Heir tight: why boomers are so stingy

This episode explores the reasons why baby boomers are increasingly reluctant to spend their accumulated wealth, opting to save aggressively even into retirement.

1. Baby boomers hold a substantial portion of wealth but spend only a fraction of it annually.
2. Inherited wealth has significantly increased in the U.S., reflecting a growing desire among boomers to pass on their assets.
3. The COVID-19 pandemic has led to more conservative spending habits that persist into the present.
4. Concerns about long-term healthcare needs are leading boomers to save rather than spend.
5. The episode challenges traditional economic assumptions about spending in retirement.

1: Generational Wealth

Examines the economic position of baby boomers and their significant wealth accumulation. Discusses their minimal spending habits in contrast to previous expectations. Callum Williams: "Baby boomers seem particularly stingy."

2: Economic Implications

Discusses the potential macroeconomic effects of boomers' savings habits, including impacts on inflation and interest rates. Callum Williams: "There's a big change taking place."

3: Lifestyle and Health

Explores how lifestyle choices and better health allow boomers to remain economically active for longer. Callum Williams: "Our notion of what retirement means is changing."

4: Future Outlook

Considers the long-term implications of these trends for future generations and the economy. Callum Williams: "Boomers are likely to remain stingy for some time."

1. Consider Long-term Care Needs: Start planning early for potential healthcare costs in later life.
2. Reevaluate Home Needs: Consider the practicality of downsizing to better manage retirement savings.
3. Financial Planning for Inheritance: Strategize about passing on wealth to ensure it aligns with familial expectations.
4. Adapt to Post-COVID Lifestyle Changes: Maintain financial discipline that aligns with current lifestyle needs.
5. Stay Informed on Economic Trends: Keep abreast of how shifts in retiree behavior could impact broader economic patterns.

The post-war generation reaped the benefits of peace and prosperity. Yet rather than spend that bounty, retired boomers are hoarding their riches–and upending economists’ expectations. The science of menstruation is baffling, partly because most animals don’t do it. Now clever innovations may help improve women’s health (9:13). And how old-fashioned wind-power is blowing new life into the shipping industry–and cutting its emissions (16:13).

People

Callum Williams, Jason Palmer, Rosie Blore

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Ryan Reynolds
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The Economist
The Economist.

Rosie Blore
Hello and welcome to the intelligence from the Economist, I'm Rosie Blore. And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

Did you know that most animals don't have periods? Our correspondent discusses how to make a mouse menstruate and other amazing innovations that could help us better understand and improve women's health.

The Economist
And it turns out that the shipping industry is just as polluting as aviation is. The solutions to make flying greener are ever higher tech, but at sea, one idea is to go low tech to wind power, but not with the big clipper ship sails, you might imagine.

First up, though, in a lot of ways you could say that baby boomers have ended up as one of historys luckiest generations. Most people born between 1946 and 1964 haven't fought in a war. They lived through some really, really good musical revolutions, and they grew up with all the benefits of strong post war. Economic growth, full development and efficient use of the country's rich. Petroleum resources, as much as any other factor, have made the United States the prosperous and progressive nation that it is.

Broadly speaking, it's a generation that ended up with plenty of wealth, like half of all the wealth in America, even though they only account for a fifth of the population. So as boomers check out of the workforce, what are they going to do with all those assets?

Callum Williams
Economists have a simple model of how people spend as they age. Callum Williams is a senior economics writer at the Economist. In youth, people's outgoings tend to exceed their incomes because they're borrowing for education and they're borrowing to buy their first house. And then in middle age, people tend to accumulate money for retirement. And then in old age, the model says that they're supposed to spend down what they have earned by selling assets and by eating into their savings.

And some people worry that a big wave of retiring boomers is going to lead to a big surge of spending, which is going to make inflation and interest rates higher. But the evidence that we have found casts doubt on this. Tell me about the evidence you found, then. The big question that we're looking at isn't why baby boomers are spending a lot, it's why they're not spending very much at all. Economists have for a while pointed out that people in retirement actually don't spend down their savings as quickly as the simple model suggests.

So, for example, some evidence from Japan a few years ago suggests that people there in retirement spend about one to 3% of their net worth each year. And that almost always means that they die with pretty significant wealth on average. And then in Italy, which is another pretty old country, some research suggests that about 40% of retired people keep growing their wealth in retirement. But what we have found is that baby boomers, that particular generation, seems particularly stingy. They seem to be particularly likely not to spend down their retirement, and particularly likely to try and save more and more and more, even as day age.

So, for example, in America in the mid nineties, people in their mid sixties to early seventies spent about 10% more than they made. So they were actually spending down their savings. But since 2015, people of that age group have saved about 1% of their income each year. So a big change is taking place. And likewise, there's a survey by the Federal Reserve which found that in the mid nineties, about 45 46% of retired households said that they had saved in the past year.

But by 2022, 51% of retired households said they had done so. So baby boomers appear to be particularly interested in saving as much as they can. And that's true across the entire rich. World, it seems to be. So we find pretty similar evidence in Canada, where the savings rate for people in their sixties and seventies started to rise after the baby boomers started to retire.

In South Korea, the savings rate of over 65 went from 26% to 29% from 2019 to 2023. And then if you look at other places like the UK, Germany and Japan, the savings rates of people in retirement are increasing pretty rapidly. So it sounds like this is a full on generational change here. What is it that baby boomers are not doing that the simple model of economists predicts? One big thing that I think a lot of our listeners will be familiar with is the idea of downsizing their homes.

What you find is that baby boomers are particularly likely to remain in the family home even after their children have long left. So, for example, in the US, over a quarter of homes with three or more bedrooms are owned by empty nest baby boomers. I mean, that's a really astonishing fact. In the UK and England specifically, about 20% of all bedrooms are spare bedrooms. So this again speaks to the scale of this trend.

Baby boomers are really likely to hold onto the assets that they have rather than sell them and use the money to fund cruises and golf club memberships and that kind of thing. And so the question is, why might this be? I mean, one explanation that baby boomers have benefited from, in a way, is that they're pretty healthy or they're certainly healthier on average than previous generations. And so what that means is that our notion of what retirement means is changing labor force participation by people mid fifties up has been going up quite a lot in recent years. And so what this means is that baby boomers can just be in the workforce for longer.

And if they're in the workforce for longer, it means that they can accumulate more wealth. So that tells us something about the money that's coming in, but not so much about why the money is not going out. Why are boomers so stingy? We've identified three main factors that are at play here. The first one is to do with inheritance, the idea of passing on wealth to your children.

I think a lot of baby boomers do recognize that they did benefit from a number of big trends over the past few decades, which has meant that they've been able to accumulate a lot of wealth, particularly housing wealth. And so I think a lot of people of that generation kind of feel a bit of an obligation to pass on as much as they can to their children. And you are seeing this now in the data. So, for example, in the US, again, Americans are inheriting about 50% more each year than they were in the 1980s and nineties. So I think there's a kind of growing desire for baby boomers to pass on what they have if they can.

The second reason is actually to do with the COVID pandemic. People who are older were much more at risk from COVID And so what you saw is a lot of baby boomers developed fairly hermit like habits. So, you know, not traveling as much, not going out as much, not going out to eat that kind of thing. And there's pretty good evidence, actually, that those behaviors have largely persisted. So if baby boomers are going on somewhat fewer cruises or going out to eat a bit less, they're just spending less money.

And so they're accumulating wealth almost by accident. And then the third thing, which could be the most important, actually, is to do with worries about longevity, which basically means if you're a boomer who's 65, you could well live to age 100 or even beyond. So that's 35 years where you're in retirement and needing to fund your lifestyle. And also, particularly if you get sick, you might need to fund round the clock care. And so what you're seeing is that a lot of baby boomers, and this is shown by the survey evidence, are saying, I don't really want to spend down my money, because who knows, in 20 years time, I might need to be spending thousands of pounds a week on care.

So I'd rather have a big nest egg that I can draw on if things go wrong. So it's either a matter of setting aside money for the kids and grandkids, or setting aside money for the doctor, pretty much, actually. Or alternatively setting money aside for the boomer's parents, which is a really interesting one. So there's very good evidence from Japan, which has extremely high life expectancy, which is that japanese people in retirement are not only saving in a precautionary way for their own care costs, but they're also saving in a precautionary way for their parents care costs. There'll be a lot of japanese people who are in their mid sixties, early seventies, who have parents who are very much still alive.

And so this kind of illustrates the scale of the challenge that a lot of boomers face. There's a lot of competing demands for their money. 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. Callum, thanks very much for your time.

Thanks, Jason.

Janice Torres
Hi, this is Janice Torres from Jo Quiero di Nero. From a local business to a global corporation, partnering with bank of America gives your operation access to exclusive, exclusive digital tools, award winning insights and business solutions so powerful you'll make every move matter. Visit bankofamerica.com bankingforbusiness to learn more. What would you like the power to do? Bank of America NA copyright 2024.

The Economist
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Late last year, I was writing a piece in which I was talking to a gynaecologist from the University of Edinburgh about testing a drug for a women's reproductive health issue. Rachel Dobbs is a correspondent for the Economist. I said, what were your main hurdles in developing this drug? And he said, oh, well, actually, one of the main difficulties that we had straight away was finding an animal model of menstruation to test drugs on. There are very few animals that actually menstruate as humans do, and it means that it is so much more difficult to then test medicines.

And that kind of astonished me. And then I started looking into, how is this possibly overcome? It's absolutely mind blowing that most animals don't have periods. Yeah. Alongside humans, there are just a handful of species that menstruate.

You've got the higher order primates, so orangutans, bonobos, you've got some bats, elephant shrews and a single rodent. And they are overwhelmingly quite difficult to. Study under lab conditions because most animals don't have periods. What does that mean? We don't know about human beings.

A lot of medical understanding is done by using animal models. So animals that have physiologically similar systems, and that allows you to look at the variables that would affect that system. Often you would then dissect out that organ and examine what goes on with it internally. It also crucially allows you to test drugs and see how they intervene with various bodily systems. Because we have not traditionally been able to do that with menstruation.

We for a long time have not really understood this very dynamic process that the entire lining of an organ goes through once a month. We're not sure why it evolved in humans. We historically have not been aware why some women bleed much more heavily than others, why some people experience so much more pain than others. And that also then means that you cannot start developing treatments to try and address those problems. The lack of animal models is a logistical problem.

Our lack of understanding of menstruation is also because there has been a real dearth of funding or attention that is given to issues that only affect female bodies. So when you don't have animals that you can study on, then how is any of this research being done? So it does involve studying menstruation on animals, specifically mice, but artificially creating menstruation in mice. And so developing the mouse model of menstruation is something that researchers have been working really hard out for decades now. One of the groups in the UK that has been really instrumental in this is at the University of Edinburgh, having created an artificial model of menstruation that you have in mice, that has allowed them to use that, along with samples of tissue donated by human being, gynecological patients at various points in their cycles, and then by looking at the patients that have problems with their periods and the patients that don't, and trying to work out the difference between those two and replicate what's going on in the mice, they have then started to unpick the various events that go on that make the menstrual cycle happen and how they can go wrong.

Rosie Blore
So what have they found? One of the findings is that menstruation is an inflammation event, which means that it involves the immune system, and that hypoxia, which is a lack of oxygen in tissue, seems to play a key role in stopping bleeding and sort of instigating the repair that then goes on. It seems to be that some people who have abnormally heavy breathing or bleeding that goes on too long are not getting this hypoxia in the tissue at the time that they are meant to. So it opens up the avenues for treatment. Now that researchers have been able to develop this model of the menstrual cycle, does that mean that now everything's all right?

Are there limits to that? Mice models of anything are not perfect. Mice and humans have many similar genes, but they are often expressed in different ways. Something like 80% of drugs that are successful in mice do not go on necessarily to be successful in humans. Also, you can take out the uterus of a mouse and examine it after you've done various interventions, but that captures it in one specific period of time.

And the point with this is that it is a dynamic organ that is going through these cyclical changes. Okay, so are there other options beyond the mouse model? Yes. Part of this draws on advances that are becoming very useful across medical science, one of which is organoids, which are very simplified cell structures that resemble miniature human organs, and they tend to be grown from patients stem cells. Then you can start looking at actually how human tissue, endometrial tissue in this case, would respond to various interventions.

There are problems with organoids. They are very simplistic, particularly with something like modeling the endometrium or the uterus, because it is all very involved with the immune system, with the blood supply, with all of these other different bits, that having sort of a small culture of cells in isolation is not going to necessarily let you get to. There are other advances, one of which is the idea of organs on a chip. Imagine, like a circuit chip sort of SIM card, although slightly bigger, and you've got little bits of human tissue, and in between them you have these microfluidic channels, which means that you can pump blood like substances and therefore can look at how those cells are responding to different things in the environment. The technology for this is getting better and better, and there is appetite to combine these two technologies.

So you have organoids on a chip, so you're building up ways to start looking at how something like the endometrium would function and start testing drugs or start testing interventions. So it does sound like after decades of stagnation or neglect, some kind of breakthrough on its way. Where might we get to in terms of the study of female health? Understanding menstruation is going to be very helpful, hopefully, for treating and understanding conditions specifically related to women's reproductive health. Like endometriosis.

It also should aid the advancement of women's health overall, not just in relation to women's specific issues. Researchers have historically shied away from including women in clinical trials because hormone levels affect the way in which drugs are metabolized. They affect loads of other stuff, and researchers didn't want to introduce confounding variables. You know, women have many more adverse drug reactions than men. A better understanding of how female bodies and female physiology works will make drug makers and doctors and scientists more prepared to include women in clinical trials.

It's been a long time coming and it is still quite far behind where it should be and where we would like it to be. But it is very exciting that these kind of strides are now finally being made. Rachel, thank you so much. Thanks, Rosie.

Rosie Blore
For centuries, the only way to transport people and goods around the world was on ships powered by nothing but the wind.

Fossil fuels and the advent of the combustion engine changed all that.

The technology made seafaring faster and more reliable, but they also made it dirtier. Now, renewed efforts to harness the power of the wind and clean up the climate footprint of big ships mean a new age of sail may be on the horizon.

If you've ever seen cargo ships coming into harbour belching out black fumes, then you can understand why shipping accounts for 3% of humanity's greenhouse gas emissions. Paul Markilli is the Economist's innovation editor. That is about the same as aviation. And like aviation, that share is expected to grow because it's very difficult to power large aircraft and cargo ships with green electricity because batteries are simply not up to it. But the oily fumes from ships, though they have to be cleaned up because ports are imposing increasingly strict emission limits, and wind power can help there.

It allows captains to cut back on the use of their engines, and that saves fuel and it saves emissions. And for some vessels, the use of wind power as an auxiliary form of propulsion can amount to around savings of 25% or so. Oils out and winds back in. That all sounds pretty back to basics to me. Well, in a way it is, because humans have been using the wind to propel ships for centuries.

But these new sails are not really quite the same thing. They're more like aircraft wings. There are four different sorts being explored. First of all, there's the rigid sails, and these are like you used to see on America's cup racing yachts. Instead of providing a lifting force, as a horizontal aircraft wing does, these are mounted vertically.

They stick up in the air and produce a pushing force which can propel a ship along. There's also things called fletner rotors and suction sails, which are an older idea that came around in the 1920s and never made it while oil prices were low. But now they look promising, too. And the fourth one are kite sails. Fletner rotors are particularly intriguing because these stick up from the deck a bit like a very thick mask, and they're rotated by an electric motor, which creates a difference in pressure on either side of the rotor, again, much like an aircraft wing.

And that pressure differential produces the pushing force. So we're not talking about entire wind power, we're talking about wind assisted power, right? Yeah, we're talking about wind assistance or auxiliary power, if you like. Sails can't move. These huge cargo vessels that we now see plying the seas, I mean, they're great for tea clippers, bringing some tea back from China to Europe or something like that.

But hundreds and hundreds of tons of bulk cargo, hundreds of containers piled up on ships. Wind can only assist there. There's got to be some other form of propulsion as well. So we're not talking about months and months at sea, hoping that the wind goes your way. What about these other approaches that are being tried?

Rosie Blore
How do they work? Well, suction sails. They're very clever. They're also tall cylinders, and they're mounted on the deck, but instead of going round and round and being rotated, they have a fan in them that sucks in air through holes along one side of the cylinder. And that air being drawn in pulls the wind that's passing around the cylinder closer to that side.

And that also produces a pressure differential. And again, like a sail, it could push a ship along and a suction sail that can provide seven times more force than a conventional canvas sail would produce. Now, unlike the old days, I should add here that all these new sail technologies are completely automatic. I mean, you just switch them on from the bridge and forget them. So there's no need for extra crew.

They're run by computers. So computers are working out all the difficult things like pressure differentials. Is that how kite sails work as well? They will work. Kite sails as well.

They launch the kite sail from the bow of the ship and the kite flies out. And it's very much like the parasail kites, which kite surfers use to tow themselves along. You see them off the beach doing that sometimes. And that, again, is a computerized and fully automatic process. The kite sail is useful because it could be launched from the bow of the ship, and so it leaves a little bit more space on the vessel.

Rosie Blore
That all sounds pretty promising, but we know that the shipping industry, like the ships themselves, are quite slow to turn around. How soon can we expect to see these kinds of wind assisted shipping fleets? At the moment, the numbers are small, but the trial period is over and ships are now being converted to use these various types of sail. And some new ships are under construction being especially designed to make the use of wind power. And these would be particularly efficient.

It'll take time because cargo ships tend to last 30 years or more, but it's going to have to happen because the International Maritime Organization has set a net zero target for around 2050. So if ship owners want to continue in business, they really don't have much choice. Sure, green fuels might help get them some of the way there, but they're going to be expensive and hard to get hold of. So wind power is really gonna have to be taken very seriously. Fascinating stuff, Paul, thank you so much for your time.

That's a pleasure.

Rosie Blore
That's all for this episode of the Intelligence. Let us know what you think of the show. You can get in touch@podcasteconomist.com. we'll see you back here tomorrow.

Janice Torres
Hi, this is Janice Torres from Yokiero. Dinero. From a local business to a global corporation, partnering with bank of America gives your operation access to exclusive digital tools, award winning insights, and business solutions so powerful you'll make every move matter. Visit bankofamerica.com bankingforbusiness to learn more. What would you like the power to do?

Bank of America na Copyright 2024.