Back to the Future: What Boomers Can Teach Us About Millennials

Getting older is a curious phenomenon. For instance, I have a hard time remembering what I had for lunch, but I can clearly remember a presentation I heard back in 1991 by Joe Nocera. Readers of financial literature (now there’s an oxymoron) will know Nocera as a columnist for The New York Times, Fortune magazine and Bloomberg News, as well as the author of numerous financial books.

Back in the day, the editors of Worth magazine asked him to make the trip up to Boston to talk to us about our baby boom generation. At the time, this group was getting much attention from the financial services industry (think today’s millennials).

Back then, we baby boomers were widely considered by the generations both before us (the “Greatest Generation,” which won World War II) and after us (Generation X, which resented that our large numbers made us the center of, well, just about everything) as a bunch of pot-smoking slackers whose idea of financial planning was to spend money faster than we could earn it. (Let me just state for the record that while I may have taken a toke or two, I never inhaled.)

(Related: Thinking Gen X: An Overdue Look at an Overlooked Generation)

Nocera’s message is memorable, even to this day: While we were, in fact, a generation of drug-addled spendthrifts, “it wasn’t our fault.” Many of us had been saying this for years, but, of course, nobody listened. However, rather than repeating our lame excuses, Nocera had a well-reasoned theory based on history, psychology and economics.

I was reminded of Nocera’s talk by two recent articles on ThinkAdvisor.com: Michael Fischer’s May 19 story, “Millennials Are Top Savers, but Not for Retirement,” and Emily Zulz’s June 1 story, “Millennials Scarred by Financial Crisis.” Both articles address the financial attitudes of the next generation coming into its financial prime, and Nocera’s theory about boomers can be very instructive for advisors trying to understand today’s millennials.

A Little History

Younger readers may be aware that there was a market crash back in 1929 that made the 2008 mortgage meltdown look like a market correction. The grandparents of most of us baby boomers lived through that crash and the terrible economic depression it caused for the next 10 years. What’s more, many banks and brokerage firms went bankrupt, causing depositors’ and investors’ life savings to vanish, literally overnight.

Those losses and the years of hardship they created for many, many families forever changed that generation’s attitude toward financial institutions into one of deep distrust. Many never deposited or invested their earnings again, and those who did were always fearful that their money could disappear at any time.

In response, when boomers did manage to save some extra cash (often literally under their mattresses), many of them chose to invest in tangible things that they knew couldn’t disappear: gold, diamonds and real estate. Most of them held on to those attitudes for the rest of their lives (which, in the case of my grandparents, was into their 90s).

So, I hear you ask, how does that earlier generation’s hardship absolve my slacker generation? Nocera’s point was this: Just as in other areas of psychology, people form their attitudes about money and finances from their experiences at an early age. Those attitudes tend to stay with us for life. This means the financial events that occur when we are young — either good or bad — can determine how an entire generation views money and investing.

In the case of baby boomers, that event was the hyper-inflation of the 1970s. Toward the end of that decade, inflation rates hit the double digits (10% or more every year). This meant that any cash you had would be worth 10% less next year than it was this year and 10% less again the following year.

This wreaked havoc on the stock market, as you might imagine, but it also meant that the price of stuff — cars, houses, clothes, food, bicycles, artwork, everything — went up each year. Nocera’s point was that in baby boomers’ formative years, it made a lot more sense to spend money to buy things, anything, now — because tomorrow everything would cost more and your money would be worth less. We may still have been slackers, but our spendthrift ways were perfectly rational based on our economic experiences.