IN THE SHADOW OF THE BOOM

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Generation X deserves sympathy Baby Boomers are demographics' original tough act to follow. The Boomer generation is so big and self-absorbed that it sucks the air out of any discussion of issues affecting the smaller, and by definition less worthy, generation that follows.

As we contemplate the challenges facing a generation of people whose first nickname was The Baby Bust, it's clear that it's a cohort whose strength is not in numbers. But strength there is, and it may be by virtue of a collective wit and a painfully learned critical power of judgment that enables the group to find a way to thrive. Enduring adversity is a hallmark of the group, and there's no reason to believe that they're done dealing with it on all sides. It's how they've dealt with it that gives us reason to expect that hard-boiled pragmatic resourcefulness to continue to emerge as financial, social and cultural poltergeists define their experience, their future.

The youngest Baby Boomer turns 40 years old this year, the oldest is pushing 60 and, despite heavy doses of Botox and Viagra, the aging process is taking its toll. While Boomers are anxious about their shrunken retirement savings and how to unload their overvalued house, Gen X has other concerns.

People under age 40 are more disturbed about their job being outsourced or how they are going to pay for their child's education when wages are rising so slowly. The rapid increase in the prices of suburban residences has not been kind to young families with modest incomes who wish to buy their first home.

Source: U.S. Census Bureau

Gen Xers are in the midst of their career building and child rearing years just when the much larger generation that preceded them is entering its empty- nester stage. A lot of Boomer couples are busy buying and furnishing their second home, while in Gen X families, most parents are both working full-time just to pay the mortgage on their first one.

Crunch time will come when interest rates start to rise, which they certainly will in a year or two. Young thirtysomething families are going to find it even harder to finance a home or a car, not to mention saving anything for their kid's college expenses or their own retirement.

The iconic American family, married couples with children, will be mostly Gen X families in a few years. And partly because that generation is smaller, married couples with children are barely growing at all and are only about a quarter of all households. In some parts of the country, they are approaching a mere 1 in 5 households.

Since local property taxes are the main source of funds for local schools the stage is set for a conflict between older, empty- nester Boomers in the high priced housing with big property tax bills, and the Gen X families who want more affordable housing and better funding for schools.

That conflict will become particularly intense in places like New England where there are a large number of second homes. Affluent Boomers with two homes may get a break on their federal income taxes, but they are likely to be paying sizable property taxes.

Gen X is widely accepted to be those 41 million people born 1965 through 1976, a period of only 12 years compared with 19 years for the Baby Boom (1946 through 1964). At the time of the 2000 census they were 24 to 35 years old and their numbers had swelled to 49 million. So at least 1 person in every 7 in this generation is an immigrant.

Members of Gen X are slightly less likely to be married. Only 56 percent of households ages 30 to 39 are married couples compared with 60 percent a decade ago. But when they do get married the vast majority have children (80 percent) and then both go to work. Two-thirds of married couples this age are both in the workforce, most of them full-time, year-round.

So much work should provide them some heavy-duty buying power, and it does. The average income of married-couple Gen X households is about $78,000 a year, seemingly a respectable middle-class income. But when it comes to buying a house, 45- to 54-year-old Boomer married couples' average income of $95,000 a year outbids them.

Structural changes in the economy combined with growing outsourcing suggest that members of Gen X may never become as wealthy in their peak earning years as Baby Boomers have. The concept that each successive generation will do better than the one before it might give way to the realities of diminished job and income growth due in part to global competition and rising inflation.

If that becomes true Gen X is not likely to take it stoically. Their high levels of educational attainment combined with an entrepreneurial drive suggest that some of them just might be able to beat the harsh odds. Almost half of Gen X women, for example, have a 2- or 4-year college degree and more than 1 in 10 has a graduate degree.

More than a college degree may be required, however, because the economy is in transition just as this generation is entering their wealth-formation years. As a result, we will undoubtedly see more books and articles attempting to show people in this generation how to avoid becoming a casualty of, if not actually profit from, the global economy.

Financial services firms have a real opportunity here. They can fulfill this generation's need for a new kind of financial advice and counsel and make a fortune showing them better ways to create wealth in what is shaping up to be a hostile economic environment. Financial strategies that may have worked in the past will not in the future.

For example, millions of Americans are buying second homes or other types of real estate because housing prices have been rapidly increasing for years, borrowing money is easy and the cost of it is so low. As a result, a substantial number of those real estate investments are seriously overpriced.

Somebody should be waving a big yellow flag because many of these highly leveraged pieces of real estate look a lot like stock that was once bought on 90 percent margin. When interest rates start to rise, the equivalent of a margin call will be the jump in monthly payments on all those variable rate mortgages. Everyone knows what will happen next.

In an increasingly information-based economy, the best investment is still better information. The members of Generation X who become wealthy despite the unfavorable odds will do so by getting better informed with regard to financial matters and career decisions. Because it is becoming less and less likely every day that they will prosper by attempting to repeat the actions of the Baby Boomers who came before them.


Peter Francese is the founder of American Demographics. He can be reached at peter@francese.com.

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