Baby boomers are loaded. Why are they so stingy?

BABY boomers were born between 1946 and 1964 – and are the luckiest generation in history. Most of the cohort, which numbers 270 milllion across the rich world, have not fought wars. Some got to see the Beatles live. They grew up during strong economic growth. Not all are rich, but in aggregate they have amassed great wealth, owing to a combination of falling interest rates, declining housebuilding and strong earnings. American baby boomers, who make up 20 per cent of the country’s population, own 52 per cent of its net wealth, worth US$76 trillion.

Now the generation is moving into retirement, what are they going to do with their money? The question matters for more than just suppliers of cruises and golf clubs. Since they have deep pockets, boomers’ spending choices will exert a huge influence on global economic growth, inflation and interest rates. And it turns out boomers are remarkably stingy – not just in America but across the rich world. They are not spending their wealth, but trying to preserve or even increase it. The issue for the economy in the 2020s and 2030s will not be why boomers are spending so much, as many had anticipated. It will be why they are spending so little.

Economists have a simple model of how people spend as they age. In youth, people’s outgoings exceed their incomes, as they borrow to invest in education or to buy their first house. In middle age, people accumulate money for retirement. And in old age they spend more than they earn, funding their lifestyles by selling capital (such as houses) and eating into savings.