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Financial planning, Investment and Self Managed Super Fund Article
What to do about Aging Baby Boomers - Part 1
By Lester Wills
1st July 2003
This article may be out of date.
The baby boomers are a unique generation. Not only are they the most highly educated, sophisticated and articulate generation the world has ever seen they can also lay claim to being the most cynical, greedy, self centred and opinionated generation of all time.
The world was turned upside down as this generation came of age in the sixties. The flower power revolution, rock and roll and anti whatever demonstrations hit the world like a inferno culminating in a year that not only changed the course of history, it was defining moment for the boomer generation.
1968 was a year like no other. North Korea seized the US Navy ship Pueblo, the Tet offensive erupted in Saigon and in people’s living rooms with unheralded TV coverage. We saw the unforgettable footage of the South Vietnamese army officer putting a gun to the head of a suspect and pulling the trigger. We witnessed massive starvation and death in a small country called Biafra. Martin Luther King and Robert Kennedy were assassinated. Students brought Paris to its knees and rioters crippled Washington. Soviet tanks rolled into Prague, Chicago saw the US democratic convention and unprecedented violence. Nixon became US president and protests against the Vietnam war engulfed nations around the world. Even the summer Olympic Games in Mexico were not immune with the infamous Black Power salute from the medal winners podium.
Yet the year seemed to be put into perspective with Apollo 8 sending back dramatic pictures from the far side of the moon. For the first time we saw earth as a solitary planet in the empty void of space and we stepped back from the brink.
Boomers have matured since then and many drive Harleys, no longer as a protest against the world, but as a statement of who they are. Oh yes there is one other amazing feature about this cohort. They are probably the wealthiest generation the world has ever known and now they are approaching retirement.
So, who are these people? The generally accepted dates are that they were born between 1946 and 1964. On January 1st 1996 the first baby boomer turned 50 and over the following 14 years, a quarter of a million Australian boomers will turn 50 each year, that’s almost 700 each and every day. In 2002 the boomers reached 55 meaning that many could access superannuation and opt for early retirement. In effect, 2002 marked a defining point in the ageing on Australia’s labour force. In 2012 this same cohort of boomers will celebrate their 65th birthday. In that single year, the population over 65 will grow by 4%. During the years 2012 to 2028 the population of over 65s will grow four to five times faster than the total population, as the rest of the baby boomers reach 65.
This generation has a unique set of experiences as memorable in many ways as their parents who went through the Great Depression and World War II. As their parents were shaped by their experiences, so have been the boomers. Whilst every individual is different, the boomers have many shared experiences which allow them to be categorised in some respects as a group whilst acknowledging that any individual may react and behave in a very different manner.
In my travels I have collected all sorts of material and information and ideas. Some of the most interesting are sales ideas targeting ageing boomers. This article and those of the next few months will impart some of those ideas for you to peruse and use if you will. Hopefully, some will be new or novel. At the very least they should generate your own ideas and approaches.
Boomer Approach 01
Older boomers grew up in the years immediately after the Second World War. They will remember much of what their parents have told them about the Depression years. Consequently, financial security is likely to be a major issue. They may not need help in achieving a degree of wealth but maintaining their lifestyle is an issue. They may not need to worry about paying off the mortgage but they do worry about having enough money to live on in their retirement which is suddenly staring them in the face. Their future lifestyle security is what motivates them and their investment behaviour.
Whilst they know they are going to retire, they may not have accepted just what that means. After all, this generation is (was) invincible. Facing up to the prospect of retirement is something they have not really done. The boomer generation has funded social security and the pensions of their elders. They do not like the idea that they may no longer be able spend the way they have done all their life and the vast majority have simply NOT saved anything like enough.
Thinking about what their financial needs are going to be in retirement is something they are going to need help with, even though many will reject wholeheartedly the concept. Help them face up to reality.
Boomer Approach 02
They will have started school in the early sixties and probably remember the assassination of John Kennedy, the Vietnam war and the massive peace demonstrations. In fact, some of the male boomers may have even served in Vietnam. These events have something very important in common. The undermining and, for many, the destruction of trust in institutions and authority. It is for good reason that the boomers are so cynical.
If they could not trust those institutions why should they trust the institutions you represent? In fact why should they trust you? In order to win over ageing boomers you must be prepared to overcome this inherent suspicion. You must give them reasons to trust you.
As I have mentioned in previous AllThingsConsidered.biz weekly articles, boomers HATE to be sold, but they love to spend. If you are selling, forget it. If you are heping to solve a problem, that is a different matter.
Therefore, focus in their problems, whatever they are and help them develop alternative solutions. They must have the choice and be seen to do so. Paint scenarios, offer solutions, suggest alternatives and then let them choose.
Boomer Approach 03
In 1982 when the greatest and longest bull market in history started, boomers were in their early 30’s. Many were married and raising a family. Generally most had never consciously invested in anything except a bank savings account. The more financially sophisticated may have used a money market fund.
Some time during the 1980’s that all changed. Many made their first investment in shares and were then caught up in the ranging bull market of the late 80’s. Until October 1987 when markets fell 25% in a single day. Whilst the US market bounced back within months, Australia took much longer. But boomers around the world were making more money by investing in shares then they ever thought possible. The boomeventually came back to Australia and fed the desire. As Gordon Geeko said, “Greed was good”. It did not die in 1987 it just went into hibernation.
Consequently the boomer is as much a growth investor as their parents were inclined to be savers. Provide them with various ways of meeting this desire. Show them the different types of growth investments that are available but at the same time, educate them into the benefits of also having an income stream. Many will think that the two are mutually exclusive, hopefully you will be able to show them that it is not.
Boomer Approach 04
Many think the boomers are financially sophisticated, including most of the boomers. Unfortunately the majority are not. The ASX claimed a few years ago that Australians were second highest share holding nation in the world on a per capita basis. Unfortunately that same research also showed that most Australian own two or three hundred shares in just two or three companies. Guess which companies? Those that were privatised or demutulaised. Consequently they are likely to have diversified amongst the financial services sector and probably little else. They simply had no idea of the risks they were taking and as a result many will have been burnt and consequently will not trust the market ever again.
As the Money Report by Mackey in 2000 found, boomers hate debt. However, they love credit and many are using it to fund their current lifestyle.
Find ways to show them how they can improve their investment behaviour in growth assets and show them the choices to make it happen more efficiently.
Boomer Approach 05
Due to the Superannuation Guarantee and the number of privatisations, boomers have been investing for a number of years. Consequently, some will have a modicum of experience when it comes to investment. The downside is that a little knowledge is often dangerous. What experience they have may have been misplaced, as their investment experience may be limited to a few stocks and looking at their superannuation statements. This will not have been helped by the trend in the market over the last few years.
However, they are likely to be open to step by step explanations of the benefits of asset allocation. Many will not realise just how important diversification is and the fact that approximately 90% of the differences between funds over time are due to asset allocation. Put simply (as in vast over simplification), it is more important to be in the right asset than in the right sector of that asset. In other words, being invested in say equities when the market is rising is more important than being in any particular share.
Diversification is not as easy to understand as those in the industry like to believe. By the same token it is not as difficult to comprehend as those outside the industry fear. Simple, clear, unbiased examples can be used to illustrate the benefits. However, in order to avoid any perceptions of bias, these examples, should cover a range of time periods and asset allocations so that all types of market scenarios can be covered (e.g. booms as well as busts) and in reality should not be linked to any one fund manager. Boomers are cynical and the use of a particular fund manager’s funds could lead to perceptions of bias.
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