Boomers' iron grip on $76 trillion of wealth puts the squeeze on younger generations

Boomers own a staggering $76 trillion in wealth, but they aren't splurging it away as economic textbooks might suggest.

This phenomenon, explored in a recent episode of The Economist's podcast "The Intelligence," is puzzling economists and challenging long-held assumptions about retirement spending.

"The big question we're looking at isn't why baby boomers aren't spending a lot. It's why they're not spending very much at all," says Colin Williams, a senior economics writer at The Economist, on the podcast.

The implications stretch far beyond individual savings accounts, touching everything from the housing market to consumer spending patterns.

Boomers are "pretty stingy" for a few reasons

So why do boomers have such a tight-fisted approach to their wealth? A few reasons.

Covid played a significant role, instilling what Williams calls "hermit-like habits" in many older Americans. These behaviors have persisted even as restrictions have passed.

Williams says it’s as if this group is “accumulating wealth almost by accident.”

Boomers are also worried about just how old they’ll live to be. They are considering the possibility of a very long retirement and are worried about having enough money to last.

According to Corebridge Financial, 54% of Americans say they expect to live to 100, but only 27% believe their savings will be enough to last their lifetime.

A sense of generational duty plays a role, too.

Many boomers, having benefited from post-war economic prosperity, feel an obligation to leave substantial inheritances for their children and grandchildren.

“There’s a lot of competing demands for their money,” says Williams. “And so, in the short run, they’re thinking ‘I really can’t spend what I have.’ What that means for the rest of us is that we can probably expect boomers to remain pretty stingy for some time yet.”

So much for the Great Wealth Transfer

The spending habits (or lack thereof) of baby boomers are reshaping our economy.

This is nowhere more evident than in housing. Boomers' reluctance to downsize is exacerbating the housing crunch and making it harder for younger generations to get on the housing ladder.

A Redfin study found there's a shortage of 4 to 7 million homes in the U.S., and more than three-quarters of homeowners aged 60 and over are planning to age in place.

That will further limit the housing supply for younger buyers.

For younger generations who do manage to scrape together enough to buy a house, it’s nowhere near what their parents have. Empty-nest boomers own 28% of large homes with three or more bedrooms.

Meanwhile, only a mere 0.3% of Gen Z families have managed to buy houses that size.

But what about the much-anticipated Great Wealth Transfer? Cerulli Associates estimates that $53 trillion will pass from boomers in the next decade, but most of this is concentrated in high-net-worth households.

Longer lifespans and potential long-term care costs could shrink inheritances, leaving many younger Americans with less than they hoped for. This uncertainty is forcing Gen Z and millennials to rethink their financial futures.