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Capital Acumen Issue 33

Boomers vs. Millennials

These two giant generations often collide, creating sparks — and investment opportunities

Boomers vs. Millenials

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It may not be as grueling as an Ali vs. Frazier or Mayweather vs. Pacquiao slugfest, yet the face-off between baby boomers and millennials, two demographic heavyweights with 75 million members apiece, is nevertheless one for the history books. With their often stark differences in personal values, life goals and investment approaches, and their frequent grappling for influence, authority or independence, a little generational friction now and then is hardly surprising.

In a sense, it is a broader form of the tug-of-war parents and children habitually engage in, having grown up in different times and under different social and political influences. For boomers, that would include the Vietnam War, 1960s-era social change, and rock and disco music; and for millennials, the economic crisis of 2008, social media and music streaming.

To be clear, it’s not all conflict in Generation Land. “Most boomers and millennials can find areas of agreement and engagement with each other,” says Christopher M. Hyzy, chief investment officer at U.S. Trust. “It might be a shared love of The Beatles, a grandchild, family values, or a business passed on to a son or daughter.” It’s important to keep this potential for concord in mind even as generational sparks fly — as they often do in many areas, including those we analyze below.

Round One
Wealth & Inheritance

The transfer of family wealth may be a tale as old as time. Even so, inheritance is in the news today because upwards of $30 trillion is expected to change hands over the next three decades, much of it shifting from boomers to millennials, in the form of cash, stocks and bonds, real estate and other assets.1 That’s an unprecedented amount, a legacy of hard work by boomers during the prosperous period from the Second World War to the technology era of the 1980s, and far more than the $12 trillion boomers themselves inherited from their elders.

“The so-called Great Wealth Transfer is important for several reasons,” says Hyzy. “Just as aging boomers are beginning to roll back spending in some areas, which could negatively affect the economy, millennials may be starting to ramp up their own. They are showing more interest in buying their own homes, for example, even though they may be doing so later in life than their parents did.”

The Age Gauge

The notion of generational differences as a calculable factor was born arguably in the mid-20th century, when demographers and economists began to group together all those born between certain years — and then to define, dissect and label each group. Novelist Gertrude Stein may’ve begun the naming trend, referring to those who grew up in the shadow of World War I as the Lost Generation. “This kind of age-group analysis has proved useful, not only for corporations seeking to market to a specific generation’s preferences but also for investors looking for investment opportunities,” says Christopher M. Hyzy, chief investment officer at U.S. Trust.

Ultimately, the transfer, coupled with millennials’ growing earning power and sheer size, which immigration could push above 80 million, “should be positive for the economy,” Hyzy says

Disconnection. The largest hand-me-down ever has barely begun and already it’s fraught with a sort of generational disconnect. According to the 2017 U.S. Trust Insights on Wealth and Worth® survey,** 82% of millennials think it is important to leave a financial inheritance to heirs, compared with 57% of baby boomers. What’s more, although 68% of millennials are confident that they would be responsible with an inheritance, only 42% of boomers think their children could handle the responsibility of inherited wealth.

While these contrasting expectations could be a cause for concern, “there are practical steps families can take to remedy the situation,” says Craig W. Bethel, a wealth strategies advisor at U.S. Trust. Here are a few of them.

  • Conversations are a good starting point. “Parents can express their concerns if they think an inheritance might negatively impact a child’s work ethic,” Bethel says. Adult children can share personal values around money to let Mom and Dad know that they do not plan to squander their legacy.
  • Education. Parents can spearhead wealth-coaching sessions themselves or engage experts for the job. “Families may choose to supplement their children’s financial skill set by having professionals work with the family to provide education,” says Jody L. Weber, senior vice president, Client Segment Marketing at U.S. Trust. Ideally, they will cover a wide range of topics from credit reports to trusts, she says. “Educational sessions should be age appropriate and come in a variety of formats: online, one-on-one, group presentations or retreats. For millennials, they should be social media friendly.” U.S. Trust offers a financial education program called Financial Empowerment, which can be customized based on a young adult’s life stage and needs, Weber adds. “Clients can learn more about the program by contacting their advisor or visiting ustrust.com/education.

Ultimately, Bethel says, “children may surprise their parents with a willingness to learn or their ability to possess a stronger financial acumen than parents realized.”

For more on inheritance, see “Parents, Millennials and Inheritance” in Capital Acumen issue 30. For more highlights from the 2017 U.S. Trust Insights on Wealth and Worth® survey, see “The Generational Divide.”

a cheque and a composite

Donald Gruener/Getty Images; Hero Images/Getty Images

Round Two
Investing

When it comes to investing, the two cohorts exhibit preferences that run the gamut, from aligned to polar opposite. Broadly speaking, boomers appear to favor traditional investments such as stocks and bonds, while millennials, perhaps unnerved by how the Great Recession routed their parents’ portfolios, seem more interested in tangible assets. Here’s a closer comparison:2

Stocks and bonds. Millennials have less than half the stock ownership of boomers (25% vs. 56%), although their fixed income holdings are not as far apart (16% vs. 23%).

What About Other generations

Our focus is on boomers and millennials, but that does not mean we’ve forgotten the cohort sandwiched in between them, Generation X. It’s just that their membership is notably smaller — there are a mere 66 million Gen Xers versus 75 million boomers and 75.4 million millennials3 — and it almost certainly carries less demographic and economic heft. Gen Xers are, if you will, in a lighter weight class. The featherweights here are the mature, or silent, generation (the one before the boomers), who are just 28 million strong.

Tangible assets. Millennials show greater interest than boomers in many areas of real estate. About one-quarter of the younger cohort own or are interested in timberland and farmland, versus just one in 10 older investors. About half of millennials own or are interested in commercial real estate (vs. one-third of boomers). Boomers, however, edge out millennials in residential real estate (69% vs. 63%), which is hardly surprising, since the younger group has famously delayed buying homes of their own.

Cash. The younger cohort has three times the cash (34% vs. 12%), yet both groups show the same concern (37%) for keeping cash on the sidelines as a safe haven against market losses, “a consequence in part of the fallout from the Great Recession,” Hyzy says.

Alternative investments. Here, younger investors once again predominate. Almost 90% of millennials own or are interested in private equity investments (vs. 43% of boomers), and four out of five own or are interested in venture capital (vs. about one in four boomers). It’s a similar situation with hedge funds (81% vs. 27%). “This disproportion stems in part from the younger group being willing to accept more risk for greater potential return,” Hyzy says.

Art. More millennials collect or are interested in collecting art than any other generation. Almost three-quarters (71%) own or are interested in owning fine art, compared with just 28% of boomers, and there’s a similar (actually larger) discrepancy in purchasing valuable collectibles, such as coins (75% vs. 27%). This disproportion may reflect the transition of the art market to online venues as well as the rise of art fairs around the world. “It used to be that if you wanted to buy high-end art, you had to go to a high-end gallery, which for many folks was quite intimidating,” says Evan Beard, National Art Services executive at U.S. Trust. “Nowadays, you can investigate the provenance of a work or place a bid from just about anywhere using a handheld device — which may be especially appealing to younger collectors.” Millennials may also be attracted to art fairs — there were 60 major fairs in 2016, versus 10 in 20054 — “which provide a more social environment for collectors,” Beard says.

Impact investments. As recently as a decade ago, investing with the goal of making the world a better place was considered a niche strategy, one beset by subpar returns and scant data, engaged in mostly by investors who placed personal values above profit. Since then, much has changed. “Impact investing, or investing for financial returns and positive societal and environmental change, has expanded from socially responsible investing to include investing based on environmental, social and corporate governance (ESG) factors, as well as other solution-oriented strategies,” says Jackie VanderBrug, co-chair of the Global Wealth & Investment Management Impact Investing Council. Impact investments have often matched returns of traditional investments (many impact- or ESG-focused indexes are available to help investors gauge performance, including the MSCI ACWI Sustainable Impact Index and the Thomson Reuters Corporate Responsibility Indices).

Growth by Generation

Recent estimates show that millennials, who are now about 75.4 million strong, have overtaken baby boomers as the country’s largest living generation.

Growth by generation graph

Source: Pew Research Center tabulations of U.S. Census Bureau population projections released December 2014 and 2015 population estimates.

NOTE: Millennials refers to the population ages 18 to 34 as of 2015. 

“The number of corporations publishing reliable impact data in annual corporate sustainability reports has risen,” VanderBrug says, “with over 80% of S&P 500 companies now publishing ESG reports, up from 20% in 2011, according to the Governance & Accountability Institute.” There has also been an increase in industry groups such as the Sustainability Accounting Standards Board that are working to ensure data is reported consistently across companies and industries. As a result of these improvements, both generations are engaged in the strategy, but millennials especially so:

  • Millennials are almost twice as likely to view political, social or environmental impact as somewhat or extremely important to their investment decisions (88% vs. 47%).
  • Three-quarters (76%) of millennials, compared with less than one-third (29%) of boomers, have reviewed their portfolios for impact.
  • Millennials are more than twice as likely to view their investment decisions as a way to express their values (76% vs 37%).
  • Four out of five millennials (79%), but less than half (46%) of boomers, believe it is possible to achieve market-rate returns investing in companies based on their impact.

As impact investing moves further into the mainstream and more investors employ impact strategies, financial companies could potentially benefit through the resulting deeper relationships with their clients. There is, however, a major caveat, VanderBrug says. “Those financial advisors who work primarily with traditional investors, including boomers, should familiarize themselves with the financial goals and concerns of millennials. And they should view a deep understanding of impact as essential, no matter a client’s age.”

Round Three
Philanthropy

Both generations engage in giving back to society — although their approaches can differ significantly. “Roughly four out of five boomers, but just one-third of millennials, make charitable financial donations,” says Gillian Howell, Philanthropic Consulting & Advisory executive at U.S. Trust. “The older generation is also more likely to volunteer, while millennials favor giving back in less traditional ways.” Almost one-third say that through business ownership they create jobs and opportunities for others, while only 10% of boomers say the same. Similarly, 32% of millennials regard their investments in companies based on their positive impact as a way of giving back, versus just 14% of boomers. They are also almost twice as likely as boomers to work for a nonprofit (19% vs. 10%). Notably, Howell says, “nearly seven in 10 millennials think their parents are not as committed to giving as they are.”5

Professionals in conference room and in cafeteria with laptops.

KKGAS/Stocksy; Shannon Fagan/Getty Images

Round Four
Work & play

With advances in healthcare, Americans are living longer than ever before, with average life expectancy growing from about 70 years in 1960 to 79 years today.6 “This new longevity, combined with the sluggish post-Great Recession economy and other factors, is adding complexity to the generational collide,” Hyzy says. As Federal Reserve data released in 2017 brings to light, millennials are generally worse off than boomers were at the same stage of life. For example, millennials:

  • Earn 20% less, despite being better educated
  • Have half the net worth
  • Have lower home ownership
  • Have higher student debt

Potential Investment Areas

Here are some of the areas that Hyzy, Bartels and others think could benefit over the long term from the consequences of generational aging and differences:

  • Healthcare (pharmaceuticals, genomics/biotechnology)
  • Technology (robotics)
  • Financial industry
  • Leisure (Cruise ships, restaurants)
  • Real estate (housing)
  • Art services

Adding to any generational tension is the fact that by living longer, baby boomers may put a strain on the Social Security system and their savings — and to compensate, some will need to work past retirement age, increasing workplace competition for millennials. To pour salt in the wound, boomer longevity may mean that their adult children receive a smaller inheritance than they expect — or none at all.

Not so different?

Amid the many differences apparent in this “age-off,” there are plenty of generational parallels. According to Mary Ann Bartels, head of Merrill Lynch Wealth Management Portfolio Strategy,† “baby boomers, who are often identified with the 1960s era of peace and love and work aversion, nevertheless went on to create some of the greatest wealth this country has ever seen.” Likewise, millennials, who have struggled to find jobs and are perhaps best known for moving back in with their parents, may also upend similar expectations. “They have a strong entrepreneurial spirit,” Bartels says. “They’re willing to start companies, and that can lead to significant wealth accumulation and job growth.”

The two generations are similar in other respects as well: They both appear drawn to travel and dining out. “Interest in cruise ships grew by one-fifth between 2014 and 2015, among all adults, including millennials,” Bartels says.7 “What’s more, in 2015 consumers spent more at restaurant tables than at supermarket checkouts for the very first time.”8 Cruise ship buffets as the ultimate generational equalizer? Could be.

What it all means

Rising longevity and demographic shifts are leading to more engagement between baby boomers and millennials, not to mention the smaller cohorts, Gen X and the mature generation. (For more, see “What About the Other Generations?”). The sheer volume of people, along with economic uncertainty, raises the likelihood that two or more generations — adult children, parents, grandparents, even great-grandparents — may well have to share homes or vie for opportunities in the workforce. Age diversity can be valuable yet also a source of tension when generational “personas” collide. Fortunately for investors, “understanding generational needs, and their consequences, can lead to the discovery of investment opportunities in a range of areas,” Hyzy says. And just as investors are coming to grips with this generational abundance, and how it may play out in their portfolios, here comes the next wave: The first of the centennials — children born in the 21st century — are turning 18 this year.

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