This is part of a script that I ghost-wrote for Nick Hewat (now the commercial lead at The Guardian) for a presentation about the spending power of the baby boomer generation. He was presenting to audiences of twenty and thirty somethings so we wanted to lead with a story that would be of direct interest to them and their lives. That’s why we started with the tale of a young man called Rob who we said worked at whatever agency Nick was presenting to. Facts about Rob were revealed until we said we could now work out how much he earned. The figure was clearly too high for a twenty-seven year old in a media agency and the audience thought we’d made a mistake. We hadn’t – we could explain exactly why the maths didn’t add up. It is a couple of years old now so the housing market figures seem a little dated. The current housing market will have widened the wealth gap between the generations even further. If you’re in marketing, it is something to seriously consider.
The tune we were playing as you came in is Calvin Harris’s Acceptable in the 80’s. It includes the line “I got love for you if you were born in the eighties?” If you have ever danced to that tune and you weren’t feeling like a bit of an imposter – you’re Generation Y – born early 80’s to mid 90’s. Put your hands up if you were born since 1980? Anyone born since 1990 – oh my God.
Put your hand up if you were born between mid 60’s and late 70’s. Know what generation you are? Generation X.
And if you were born before that, you’re a baby boomer. Anyone admitting to that? Not too many, as over 80% of the ad industry is under 40. The Baby Boomers were born 1945-1965 – and they’re a big group of consumers. Generation Y’ers, you’re the product of a mini boom (Thatcher’s children) and X’ers, we’re the product of a slump in fertility – at it’s smallest in 1977. Less of us about, which helps explain how I got a decent job like this
Today I’m going to tell you a story with a character from each of these generations. Two of them I’m going to imply work here and the third is one of their dads. They are largely unremarkable, but theirs is a tale for the unique time in which we find ourselves.
Here’s Rob, your colleague, a Generation Y’er aged 27
Here’s Charlotte his boss, from Generation X and aged 40
Here’s Brian, Rob’s Dad and a boomer aged 58. Ancient.
The character we got big marketing love for is the one born in the eighties. Rob was born in 1984. Being young, he’s attractive. He inhabits the pages of many ad briefs. He lives in Balham. Last year, he went here for his holidays. He loves his smartphone. He uses Streetcar when he’s not on the top deck of the bus. It seems he’s so far down the purchase funnel it’s as tight as his skinny jeans, which are as skinny as his latte, which is as frothy as his premium French lager. An advertiser’s wet dream.
Let’s do some maths on Rob. How much do you think Rob earns – get a figure in your head. He works with you, remember. Last year, he bought the average London property, at £232,000. The average deposit of a first time buyer is 23% of the property price so that means he put down £53k. We can work out how much he earns now as the average first time buyer puts down a deposit that’s 87% of their annual income. We do the maths, and work out that Rob earns £61,000 – at 27. Does it sound like he works with you or do you think my logic is flawed?
40 year old Charlotte is Rob’s boss. She bought her first flat at the average London price of £110,000 in 1999. She put down 10% as deposit, the average then. At that time deposits were less than 40% of average annual salary so we can work out she earned £28k in 1999, when she was doing Rob’s job.
Rob’s £61,000 now sounds suspect doesn’t it? If Charlotte did Rob’s job 10 years ago and average salaries have barely kept pace with inflation, then the £28,000 she got for doing that job would only be £33,000 now.
So why did the maths suggest he is on 61k? Well, we assumed he paid for the £53k deposit himself. But he didn’t. Here’s Brian, his dad. He helped. When Charlotte bought her flat only 10% of first time buyers had parental help. This rose to 38% before the recession and is now at 80%. You need the bank of Mum and Dad to get on the ladder these days. Scottish Widows recently worked out that a typical thirty year old saving for a deposit on their own would take 13 years to raise one.
Why? House prices have escalated (still way above 2000 levels and rising in London), whereas earnings for middle manager levels and below haven’t gone up much. And Rob’s lucky – he owns a house 3 years earlier than the average and with his bonus he earned 33k last year against the UK average salary of 26.5k. He’s also doing well to have a job – 45% of all those unemployed are under 31.
This year, things have got tougher for Rob. In an attempt to reduce his spending, he has started taking sandwiches to work, an increasing trend. He left university with the then average £3k in debt and pays off £200 a month on this and his credit cards.
His dad takes a keen interest in his finances but its not just him any more. Banks are starting to tell people like Rob what else they can spend their money on, checking bank statements for obvious spending patterns which they might deem frivolous. The Halifax says first time buyers like Rob will have cut down on his social life (34% stopped going out or cut down), his holidays (25% went on cheaper ones) and clothes and grooming (24% spent less). Two thirds of those in negative equity are in Rob’s generation. So although he is lucky enough to own a home, he spends most of his time in it, watching more commercial TV but unable to buy much of what is advertised to him. And once again he’s lucky: 41% of 25-34’s want a new TV but can’t afford to buy one. This year, he didn’t go to Glastonbury; in fact only 20% of gig tickets are now bought by those aged 25-39. Holidays have dried up too: his only holiday this year was as a result of a cash birthday present from his parents.
Charlotte is doing better, so there is marketing love for her too. She made £100k on that flat she bought but that’s tied up now in the bigger house with her family. Her tracker mortgage is at a 300 year historic low and as that is the biggest monthly outgoing, she feels OK, but is increasingly worried about the rising cost of living. After her mortgage, food is the biggest monthly bill so she is getting really savvy at spotting the nearly 40% of FMCG goods that are on promotion. When she fills her car up, she feels like crying on the forecourt. With the central heating now on, she knows she’s going to be squeezed further.
She will lose child benefit in 2013 and her childcare costs are going up. She went down to four days a week because she wants to look after her kids but that meant a 20% cut to her income. There aren’t many generation X’ers compared to the other two generations and so she’s paying the price as the Baby Boomers enter retirement. The Boomers will take 118% out of the welfare state of what they put in.
Companies have noticed the squeeze on people like Rob and Charlotte. Ocado have said that people spend the same amount of money per shop as they did before the squeeze but that now buys less items per basket. Waitrose launched a successful economy range, Sainsbury’s tell us how to feed our families for less and the middle classes are becoming the Lidl classes as the squeezed middle take to cheaper outlets.
But that’s half the story. Companies doing well are not just those catering for X’ers and Y’s with less money. For every economy range, it seems there’s a premium range being launched. Cars at the expensive end are selling, as HR Owen’s results demonstrated recently, and luxury firms like Burberry and Tiffany are delivering record profits Why?
Because of people like Brian, Rob’s dad. He’s an average boomer so his household income has grown by 34% in ten years. Remember I said salaries at Rob’s level had barely increased by the rate of inflation in recent times? That’s not the case for a director like Brian, his salary went up by 27% in the same time period. His mortgage is down to sub £50k. He paid the average of £26k for his first property in 1983 so he’s made a fortune on it. He was a bit disappointed when the value of his property started to level out, but then he realised there were bargains to be had as generation Y’ers were excluded by banks demanding big deposits, so it’s people like Brian who bought second homes recently. One in five people like Brian now have a second home.
He’ll have a final salary pension when he retires soon which is overgenerous, because that scheme was worked out back when he signed up that he would die in his early 70s. Now though, if he’s average, he’ll live into his late eighties, enjoying good health until his mid eighties. He’s going to enjoy 20-30 years of retirement with plenty of disposable income. Provided he lives within his means (and he will), it is a happy time.
The Chancellor recently said we’re all in this economic downturn together, but we’re not.
When we think of a wealth divide opening up in the country we might think of a prosperous South and a grim North but equally, the divide opening up is between the generations. Brian and the Baby Boomers won all the marbles before we even entered the game. The over 50’s account for 40% of the population and over 80% of the nation’s wealth. The gap is growing between people and their parents, but for most of us, that’s OK because it’s your mum and dad and they won’t see you starve. True enough, but remember this – they will be spending your inheritance over many years and, for all the generous money they gift you, you will become customers at the bank of mum and dad. There’s one thing about this particular bank. There are no interest rates but it comes loaded with advice, not all of it wanted. As a result, your parents remain very influential.
Baby Boomers are the problem and the solution. They are having the time of their lives, at least in part at our expense.