid]

Is "Greatest Generation" an appropriate appellation in this context? All of the rest of us are sacrificing, have been sacrificing, and will continue to sacrifice, in order to pay the out-sized benefits that the "Greatest Generation" has sucked off of the government tit - benefits that none of the rest of us are likely to enjoy.

The WWII generation is a generation that answered the call to war and their victory left the US on top of the world - their subsequent performance has been less admirable.

[HSpencer]

Adding to my post, I visited my neighbor yesterday. He has a job that may not last, a house he can't afford even if it does, a brand new big truck purchased this summer,financed for five years, a couple other cars, one paid for and one not, two large expensive motorcycles financed.
He sees no light. When I bring up issues on the economy for discussion, he gives me blank stares. He is too busy and occupied otherwise to watch the news, or read anything on line. He actually knew nothing about the town hall upsets on health care, and knew nothing at all about the Swine Flu talk, or any financial predictions other than what someone may have mentioned to him where he works. This guy is fully mortgaged not to the hilt, but beyond the hilt. He sees it as business as usual, but is expressing some worries due to the possibility of his plant closing down. I am guessing, from knowing him, that he shuffles this and that on credit cards, taking new ones to move balances, etc. This guy is in his 50's with two grown children and a grandchild, and the daughter with the grandchild has moved back in with him this summer. This guy is a financial timebomb. I feel sorry for him, but he has not seemed to learn anything.

[ciwood]

Older People are looking at permanent unemployment and that really changes your outlook for the future. I am a 60 year old tenured business professor in Louisiana and I may very well lose my job at a time when there is NO prospect for further employment in my field. I am staring down the barrel of a loaded gun trying to decide how I will replace a 90K income with my savings. Consequently, I am saving 45% of my current income, setting my thermostat at 85 in the summer and 60 in the winter, cutting expenses to the bone, and generally preparing for my own permanent Depression. The thought of having no employment income forever turns older people into radical savers. Humans do not have the DNA to plan 50 years into the future so most young people will face this same proposition when they are older.

[roger]

The human brain is not independent it takes its
clues from the social sphere,it has a social nature.
Not many people seem to understand or accept this concept

[Tjemme]

I once heard a head of trading say the following about his recruitment policy. "If it is a bull market, I hire someone young. If it is a bear market, I hire someone older".

[rob]

Strange. Not a word about the fact that part of the fixed income you spoke of is derived from interest income from the elderly's savings ... interest income that, because of the wide-spread, unprecedented level of fraud and chicanery of the financial sector, has been reduced to $00.00. That's why their spending has dropped more than anyone else's: no income, no spending.

[farang]

I'd have to disagree with the way it is charted and interpreted: In actual fact, the amount spent has been cut the most by the Generation X": $39.00. Then us Baby Boomers and Silent Generation: $34.00. Then the Millennials: $51.00 and lastly the Greatest Generation: $28.00

So yes, as a percentage, the so-called Greatest generation cut the most...but isn't that to be expected? They should have bought houses at a time they were a fraction of what they are now, even with the collapse of housing prices since 2007, and they've been enjoying S.S. benefits they never paid in, while us Baby Boomers had our FICA tripled so Reagan could pander to their vote in the early 80's... PLUS, in California (where 1 in 8 Americans live), they voted in Prop 13, which froze their property tax rate, while making the budget be carried on the backs of younger, new home buyers since it was passed decades ago (hence the budget shortfalls of multi-billions.)

They aren't any more "frugal" than any other generation: In the 1980s and 1990s, my ex-in-laws used to await their S.S. check, then take a chartered bus from the Bay Area to Locklin, Nv. and gamble it away every month, year in year out, never missing more than one month...hell, Kay used to have to put bandages on her hand from the blisters she got pulling the one-armed bandits, while Steve, a WWII vet, wandered around eating the free meals, and playing Keno.

They bought a lot in Los Altos in the early 50s, built the house themselves for less than $8,000, sold it three decades later for $400,000, while my folks bought a house two doors down in 1972 for $32,000, and my brother now lives in it: $1.1 mil.

There's a very good reason their spending cuts are small as a real spending amount: they have smaller obligations.

[farang]

Oops, meant the Millennials: $31.00, not $51.00.

[Greyzone]

It is possible, particularly for Millenials and Generation X, that they simply do not have more that they can save right now. Remember that wages have been largely stagnant except for the highest end wage earners over the last decade.

[roger]

The American advertisement industry (very much admired by Dr. Goebbels, Hitlers
propaganda minister) knows very well how to manipulate the American brain,admit
it or not ,like it or not, they have played a major part in shaping American
philosophy whether consumerism or political fear.
So much for the free will of both young and old!!

[Robert Katt]

My relatives are Gen X- married, 2 incomes (around $100K)
no kids. In their late 30's, no savings and lots of debt.
Gen X grew up with a different lifestyle. They FLY everywhere, rather than drive 300 miles. They eat OUT at lunch for work, every day, and would not dream of bringing a sandwhich from home.They stay at RESORTS, not motels.
High speed internet, 100 cable channels, net flix, IPHONE
(not a cheaper cell phone). Always catch coffee out at $4.a cup, even when leaving from home.
Sound like anybody you know?

[roberta]

I think that, in addition to the need for interest income in retirement, one reason for the greater cutbacks by older folk are the nature of expenses that get captured by the question.

What might someone buy that is not routine besides big-ticket items? Clothes or other items for school or work? Fewer older folk have those expenses. Car repairs? It's easier to cut back or delay there if you don't need your car to get to a job you need or to take your kids to school (if you live in an area like I do where there are no school buses, which is common in CA).

Medical care? Older folk, who are more likely to have chronic conditions, are more likely to spend on routine medical care (and, my guess is that they would lump non-routine care in with "normal household bills" to a much greater extent than people who spend a smaller percentage of their income on medical care) which does not get counted in the survey. Younger folk, who tend to have more acute medical problems, are more likely to spend money on less routine medical care which would get counted.

Household items? Fewer older folk are likely to be moving into larger quarters (e.g., because of a larger family) or moving for work. So older folk look more frugal when, in fact, they may have much less need to buy household items. On the other hand, older folk may be buying fewer luxuries for the home. You can't tell from this survey.

I don't think the survey asked about enough information to make any accurate assessment about frugality or even who's cutting back most overall. We only know who has cut back the most on non-routine expenses (as defined by the respondent so that definition is likely to vary widely within the survey) on other than big-ticket items. What about routine expenses? That will generally have a bigger impact and, as we all know, some people in every age group are frugal and others are spendthrifts, even given their income or ability to pay.

Greyzone, real wages have been declining since the 1970s. So that's going to hit most wage earners, not just Gen Xers or Millenials.

[edgar]

I don't believe the amurkin sheeple have learned anything, they are just in a cash crunch right now. Give them a job w/ more money and they would spend it.

[asmith]

Is it just me, or are those really high? $70 per day is about $25,000 per year in after-tax spending, not including fixed expenses, and assuming 365 days per year. We might assume that people spend around a third of their income on fixed expenses; this includes housing, utilities, transportation (which would be either a major purchase, so not included, or a monthly payment, so a fixed expense), so the real number is probably higher.

But that plus the reported spending plus ~30% taxes would account for $75,000 before-tax income per year. I'm not sure if that's supposed to be per household or per person, but in either case it's higher than both the mean and median US household income. Either people are continuing to borrow, or this reported spending is not accurate.

[sharonsj]

You can learn to live on less. My annual income is about $14,000 now, with no savings but a paid-for house. I spend most of my money on heating, utilities, satellite TV (otherwise no reception), phone and computer hookups, food and pet food, property and school taxes, and one car loan for one car. I almost never eat out. I go shopping once a week to save on gas--and I also found that I save a lot of money if I never leave the house. Everything else I buy second-hand. The one drawback is that in the winter I end up living in two or three rooms, and I only heat the room that I'm actually in. As long as Social Security and Medicare still exist, I will be fine.

[Robert Katt]

Go to the library. You can take out dvd's, vhs tapes, magazines that are only a couple of weeks old, and free books instead of buying.
I figure I get about $500. a year free entertainment and information from my library.
And the card is free.

[Michael]

I reckon ciwood's suggestion hits the spot. At or near retired have just seen their house price or super (401k) vanish into thin air and suddenly realise they wont have much money for the rest of their lives. Younger people may have an uncertain future ahead, but whatever happens they have time on their side.

And as roberta suggested, perhaps they're able to cut back more because they don't really need to spend as much as a matter of course as they 'live'. e.g. socialising/finding a mate/working expenses/studying expenses/communications expenses, etc.

[Kevin]

I think part of the disparity in spending changes is simply due to the fact that older people are more dependent on income from investments (or are more worried because they soon will be after retirement).

If the resource pool that was projected to last for 30 years is suddenly cut in half -- well, it's not exactly rocket science to realize that drastic changes are needed. Also, with fewer mortgages, older households have a lower percentage of their income dedicate to housing (i.e.: a higher percentage can be cut as falls under the form of the survey question).

Likewise, Gen X'ers such as myself derive more income via salary than savings and investments. We also tend to still be paying mortgages (even when you have a 15 year mortgage like I do). A smaller percentage of younger generations' incomes is therefore covered in the included spending types in the survey.

What I don't see here is anything that indicates a difference in character between generations -- just differences in income source and immovable outflows.