3 Reasons Baby Boomers Aren’t Spending — and What That Means for Younger Generations

Baby boomers — born between 1946 and 1964 — represent 21% of the U.S. population, according to Axios. And that cohort is the richest among all generations, with wealth totaling $78.5 trillion in the first quarter of 2024, according to Federal Reserve data.

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Yet, when it comes to spending, they are holding tight to their savings and their accumulated wealth. In fact, The Economist, in a June 18 episode of The Intelligence, said that they were “hoarding their riches” and called that generation “stingy.”

“The big question we’re looking at isn’t why baby boomers aren’t spending a lot. It’s why they’re not spending very much at all,” said Colin Williams, senior economics writer at The Economist.

David Hebert, an economist with the American Institute for Economic Research , said the fact that they’re not spending isn’t particularly surprising.

“Baby boomers lived through the economic calamity of the 1970s and ’80s,” Hebert said. “After this latest round of high inflation and the promised return of lower prices, not spending as much money as we would have thought is not surprising.”

So, what are additional drivers behind this attitude and how is it impacting younger generations ?

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Living Longer

One of the reasons behind their reluctance to spend their funds is that boomers are living longer.

“They are talking to their financial advisors and they are doing the math,” said Bobbi Rebell, CFP, the founder of Financial Wellness Strategies and author of “Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.”

“They see how life expectancy is longer and at the same time the cost of living is getting more expensive due to inflation , and they want to make sure they have enough,” she said.

Rebell added that retirement used to be a much shorter percentage of our lifespan. Now that we’re living longer, retirement can last decades longer than it did in the past.

“It makes sense to be careful with their cash flow,” she continued. “Long-term healthcare is very expensive, and they want to keep that financial safety net.”

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The ‘Super Savers’ and the ‘Worriers’

According to Jay Zigmont, CFP and founder of Childfree Wealth , there are two buckets of boomers who are not spending their money: super savers and worriers.

“Many boomers are super savers,” Zigmont said. “They have saved every penny they could and getting them to spend more is challenging. I’ve seen boomers with millions yet still cutting coupons and buying from the discount bin.”

The other boomers aren’t spending money because they are worried about running out — most commonly, Zigmont said they are worried about healthcare and long-term care costs in their later years.

“Long-term care averages $115,000 annually for a single room in a skilled nursing facility. Men, on average, will spend 2.2 years in care, and women, 3.7 years,” he continued.

“It is reasonable to worry about covering end-of-life expenses, and some will be unable to cover these costs.”

Taking Advantage of the Stock Market

Another driver, according to Hebert, is that boomers have “an amazing understanding” of investment returns thanks in part to generous retirement benefits from employers and the incredible performance of the stock market over the past 40 years.

“With the continued growth of the stock market coupled with soaring real estate prices, they likely don’t want to miss out on tremendous gains and so are still saving as much money as they can,” said Hebert. “For what, exactly, only time will tell.”

Hebert also explained that millennials expecting a huge inheritance “are going to be in for a rude awakening.” He added, “Not only will Uncle Sam take a cut, but rising medical expenses will eat into much of their parents’ pile of wealth.”

What Does This Mean for Younger Generations?

The housing market has been extremely arduous over the last couple of years and is only getting more difficult with Boomers holding onto their property longer.

Many Boomers are increasingly opting to “age in place,” meaning that they choose to continue to live in the homes in which they raised their families, rather than downsizing or moving to retirement communities.

This ongoing trend, combined with laws preventing new housing construction in key areas, has pushed the price of housing through the roof, according to Hebert.

This has made the already expensive process of buying a home even more costly, especially for younger buyers.

“[The fact that] current millennials are struggling to purchase even a starter home is the inevitable result of this reduced availability and supply of housing,” said Hebert.

Sexton echoed the sentiment, noting that due to living longer, boomers are also staying in their homes longer, which means fewer houses are available for younger generations.

“This significantly drives up housing prices and makes it harder for Gen X, Millennials and Gen Z to afford homes,” he said.

To put this into perspective, Sexton pointed out that the median home price in the U.S. has increased by approximately 418% from 1980 to 2020. This trend will continue to exacerbate the wealth gap as homeownership is a significant way to build wealth.

“These changes reflect broader economic and societal shifts. To keep up, younger generations will need to adjust their expectations regarding inheritance and plan for their financial futures more independently,” he added.

This article originally appeared on GOBankingRates.com : 3 Reasons Baby Boomers Aren’t Spending — and What That Means for Younger Generations