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The Difference in Finances between the Baby Boomers and Gen Y

* Read this if you are tired of hearing complaints about your generation’s ability to grow up.

* Read this if you wonder what the difference is between your parent’s generation and yours.

Things are different today, and as a young adult, you may be starting your financial life plan later than your parents did. Many in your generation have delayed adulthood by five to seven years, compared to your parents’ generation. The advantage for your generation is that you are better educated and often have the financial support of your families as you enter your career years. By carefully selecting educational goals, following a prudent course of action, avoiding debt where possible, and making a wise career choice, you will be well on your way to financial security.

1. The Evolution of Personal Finances

There appears to be a growing trend for young adults to stay in the family home longer and to return several times before finally launching on their own. How will delayed adulthood affect a person’s future financial well-being?

As a financial advisor for the past 15 years, I have helped more than 1,200 clients. During that time I have had the privilege to work with retirees raised during the 1930s and 1940s, professional Boomers born during the 1950s and 1960s, and young professionals born during the 1970s and 1980s.

It has become clear to me that each year, today’s “new young adult” seems to be farther and farther removed from the common-sense, prudent money principles exercised by clients who grew up during earlier and simpler times ranging from 1940 to 1965. Why is it that clients who raised families in a single-paycheck environment, earned less, had fewer resources, and were less educated, managed to pay off debt while still in their 40s? They saved more, spent prudently, and lived within their means to achieve financial well-being in time to retire. What has changed?

For those of you born after 1985, your parents are “ancient history.” As far as you are concerned, they might as well be talking about the Big Bang theory! A little history lesson may be in order since much of the information we hold to be true about financial security, creating wealth, and retirement planning is based on the baby boom generation. Bear with me; upon examination you will find out why the rules that worked for the Boomer generation will not work for you. The following example gives an insight into why there is a difference between the generations’ financial management.

Cassie has just turned 25 and will graduate next spring from her local university, with a major in journalism. She has been listening to her parents go on and on about how it was when they were growing up in the 1960s and 1970s. They tell her, “By the time we had reached the age of 25 we had already married and bought our first home.”

Cassie is beginning to feel like a failure for being so far behind. Like many young adults, she still lives at home with her parents, has $20,000 in student debt like so many students^[1], has yet to land a full-time job, and is a long way from finding the person she wants to marry. Rather than get into an argument, Cassie decides to use her newly learned interviewing skills to get her parents to talk about the “good old days.” This way she will be able to compare their experiences as young adults to her own.

Here is what Cassie discovers. Her parents, Francesca and Cano, came from working-class backgrounds. Cassie’s grandparents did not have the resources to help fund their children’s postsecondary education and, at that time, student loans were a relatively new thing. Cano and Francesca were high school sweethearts.

Upon graduating from high school at the beginning of the 1980s, and with no hope of going to university, Cano, who wished he could become an architect, became a plumber apprentice instead. Becoming an architect would have meant many more years of school with no money to pay for his education. Francesca went to teachers’ college. Soon they were both working. Their employers provided benefits and pensions. Francesca and Cano may not love their work, but they are satisfied that their future offers financial security and they expect to retire at age 65 after 40 years of work.

A year after graduating from their programs, they had a big wedding. Cano and Francesca’s parents hosted the wedding, the bride’s parents paid for the reception, and the groom’s family provided a cash gift of $1,000. The bridal shower provided the needs of the home from kitchen to bed and bath. Cash was also a popular wedding gift. The wedding provided Cano and Francesca with most of their household needs and a total of $2,000 in cash.

Soon after the wedding, Cano and Francesca found a home. Using the $2,000 savings from their wedding and adding another $5,000 they managed to save on their own, they were able to qualify for a mortgage on their dream home, a semidetached dwelling in the suburbs.

Cassie and her parents feel good about their conversation. Francesca and Cano are sentimental and love talking about their life together. They are pleased Cassie is interested in understanding the sacrifices they made for the betterment of their family. Cassie now understands her parents sacrificed the education and the careers they would have preferred to enable them to marry and have a family, respectful of the social mores of the day.

Let’s compare the lives of Cassie and that of her parents at age 25:

• Cano and Francesca at age 25 are newly married and both have new careers, an apartment full of new furniture, no debt, and a nest egg of $7,000 to help them make their first home purchase.

• Cassie, at age 25, is living in the family basement and is starting her career with a $20,000 debt.

She compares her $20,000 debt at age 25 with how her parents began with $7,000 in savings at age 25. Cano and Francesca married in 1985 so Cassie adjusts their age 25 starting point for inflation. The $7,000^[2] start is equivalent to $14,000 today! That represents a $34,000 difference in net worth at age 25.

Cassie has a good education in a field of her choosing. She has a promising future career which she expects will be personally fulfilling. Cassie and her peers have more choices, easy access to student loans, and credit cards.

Many young adults of today are better educated than their parents. Education takes time; this means that today’s young adult is entering the job market later in life and more often is graduating with student loans and credit card debt.

Today’s young adults are reluctant to accept a work environment in which they do not feel fulfilled. This is in stark contrast to their parents’ generation who made career and financial sacrifices in their early years in order to have an easier life later. This generation of young adults is less prepared to make sacrifices and save a portion of today’s income for a better life tomorrow. Is it any wonder today’s graduating students are reluctant to leave the family home? Similar to Cassie, today’s youth are starting from a negative position. Financial life planning for those born after 1985 will be dramatically different than it has been for earlier generations.

Sample 1 shows you a simplified chart of the differences between the Boomers and Generation Y.

Sample 1: Differences between the Baby Boomers and Generation Y

My question to you is: How can you take advantage of your unique situation and give yourself a quick start to the next decade? If you follow the steps outlined in the subsequent chapters, you will be off to a good start.

1. The Financial Consumer Agency of Canada, “Youth Financial Literacy Study,” www.fcac-acfc.gc.ca/eng/resources, (2008), accessed June 2011.

2. Bureau of Labor Statistics, “Consumer Price Index,” www.bls.gov/cpi, (2011), accessed June 2011