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Economic Generations of the 20th Century
Tom Brokaw coined the term "The Greatest Generation" for that generation that won World War
II for us. I believe that there are some very interesting
observations about the various generations of the U.S. in the 20th
century, especially from an economic perspective. We might be
able to break down these generations as follows:
The Lost Generations
These generations pre-dated the 20th century. From ancient
times through the 19th century, economies rose and fell, but very
little progress was made in technology. Most people worked
all of the daylight hours just to feed their families. When
it got dark at night, they went to bed because they couldn't afford
much fuel for lamps, and they were going to have to get up at dawn the
next day anyway. This is all that most of them ever
knew. Horses still provided the primary means of
transportation, and most people never ventured more than 50 miles from
home during their entire lives. They did have to fight some
awful wars, such as the Civil War and World War I, and this just made
life more difficult. Inventions during the Industrial
Revolution of the 19th century planted the seeds of technology that
would finally explode into huge changes in the coming 20th century,
including the steam engine (the railroad) the internal combustion
engine (automobiles and airplanes), and applications for electricity
(the incandescent light bulb).
The Greatest Generation
Basically, the Greatest Generation included those born between about
1900 and 1930. This includes most World War II veterans
except for a few heroes who were born in the latter part of the 19th
century, such as Generals Patton and Eisenhower. Almost
everyone in this generation shared in the experiences of World War II,
whether or not they were among the 15 million in the armed
forces. Those on the home front supported the war effort by
grieving their losses, manufacturing the supplies needed for war,
sharing in the rationing of priceless commodities, etc.
This was a tough generation. In their earlier years, before
the worst war ever, they shared in the experiences of the worst global
depression ever. Most people who had somehow managed to save
anything lost it all in the stock market crash. Then the dust
bowl ended the careers of millions of farmers throughout the
Midwest. In addition, most people had been caught up, in one
way of the other by the attempt and repeal (failure) of
prohibition. Some German immigrants, excited about coming to
America and making their famous German beer suddenly discovered that
this was illegal, and they also had to find another line of
work. Meanwhile, many people found it impossible to feed
their families so they turned to bootlegging.
Having suffered through the depression and the war, most people just
considered themselves lucky to be alive, and they didn't ask for
much. Veterans returning from the war felt fortunate to be
able to find decent jobs, pay their bills, and live out their live in
relative comfort and peace. Although unions were
strengthening, the employees who benefited most from unions would be
the ones in the next generation.
The Golden Generation
This includes those born between about 1930 and 1950, including the
oldest 25% of the baby boomers. Their life wasn't a bed of
roses either, and many of them did suffer through the atrocities of the
Korean and Vietnam wars. However, they did get to begin their
careers during the post-war economic growth beginning in the
1950s. They were willing to work hard, and corporations were
hiring. Those in this age group could often sign up with a
big company for life, even without the requirement of an expensive
post-secondary education. Except for minuscule pensions like
the railroad pension, this group was the first to get in on the
attractive pensions rewarded to employees for a lifetime of
work. Company employees received high salaries, and unions
ensured that union employees received high wages, both in the private and public sectors.
In the 1960s and 1970s, they took advantage of the housing boom, when
the federal government offered attractive incentives for purchasing a
home, and mortgage rates were low. Then they saw their homes
quickly increase in value. They also took advantage of huge
increases in wages and salaries, and most were able to pay off their
(now expensive) houses early. Their companies paid for 100%
of their health care, and gave them 100% matching funds in their
savings and stock programs. They yielded large interest rates
on their savings in the 1980s. Then in the 1990s they were
able to put their already inflated savings to work in the biggest bull
market in stock market history. They had relatively low tax
rates, missing out on most of the huge tax increases in Social Security
in 1986. They retired from their primary careers in the 1980s
or 1990s, although many kept working just to have something to
do. They made more in retirement than they did during their
working years, including income from company pensions and medical
benefits, wages from a part-time job, Social Security benefits, Medicare benefits, and, last but not least, gains on their
investments.
The Beneficiary Generation
These folks were born between about 1950 and 1970, including the
youngest 75% of baby boomers. They started out following in
the footsteps of their parents, but now with a college
education. They joined those same corporations with the
expectations set by the previous generation. However, due to
the changing economic environment, the corporations quickly began
disappointing these younger employees, cutting expenses by slashing
jobs, salaries, and benefits, and completely terminating their pension
plans. Employees now had to shoulder much of their own
medical expenses and retirement savings. They bought houses,
trying to emulate the way their parents had grown the equity in their
homes. However, those same rising interest rates that were a
boom for their parents' savings accounts now caused mortgage rates to
go as high as 15%. Then once they bought in, their houses
stopped going up in value (if they were lucky), and housing prices
plummeted up to 40% in some areas of the country.
Furthermore, for most of their careers, they paid much higher
taxes. They found it difficult to grow their net
worth. The ones who made it big now were the
entrepreneurs. People either got rich or they were back to
just barely being able to pay their bills, similar to their parents of The Greatest Generation.
However, it's tough to feel sorry for these folks. They had
all the modern conveniences of life. They were the first
generation to have indoor plumbing all of their lives, and technology
just continued to make life easier and better for them.
Although the economy didn't cooperate like it did for their parents,
they were The Beneficiary Generation because they got to inherit their parents' money.
The Last Generation
This was the last generation to be born in the 20th century, between
1970 and 2000. It is too early to tell how they will fare,
although the current situation looks somewhat bleak. Most of
these folks felt like they had to have a college education (or graduate
degrees) in order to compete for the better jobs. However,
just when college was needed the most, escalating college costs have
quickly got out of hand. So, one of two unfortunate
situations existed for them: 1) When they graduated and
enterer the work force, they found that they were already in debt
before they drew their first paycheck because of the tens of thousands
of dollars of student loans that they owed--making it more difficult
than ever to buy a home, save money, or accumulate a positive net
worth; or, 2) Their parents paid for their college education, so they
will have a smaller inheritance to leave to these children in later years.
Now they have trouble finding any job with unemployment rates higher
than any time since the Great Depression. Due to the
increasing use of computer/robot automation in manufacturing, they may
indeed be entering an era where real unemployment will consistently
exceed 10%. Of these young people who do find jobs, many are
under-employed, where they too barely get by financially, returning to
the ways of their grandparents of The Greatest Generation.
Although these in this age group find that mortgage rates are low, the
bust in housing prices has taught them that buying a house is much
riskier than it was for their parents. As a result, most
choose to rent rather than to buy, but they are unable to build up any
equity while renting. Even if they want to buy a home, the
new restrictions, such as 20% down payments, cause home ownership to be out of their reach.
With medical costs skyrocketing, they're paying for even more of their
medical expenses than their parents did, and their companies are paying for less of it.
With the current financial crises of debt and deficits at every level
of government, the future holds imminent and drastic cuts to government
budgets. Municipalities, counties, states, and even countries
are declaring bankruptcy or otherwise becoming completely
insolvent. So, these people will likely receive very little
government help, and they will see very little of the Social Security
taxes returned to them for their retirement years, even though they've
paid the higher Social Security tax rates throughout their whole
careers. The money just won't be there. It will
have been all used up by the two previous generations.
Their retirement savings is mostly up to them, but with so many
immediate expenses, there's no way they can save much in their 401-K
accounts. For many, their primary hope for a decent
retirement depends upon the stewardship of their parents (of The
Beneficiary Generation). They can only hope that there will
be some inheritance left to help during their own retirement
years. Some of those parents will have squandered the entire
fortunes that they inherited. Others already spent it all on
their children, paying their college expenses, or in some cases paying
for all of their expenses when the kids just stayed at home with their
parents forever. Furthermore, there is a real possibility
that this generation will suffer through a major depression just as
their great-grandparents did.
Summary
So, where are these four generations today, in 2012?
Those of The Greatest Generation are dying out at the rate of 10,000
per day. The youngest of them are 82 years old, and many of
them live entirely on their Social Security checks, barely getting by,
and often having to sacrifice their pride in favor of complete
dependence upon the government for their menial lifestyle in
low-quality retirement homes. Due to their age, they require
more (expensive) medical attention than all of the other generations
combined, and they are putting a severe strain on Medicare, and thus on
medical and insurance costs for all age groups.
Those of The Golden Generation are anywhere from 62 to 82 years
old. They're all collecting Social Security and Medicare
benefits, along with company pensions and gains on their
investments. They were made rich by their company, by their
home equity, by high interest rates and a stock market boom, and
through low tax rates. However, now they're getting old, and
they're further straining Social Security and Medicare. As
they die out, their children will receive significant inheritances.
Those in The Beneficiary Generation are between 42 and 62 years
old. They've helped pay for more of their childrens' expenses
than any other generation, including college expenses and carrying
those children on their own medical plans for many years.
Economic conditions have prevented them from getting ahead like their
parents did. They tried to follow their folks' model of
getting rich from one's company, home equity, market conditions, and
lower taxes, but each of these strategies blew up in their
faces. They simply hope to be able to keep working until they
retire, which will be at a much older age than when their parents
retired. In fact, they probably won't be able to retire until
their own aging parents die and leave them their
inheritances.
Those in The Last Generation are facing more challenges from:
1) Less job opportunities; 2) Higher costs for education; 3) Higher
costs for medical expenses; 4) No equity from home ownership; and, 5)
No money left for retirement savings. Their student loans set
them back by ten years before they can even generate a positive net
worth. They can no longer accelerate that net worth through
rising equity in the homes or through decent interest rates on savings
accounts. If they are lucky enough to save any money for
retirement, either they accept a minuscule interest rate on it, or they
get too risky in the stock market, possibly losing most of it in coming
market crashes when the global economy collapses. Their
parents and grandparents are using up all of their Social
Security. The fortunate ones will inherit money second-hand
from the Golden Generation, if there's anything left by the time The
Beneficiary Generation dies out.
Owen Weber 2012 |