bottomed-out boomers

Boomers Caught in Squeeze Play
Why this group's changing fortunes could mean a slowdown in consumption for years to come
By Noreen O'Leary, Adweek, January 12, 2009

American consumers have no recollection of life in the Great Depression. Not only are most simply too young to remember it, but for the last quarter century they've lived without extended economic hardship, becoming ever more acquisitive in a world of instant gratification and easy credit. No one knows how long or severe the current downturn will be.

The circumstances of this recession are unprecedented in the history of modern consumerism: For a generation that has substituted rising home equity and stock prices for personal savings, the current economic meltdown -- with the value of the Dow Jones Industrial Index plunging 40 percent from its peak and $4 trillion lost in home equity -- has been psychologically wrenching after a quarter century of unquestioned prosperity.

Factor in the loss of confidence in financial institutions and an investing world where even the very rich can be wiped out through Ponzi schemes and you have a group of shell-shocked consumers who are reconsidering long-held spending habits.

Much has been made about the everyday stuff of thrifty consumerism -- coupon clipping, fewer restaurant meals, brown-bagging it to work, staying close to home for vacations. But those thumbnail sketches of a contracting economy miss the big picture: The fears among baby boomers, who account for more than half of U.S. spending and who traditionally have grown more affluent with age.

Eric Almquist, a Bain & Co. partner, points to the number of retirement-age individuals who are becoming more conservative with money. "One of the unique things in the Western world now is that you have a huge group of pre-retirement baby boomers, a huge number of people who are asking, 'Can I live off my savings and social security for the rest of my life?'" observes Almquist. "This creates the potential to switch behaviors. They'll watch pennies more closely, be more careful with credit, avoid losses and be more risk adverse, preserve the status quo, rather than gain gains."

Already there are signs of that change. In one of the most dramatic reversals in post-World War II history, Americans -- who in recent years have had negative savings rate -- are expected to flip those patterns, with Goldman Sachs now saying the U.S. savings rate could be as high as 6 percent to 10 percent this year. . . .

~ Full story here