Economic Generations of the 20th Century

Tom Brokaw coined the term "The Greatest Generation" for that generation that won World War II for us. I believe that there are some very interesting observations about the various generations of the U.S. in the 20th century, especially from an economic perspective. We might be able to break down these generations as follows:

The Lost Generations

These generations pre-dated the 20th century. From ancient times through the 19th century, economies rose and fell, but very little progress was made in technology. Most people worked all of the daylight hours just to feed their families. When it got dark at night, they went to bed because they couldn't afford much fuel for lamps, and they were going to have to get up at dawn the next day anyway. This is all that most of them ever knew. Horses still provided the primary means of transportation, and most people never ventured more than 50 miles from home during their entire lives. They did have to fight some awful wars, such as the Civil War and World War I, and this just made life more difficult. Inventions during the Industrial Revolution of the 19th century planted the seeds of technology that would finally explode into huge changes in the coming 20th century, including the steam engine (the railroad) the internal combustion engine (automobiles and airplanes), and applications for electricity (the incandescent light bulb).

The Greatest Generation

Basically, the Greatest Generation included those born between about 1900 and 1930. This includes most World War II veterans except for a few heroes who were born in the latter part of the 19th century, such as Generals Patton and Eisenhower. Almost everyone in this generation shared in the experiences of World War II, whether or not they were among the 15 million in the armed forces. Those on the home front supported the war effort by grieving their losses, manufacturing the supplies needed for war, sharing in the rationing of priceless commodities, etc.

This was a tough generation. In their earlier years, before the worst war ever, they shared in the experiences of the worst global depression ever. Most people who had somehow managed to save anything lost it all in the stock market crash. Then the dust bowl ended the careers of millions of farmers throughout the Midwest. In addition, most people had been caught up, in one way of the other by the attempt and repeal (failure) of prohibition. Some German immigrants, excited about coming to America and making their famous German beer suddenly discovered that this was illegal, and they also had to find another line of work. Meanwhile, many people found it impossible to feed their families so they turned to bootlegging.

Having suffered through the depression and the war, most people just considered themselves lucky to be alive, and they didn't ask for much. Veterans returning from the war felt fortunate to be able to find decent jobs, pay their bills, and live out their live in relative comfort and peace. Although unions were strengthening, the employees who benefited most from unions would be the ones in the next generation.

The Golden Generation

This includes those born between about 1930 and 1950, including the oldest 25% of the baby boomers. Their life wasn't a bed of roses either, and many of them did suffer through the atrocities of the Korean and Vietnam wars. However, they did get to begin their careers during the post-war economic growth beginning in the 1950s. They were willing to work hard, and corporations were hiring. Those in this age group could often sign up with a big company for life, even without the requirement of an expensive post-secondary education. Except for minuscule pensions like the railroad pension, this group was the first to get in on the attractive pensions rewarded to employees for a lifetime of work. Company employees received high salaries, and unions ensured that union employees received high wages, both in the private and public sectors.

In the 1960s and 1970s, they took advantage of the housing boom, when the federal government offered attractive incentives for purchasing a home, and mortgage rates were low. Then they saw their homes quickly increase in value. They also took advantage of huge increases in wages and salaries, and most were able to pay off their (now expensive) houses early. Their companies paid for 100% of their health care, and gave them 100% matching funds in their savings and stock programs. They yielded large interest rates on their savings in the 1980s. Then in the 1990s they were able to put their already inflated savings to work in the biggest bull market in stock market history. They had relatively low tax rates, missing out on most of the huge tax increases in Social Security in 1986. They retired from their primary careers in the 1980s or 1990s, although many kept working just to have something to do. They made more in retirement than they did during their working years, including income from company pensions and medical benefits, wages from a part-time job, Social Security benefits, Medicare benefits, and, last but not least, gains on their investments.

The Beneficiary Generation

These folks were born between about 1950 and 1970, including the youngest 75% of baby boomers. They started out following in the footsteps of their parents, but now with a college education. They joined those same corporations with the expectations set by the previous generation. However, due to the changing economic environment, the corporations quickly began disappointing these younger employees, cutting expenses by slashing jobs, salaries, and benefits, and completely terminating their pension plans. Employees now had to shoulder much of their own medical expenses and retirement savings. They bought houses, trying to emulate the way their parents had grown the equity in their homes. However, those same rising interest rates that were a boom for their parents' savings accounts now caused mortgage rates to go as high as 15%. Then once they bought in, their houses stopped going up in value (if they were lucky), and housing prices plummeted up to 40% in some areas of the country. Furthermore, for most of their careers, they paid much higher taxes. They found it difficult to grow their net worth. The ones who made it big now were the entrepreneurs. People either got rich or they were back to just barely being able to pay their bills, similar to their parents of The Greatest Generation.

However, it's tough to feel sorry for these folks. They had all the modern conveniences of life. They were the first generation to have indoor plumbing all of their lives, and technology just continued to make life easier and better for them. Although the economy didn't cooperate like it did for their parents, they were The Beneficiary Generation because they got to inherit their parents' money.

The Last Generation

This was the last generation to be born in the 20th century, between 1970 and 2000. It is too early to tell how they will fare, although the current situation looks somewhat bleak. Most of these folks felt like they had to have a college education (or graduate degrees) in order to compete for the better jobs. However, just when college was needed the most, escalating college costs have quickly got out of hand. So, one of two unfortunate situations existed for them: 1) When they graduated and enterer the work force, they found that they were already in debt before they drew their first paycheck because of the tens of thousands of dollars of student loans that they owed--making it more difficult than ever to buy a home, save money, or accumulate a positive net worth; or, 2) Their parents paid for their college education, so they will have a smaller inheritance to leave to these children in later years.

Now they have trouble finding any job with unemployment rates higher than any time since the Great Depression. Due to the increasing use of computer/robot automation in manufacturing, they may indeed be entering an era where real unemployment will consistently exceed 10%. Of these young people who do find jobs, many are under-employed, where they too barely get by financially, returning to the ways of their grandparents of The Greatest Generation.

Although these in this age group find that mortgage rates are low, the bust in housing prices has taught them that buying a house is much riskier than it was for their parents. As a result, most choose to rent rather than to buy, but they are unable to build up any equity while renting. Even if they want to buy a home, the new restrictions, such as 20% down payments, cause home ownership to be out of their reach.

With medical costs skyrocketing, they're paying for even more of their medical expenses than their parents did, and their companies are paying for less of it.

With the current financial crises of debt and deficits at every level of government, the future holds imminent and drastic cuts to government budgets. Municipalities, counties, states, and even countries are declaring bankruptcy or otherwise becoming completely insolvent. So, these people will likely receive very little government help, and they will see very little of the Social Security taxes returned to them for their retirement years, even though they've paid the higher Social Security tax rates throughout their whole careers. The money just won't be there. It will have been all used up by the two previous generations.

Their retirement savings is mostly up to them, but with so many immediate expenses, there's no way they can save much in their 401-K accounts. For many, their primary hope for a decent retirement depends upon the stewardship of their parents (of The Beneficiary Generation). They can only hope that there will be some inheritance left to help during their own retirement years. Some of those parents will have squandered the entire fortunes that they inherited. Others already spent it all on their children, paying their college expenses, or in some cases paying for all of their expenses when the kids just stayed at home with their parents forever. Furthermore, there is a real possibility that this generation will suffer through a major depression just as their great-grandparents did.


So, where are these four generations today, in 2012?

Those of The Greatest Generation are dying out at the rate of 10,000 per day. The youngest of them are 82 years old, and many of them live entirely on their Social Security checks, barely getting by, and often having to sacrifice their pride in favor of complete dependence upon the government for their menial lifestyle in low-quality retirement homes. Due to their age, they require more (expensive) medical attention than all of the other generations combined, and they are putting a severe strain on Medicare, and thus on medical and insurance costs for all age groups.

Those of The Golden Generation are anywhere from 62 to 82 years old. They're all collecting Social Security and Medicare benefits, along with company pensions and gains on their investments. They were made rich by their company, by their home equity, by high interest rates and a stock market boom, and through low tax rates. However, now they're getting old, and they're further straining Social Security and Medicare. As they die out, their children will receive significant inheritances.

Those in The Beneficiary Generation are between 42 and 62 years old. They've helped pay for more of their childrens' expenses than any other generation, including college expenses and carrying those children on their own medical plans for many years. Economic conditions have prevented them from getting ahead like their parents did. They tried to follow their folks' model of getting rich from one's company, home equity, market conditions, and lower taxes, but each of these strategies blew up in their faces. They simply hope to be able to keep working until they retire, which will be at a much older age than when their parents retired. In fact, they probably won't be able to retire until their own aging parents die and leave them their inheritances.

Those in The Last Generation are facing more challenges from: 1) Less job opportunities; 2) Higher costs for education; 3) Higher costs for medical expenses; 4) No equity from home ownership; and, 5) No money left for retirement savings. Their student loans set them back by ten years before they can even generate a positive net worth. They can no longer accelerate that net worth through rising equity in the homes or through decent interest rates on savings accounts. If they are lucky enough to save any money for retirement, either they accept a minuscule interest rate on it, or they get too risky in the stock market, possibly losing most of it in coming market crashes when the global economy collapses. Their parents and grandparents are using up all of their Social Security. The fortunate ones will inherit money second-hand from the Golden Generation, if there's anything left by the time The Beneficiary Generation dies out.

Owen Weber 2012