How Millennials can Survive the Boomer Apocalypse

It’s a Brave New World, and Your Parents and Grandparents are ill-equipped to handle it.

The Baby-Boom generation [Edit: speaking *specifically* of the American experience], and particularly the first half of them, enjoyed two incredible advantages as they came of age.  First, as a large demographic, they got a LOT of attention paid to them, because society had to change in order to deal with them.  Schools had to expand, the job world changed, the whole nine yards.  Second, the early Boomers came of age at a time when most of the free world’s civilian infrastructure had been bombed to bits.  In the 40s and 50s, and to a certain extent even into the 60s, the US was the only really large producer of high-quality durable consumer goods.

The latter point is important — you could earn a solid middle-class lifestyle as a semi-skilled laborer, because the big-businesses for which they worked were the only games in town.  Unions could demand salaries for high-school grads which would seem obscene if expressed in today’s dollars, because competition was minimal, and businesses were able to simply roll those costs over to the customer.  Big unions?  Massive government bureacracies?  Pensions which are lavish by modern standards?  All readily affordable in a world where a guy can graduate from high school and be making the equivalent of seventy grand a year by the time he’s old enough to drink.

Well, the world’s changed, and that means trouble.  The Boomers are still the biggest age cohort out there, but they’re retiring now — or trying to retire.  Meantime, the world has recovered, healed, and even grown economically.  On the global scale, that’s awesome — poverty sucks, especially the sort of “half your kids are physically stunted from malnutrition” kind.  On the other hand, that means that almost the entire life experience the Boomers have occurred during a time which was a historical aberration (basic prosperity wasn’t unusual in the US – by 1954, US GDP had clawed its way all the way back to what folks HAD enjoyed in 1928), and for the most part, telling somebody “your life experience is almost completely irrelevant to my world, and means nothing” is a bitter pill to swallow and generally gets you looked at funny.

But it’s true, and you need to understand it, because mindsets change slowly.  The largest demographic cohort in America is going to tend to make economic and political decisions which are, quite frankly, absolutely necessary from their point of view while simultaneously incredibly destructive from yours.

Generation-X has screamed about this sort of thing for years.  But the Gen-Xers, myself included, were lucky.  They’re politically irrelevant (too few voters), but economically, aren’t suffering anything even remotely similar to what the Milennials face.  Gen X thought it would have to pick up the tab for the Boomers, not realizing that they’d try to kick the can all the way down the road towards retirement.  They didn’t *quite* make it, though, and you guys are the folks who are left holding the bag.

What’s killing the Boomers?

1.  No Savings:  They should have saved — fiscal conditions for the Boomers were about as favorable as it’s possible to get, and all the economic factors that existed during their early and middle adulthood meant that even moderate savings could do really well for themselves if they were careful.  Stocks presented *fantastic* returns — any blue-collar guy who could get up enough money to get into even a humble suite of CDs or 401Ks (available at any neighborhood bank) could pull off 6-8% yearly returns.  Compound that every year, and the “millionare next door” meme was an actual possibility, and even working-class people who were careful could set themselves up to where they could enjoy a solid, basic nest egg.  But most Boomers, unfortunately, just didn’t.  There are exceptions, but most Boomers have never managed to set aside even ten percent of their income.  Pointing this out is not going to make you popular, because it’s a moral failing of the generation, and nobody likes having their dirty laundry waved around (especially the minority of the Boomers who DID save, but got royally screwed in the late 90s, but more about that in a moment).  Boomers continue to max out credit cards with abandon, even as they get ready for retirement.
2.  Globalization:  the world is competitive in a way that most Boomers didn’t even start having to deal with until they were in their 40s.  Many of them are unable to handle these changes.  Globalization is nothing new: until the trade war that sparked the Great Depression, it was, in fact, absolutely normal.  What IS new is the ability of the new kids on the block to take manufacturing recipes and crank out first-class consumer goods.  You can’t “start in the mailroom” and work your way up the food chain any more, except in rare circumstances and niche industries — unskilled labor can no longer command even a lower-middle-class salary, and as many Boomers find their skills to no longer be relevant, they’re winding up holding the dirty end of the stick in terms of employment.  It’s hard for a worker in his fifties whose skills are stale to get rehired if he wants the kind of salary he earned when his skills were top-notch.
3.  The Robots: they change everything.  During the late 70s through the early 90s, unions discovered, to their horror, that robots could literally replace thousands of semi-skilled workers.  That brings down prices — you can build things with fewer people than you used to be able to.  What many white-collar Boomers are now discovering is that robotics, and more importantly, *software,* can replace high-skill blue-collar workers AND white-collar workers, too.  A pharmacy tech’s job can now be done by a machine, reliably and safely.  Wall-Street guys aren’t safe:  software traders (“algos”) can trade in fractions of a second, and unless you get prime-quality feeds, you literally stand no chance in the market.  Lawyers?  The “discovery” process, wherein huge batches of text are searched for given words and phrases occuring…. sound like something Microsoft could build into Word?  Yep.  The same AI that let “Watson” kick ass on Jeopardy is exactly the kind of software that makes lawyers’ work less valuable.  As many pundits have noted recently, going to law school is no recipe for success, unless you’re really, REALLY sure you’ve got the connections needed to get picked up by a top-tier law firm.  And that tends to mean that if you didn’t win the “lucky sperm contest,” and can afford to attend the Ivies without taking on crippling debt, that it’s a fool’s bet.
4.  Economic Illiteracy:  most Boomers, not wanting to actually save, let themselves be talked into thinking that “investments” were the same thing as “savings.” Don’t take my word for it — mention a 401K, and most of the folks getting ready to retire call that “savings.” I’ve got news for you — it’s not.  Neither is a mortgage.  These things aren’t money, and can only be converted INTO money if somebody else is on the other side and is willing to buy.  There’s a term for this, and it’s called “liquidity risk.” If your stock value crashes to jack, your 401K is suddenly worth a lot less.  Housing?  Well, houses are nothing but a box that needs maintenance and gets less valuable over time.  If nobody’s willing to buy your house, then you can’t convert it into money, can you?  Unless you’re willing to sell your house back to the bank in slow-motion (because that’s what a “home equity loan” is).
5.  What Nixon Wrought:  Nixon took the country off the gold standard, because he and Congress were spending like drunken sailors, and that meant the US’ gold reserves were getting dangerously low.  Now, there’s a lot of hyperbole on both sides of this one, but the basic purpose of any “standard” is that it tells you what your dollar is worth.  In 1970, a guy could tell you what his salary was in gold — he knew *exactly* what the dollars he was getting paid in were worth.  Since 1971, the value of your dollar has deteriorated badly, and the while technology has gotten awesome, most of the big lifestyle gains are in luxury consumer goods.  I don’t actually *need* to be a gaming geek — I could play soccer instead.  Meanwhile, the cost of living, in terms of food, shelter, and fuel have either stayed the same or gone up, at the same time as your dollars’ ability to buy these things has gone down.  That’s why most Boomers could live in families where only one person worked….and why nowadays, unless your zip code is rated “low cost of living,” you can absolutely forget raising a family on one income.  There was a short respite during the Reagan years, when the folks running the Fed were scared into more or less “soft-tying” the value of the dollar to that of gold, but after that, it’s been bubble after bubble as both Greenspan and Bernanke have kept interest rates so low that traditional saving is nonsense — the interest rate a savings account will offer you is less than the rate of inflation, so anything you leave sitting in the bank just loses value.  (A lot of my Gen-X peers don’t understand this, and don’t tend to realize that they benefitted hugely in the short-term from it, by coming of age in the middle of economic bubbles that made it easy to get a job)

[Edit:  “Mrs.J” pointed something out which reminds me that I have to connect the dots on something.  Bernanke is desperately holding down interest rates, to preserve housing values… but this strategy HURTS the Boomers just as it helps them, by gutting the value of their fixed-income pensions.  So the fact that the Fed (and the ECB, and BOJ, etc etc) keep doing this is not a rosy thing for Boomers’ future.]

Well, that sucks.

Yes, yes it does.  What do the Milennials face?

1.  Crap employment.  All those Boomers who never bothered saving and are now facing the spectre of a “retirement” spent eating cat food are now competing with you for entry-level jobs, any job they can get.  And it’s not just Wal-Mart greeters, either.  Congratulations, you’re competing not just with other college-age folks, but also with Grandma.
2.  Housing costs are nuts.  The Boomers bought into the notion that houses are investments, not costs.  They want housing to get more expensive forever.  Guess who that hits right in the nuts?  Yup, the folks who want to buy a house.
3.  It’s almost impossible to save.  Why is Bernanke keeping interest rates in the toilet?  The answer is, *he has to.*  The housing market’s bad now, and that’s the only asset most Boomers have.  If Bernanke let interest rates go back to something sane, it’d be much more expensive to buy a house, and the value of Boomers’ homes (many of which are “underwater” and now worth less than is owed) would go right into the toilet.  That’d be great for Millenials trying to start a family, but it’s “cue the Alpo” for unemployed broke people who are trying to retire.  Make no mistake — there are more old people than young people, and old people vote in big numbers.  Bernanke and Congress *will* screw over your ability to save and to start a family in order to “protect the housing market.” (Bonus:  there’s a decent chance that we’ll get hyperinflation, which is capital-ouch-bad.)

So what can you do about it?
1.  Bust Your Ass:  Attitude Counts, and Skills are King.  Boomers whine about “age discrimination” in hiring, but the simple truth is that many of them price themselves out of the market by not keeping their skillsets sharp, and by picking up the totally *lousy* attitude that once they’ve earned a certain salary, that they’re entitled to earn that salary for the rest of their lives.  If you’re going to go head-to-head with folks who have thirty years’ more work experience, one of the best ways to do it is by demonstrating that you’re lean, hungry, and willing to WORK, and work HARD.  On the same token, you need skills, and sharp ones, to get that job.  It doesn’t have to be expensive white-collar skills, either.  Pay attention to employers, not your parents, and be willing to take on jobs where you get dirty for a living.  Unskilled labor is back to its historical status as a quick trip to poverty, but high-skilled blue-collar labor can be a very, very smart move.
2.  Don’t go into Debt.  And if you must, do it very, very carefully.  Student loan debt is rigged so it follows you through life no matter what.  If you have to take on debt for school or training, don’t do it blind:  make sure you’re taking on an amount you can *easily* pay off.  And even though the Powers That Be are going to try to keep interest rates low for as long as they can, eventually the music is going to stop, and interest rates are going to have to fly through the roof.  When that happens, anybody who has debt which can be interest-rate-adjusted is going to be hurting….bigtime.  As a GenX guy, I was able to pay off most of my house by predicting and playing off the current scenario, but it’s dicey and not likely to last further than 2014 or 2015.  It might be a play you can get away with, but…. do the math.  And always work from the standpoint of Damage-Control Math.  Don’t assume things will go your way.
3.  Minimize Costs.  Prosperity is not about what you earn — it’s about what you KEEP.  There’s nothing admirable about a guy with a six-figure salary who’s blowing tons of cash in restaurants and on fancy cars (unless said car is a condition of your salary, which is often the case).  Need a car?  Buy used.  Need a house and are buying?  Buy cheap, and bend heaven and earth to pay it off as fast as you can.  A 30-year mortgage is for suckers — on average, you wind up paying the entire value of the house back to the bank *as interest.*  The less you owe every month, the more flexibility you have, and the better off you’ll be.  Every monthly bill you have is a chain tying you to what You’re Doing Now, instead of What You Want to Do.
4.  LEARN ECONOMICS.  You don’t have to major in it, but know the difference between saving and investing.  Know how interest rates work — they always mention it on the news for a reason.  If you can learn these things, you can either predict events (accurately!) or else adjust to them as they occur, rather than being one of those folks who gets sideswiped by reality.
5.  “Cool” is Stupid; Smart is Sexy.  The world is changing, fast.  Most people don’t understand what’s happening and why.  The 21st Century is going to be *brutal* to the ignorant, and that’s how the world is going to define everybody who thinks they can stop learning once they’re out of school.  Don’t be one of those sad sacks who wakes up in their fifties bitter at a world they no longer understand, because they never really did in the first place.  If you walk away from this overly-long blog post still convinced that buying a house is a good way to save for retirement, the future is going to have no mercy on you.

Last of All….

Don’t trash-talk the Boomers (too loudly).  Yes, you have to understand the demographic and economic circumstances of the Boomers to understand what’s happening today.  Generationally, they’re the “big mouse,” and the snake has to change shape as they move through the system….and dear God would we all be better off if, taken as a whole, they’d bothered saving something.  But for every Boomer who is as absolutely selfish, unrealistic, and narcissistic as the day is long, there’s a notable contingent, especially among the “late Boomers,” who went to crap schools, had terrible job prospects, ran counter to the ” me me me” trend, busted their asses, did right by their families, tried to save (even if it was mostly 401k), and got wiped out by the Fed’s boom-bust cycles anyway.  The Enron, Internet, and Housing busts were *cruel* to those people.  They played by the book, as well as anybody understood “the book,” and deserve none of the scorn which so many of their peers have richly earned.  Generational Warfare is something the Boomers invented.  If that turns around and eventually bites them in the ass, okay, that’s karma — but let’s not perpetuate the stupidity.

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11 Comments

  1. James

     /  September 21, 2012

    actually, that’s “liquidity risk”, not counterparty risk, but the thought’s right.

    Reply
  2. I probably shouldn’t comment as it refers to the situation in the US, but attitudes like this kinda wind me up (being a Boomer). It seems to be a prevalent attitude amongst the writer’s generation that we ‘had it all and squandered it’. Speaking from personal experience (and that of my Boomer friends), we neither had it all, nor did we squander it. I’ve paid thousands into a pension pot, scrimped and saved and made do to own a house. Inflation has made a mockery of my savings – but I did save.

    The only advantage my generation had was probably a better education, and the availability of jobs when we started work in the late 60s and early 70s. It was our parents who benefited from the rush to rebuild and remake, not the Boomers.

    I think what really concerns me is the vituperative apportionment of blame – the simmering anger behind such posts (I’ve had a look around, and there are similar articles on this side of the pond, even in mainstream news outlets).

    If things get worse, is it going to result in “there’s granny, lets get her, it’s her fault” rather than trying to fix the problem?

    Implying that my generation were fortunate to have been born into a world that was bombed to bits really, really grates. We bore the cost of rebuilding, making payments on the Marshall Plan, outrageous personal taxation. Perhaps it was different in the US.

    At the end, you have some advice for those millennials, which amounts to little more than ‘work hard, don’t get into debt,’. Sheesh – that was exactly what I was told by my careers officer, back in 1969.

    Reply
    • Mrs. J — yes, the basic advice, is still basic, and I freely admit that this isn’t the most polished essay on the internet. Thanks for taking the time to put in the critique.

      The US situation isn’t comparable otherwise — and SURELY not if you are British and were still dealing with food rationing and the imposition of a socialist economy in the 40s and 50s. Postwar Brits had things capital-H HARD, and anybody who conflates the US Boomers with the experience faced with Brits of the same generation is simply ignorant. US Boomers had things relatively easy (outside of the constant fear of nuclear annihilation, of course — I’m talking in material terms)…Europeans, Continental or not, absolutely did not.

      That basic advice you were given was NOT given to many of my peers, and not given to many of the people I’ve taught who are now college-age.

      MANY people in the GenX and Millenial generation have been told “without a degree you’re sunk” and told to go to school and, to take out student loans to do it. In the process they were told “get a degree from a *good* school, even if it takes student loans,” rather than “get training and/or a degree from a cheap local community college, and start out debt-free.”

      That conventional wisdom, which students have heard ad nauseam, is a VERY, VERY bad idea. Check out the Occupy Wall Street crowd: lots and lots of pissed-off people who can’t get jobs…because they’ve got *degrees,* but not *skills.* How many of those folks would have been better off learning how to weld, or going to a school of mines rather than snagging a liberal arts degree from an Ivy? Similar misinformation regarding savings, stocks, and the value of housing, can be disastrous if not avoided — and that misinformation is EVERYWHERE. “Forewarned is fore-armed,” and if you know why Bernanke’s doing what he’s doing, then you can read the news with a much more informed eye.

      On a side but important note, I hope nobody throws Granny under the bus…(outside of job competition, which is, sadly, an inherently zero-sum game. Both people can’t get the job). Taking care of the Boomers isn’t the Millenials’ responsibility — it’s the responsibility of their kids in my generation.

      Reply
  3. Thank you for taking the time to reply – indeed, a couple of your compatriots have already ‘bent my ear’ about the differences between the UK and the US 🙂

    Reply
  4. This blog entry is great. This blog site is great. Love the insight. Well done.

    Yup. Life is gonna suck.

    Reply
  5. By the way, what is the difference between saving and investing? Could you expand on this?

    Reply
    • Happy to.
      When you save, what you’ve put aside is yours. It is “liquid” and dependable, and you can get to it at any time. There is no risk.

      When you INVEST, you potentially get back more than you put in (yay!), BUT, while it’s invested, you can’t get to it (boo), AND it’s risky — you could in theory lose it all (eek!).

      Therefore, a 401k sounds great in theory. But it’s not a panacea: what happens if you have to retire in the middle of a recession and the stocks your fund had picked are in the toilet? What if the stocks they picked turn out to be another Enron (or municipal bonds…based in DETROIT), and when push comes to shove and you’ve got to roll that over and start to live on it… it’s worthless?

      Investing is good. You want to invest. But FIRST you have to play defense — get completely debt-free, and save. And if you’re living a life with interior meaning, it’s worth skipping the luxury goods and electronic toys to do so.

      Reply
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