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Frederick Parker Giesler

Leslies Drake
LAS-13525-CC

Abstract
This paper discusses the possibility of their being a generational gap in sustainability and
retirement. Evaluation financial records from both Baby Boomers, and Millennials across
multiple sources is how I will explain that gap. The idea for this research sprouted from starting
college in hopes of gaining more knowledge into the consequential outcomes of student loans,
along with the after effects of removing debt. Knowing my limited knowledge of personal
finance led to believe that others must fall short as well. The more researched the financial
statements of both the baby boomers, or those who were born between 1946-1964 and
millennials, those born from 1982-2004, the less conclusive the answer to their short comings
became. The overall research provided covers a range of information and statistics on the two
generations spending and saving habits, along with the central tendencies leading them to debt.
With the inability to conduct my own research behind the topic, taking a greater look into the
world of academic journals to help find a conclusion. The long terms effects of debt on
households in the United States has become crippling in many cases, preventing the comfortable
retirement that most envision over their professional career. Lack of acknowledgement and
understanding of financial planning along with compound interest, and a possible late start that a
percentage of households undergo is the beginning of the end.

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Introduction
With personal finance being personal, meaning that everyone will eventually deal with
their finances, has become a lost cause among a growing percentage of Americans. The role of
finance has moved outside of popular culture, and the interworkings have been forgotten over
time. With the large variety of diversification among saving preferences the understanding of
pension plans, 401(k)s, Roth IRAs, saving accounts, mutual funds, not to mention NASDAQ,
coincided with the interchanging tendencies of generations have left many shorthanded in the
long-term. Conflicts of interest between the generations are more than clear, frugal spenders or
what is defined as sparring or economical with their spending. In comparison to those who are
identified as keeping up with the Jones (Stanley, Thomas J., and William D. Danko).
The Generational Financial gap
In order to fully understand the effects mistakes made in personal finance, one needs to
understand the outline for long-term financial security. The article Spending in Retirement
written by Chris Browning, focuses on the saving gaps in retirement between a field of 3000
retirees, along with their preferences for allocation with-in their portfolios. Even though threethousand is a rather small sample size, the results still speak for themselves, Those who beat
their own path found security in the highest performing quintile, shortcomings came to those
who tried to manipulate and manifest their own outcomes (pg. 48). These observations question
why sell short, withdrawal from a retirement fund early, or waiting to save till income is a nonfactor. All of which are a real problem for those coming up short, and their effects give a variety
inevitable problems when the money really counts (after inflation and taxes). More often than
not, or in this case three out of the five (60%) quintiles are affected by one of the above noted

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issues in their financial statements, a possible increase in average retirement age could be on the
horizon. The article is unbiased the survey provides more evidence towards investing habits
being a large portion of households financial future.
Equity Value
Within the article Impending U.S. Spending Bust? The Role of Housing Wealth as
Borrowing Collateral, the author Daniel Cooper explains the possible real consequences of most
homeowners can face when fighting for loan collateral. Roughly home equity increases by
roughly 11 cents per $1.00 increase in their housing wealth, alone will not be substantial enough
for most homeowners looking to make renovations (pg. 12). For a small group loans for
renovations and amenities are worth the worry when the housing market is on an upswing. Those
who live in a residence where home prices are on an uptrend do not benefit, because of an equal
rise in cost of living prices for the property. Acquiring a net gain from property can only be
achieved in a few ways, those being [downsizing] and consume less housing services while the
housing market increases or by acquiring more housing while at a lower price. Home equity is an
essential part of ones net-worth, thus being a more influential in negotiation when one is
attempting to receive any form of loan (pg. 16). This article is mainly for those who have paid
off their mortgage or are using it to add collateral onto a future loan, ironically the article does
not go on to describe the consequences of falling through on the loan.
Household Spending
Luigi Pistaferris journal entry Economic and Social Integration in the Journal of
Economic and Social Measurement goes over the specifics that make up the United States GPD.
Gross domestic product is the monetary value of all good or services produces within a nations
border, household consumption alone accounts for [nearly] 70% of our nations GDP, overall

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data is abundant on per household spending. With such a household consumption holding such a
high percentage of our nations spending, influences on that most are fearful of changes overtime
in consumer confidence, because of its direct correlation on the health of the economy, along
with a clearer vision of how and why consumers spend throughout the business cycle. Consumer
confidence is response to changes in their income, asset holdings, and personal circumstances
such as unemployment, retirement, disability, demographic shocks (pg. 112). Measurements of
the overall microeconomics side to consumer responses crossed with multiple metrics such as the
size of the change regardless of size, income, recession, asset liquidity, age, debt, and if they
have a next pay check. Now these responses are split into two enviable outcomes, those being
anticipated and unanticipated income changes both having their own caveats. Research to this
degree is vital to micro-economist like Pistaferri, because their analysis of the cumulative data on
consumers enables increased accuracy to predict the effects of consumption on tax stimulus
packages provided by the government. The research conducted by Pistaferri makes it clear how
consumers affect their own consumption, also that GDP data is closely monitored by the
government and retailors.
Rex Y. Du & Wagner A. Kamakuras article Where Did All That Money Go?
Understanding How Consumers Allocate Their Consumption Budget, examines the most
common categories consumers routinely purchase. Those categories being food, apparel,
recreation, transportation, medical personal care, etc., all of which are arguably factors of most
households budgets. These allocations were given in survey from to 9,526 households in the
United States from 1982-2003, to give a more accurate result in the end (pg. 47). The areas that
saw the highest increase in consumption were education, charity, telephone services, household
operations, none of which increased more than recreation. All categories combined equals to 1.7

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percent increasing in spending over the course of the survey (pg. 49). Implications of the
increase limited to the households own discretion and decisions, most participants reported little
to no change in financial outcomes due to these increases (pg. 49). This article is not biased, and
is full of data and charts to help break down the surveys findings.
Technologies effect on Household spending
Marco Angrisani, Arie Kapteyn, and Scott Schuh are the authors for Measuring
Household Spending and Payment Habits: The Role of Typical and Specific Time Frames
in Survey Questions, where they introduce the notion that introduction of new technological
payment instruments like Apple pay, or even the original American Express travel and
entertainment card in 1958 (pg. 8). Using multiple resources, surveys conducted by the Survey
of Consumer Payment Choice and American Life Panel to build a case for the individual
characteristics that figure spending attributes that considerably cut a households exposer to debt.
The survey measured the differences in responses from three different sample categories, that
being gender measured against age (18-34, 35-54, 55 and above), education (high school, some
college, college and above) and income (below 35k, 35-59k, 60k and above). This information
provides comparative differences between age (35-54, 55 and above) who had reached a higher
level of education not only spent a smaller percentage of their pretax income, but over longer
periods of time than those of lower metrics of education or age. Experience with finances and
education are the last analyzed short answers, but the difference between paying an average of
$1,839 to $1,320 on a monthly basis will create an insurmountable gap between the groups. This
article uses a survey to prevent being biased, but the findings are one-sided, but not eye opening.
Spending Influences

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As mentioned above, a percentage of Americas lowest income individuals spend
frivolously on items that do not produce a return or diminish in value too rapidly. Thomas J.
Stanley and William D. Dankos The Millionaire Next Door: The Surprising Secrets of America's
Wealthy, offers a full understanding of the spending habits of those Americans with a net-worth
of over one million dollars. The points out the differences in mainstream idea of who a
millionaire is, but after surveying 2,741 millionaires, both the ideal and those who don't look
like millionaires, they don't dress like millionaires, they don't eat like millionaires, they don't act
like millionaires--they don't even have millionaire names (pg. 86). Fundamentals of personal
finance displayed throughout the book, such as big hat no cattle, a nominal definition of
wealthy, under accumulators of wealth, and prodigious accumulator of wealth (pg. 14). The
authors definition of wealth, is being able to live without working for ten years while, supporting
a family, home, and healthy lifestyle. The underappreciated portfolios of those who live a
wealthy lifestyle is ultimately their downfall, without a financial cushion to support their
lifestyle their only one accident away from losing all that their income allows. The discipline
shown by most of those surveyed whose savings was more than enough to live their accustomed
frugal lifestyle before or during retirement. This book is biased, fighting for those who fit the
frugal description, and victimizing those who are not.
Consumers' Financial Decisions and the Psychology of Values, a journal entry written
by Dr. Lois Vitt breaks the threshold on values in baby boomers. The ideal marketing scheme of
the post-World War II era appealed to those individuals who prided themselves on life planning,
determining goals, and most of all values. The same was true in their financial futures,
continuously wanting to increase the difference between sufficiency and sustainability, doing so
by preparing early and being repetitive investors over the course of their professional careers.

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Baby boomers are depicted as self-educating, self-efficacy, that pride for themselves also crossed
over into their finances, by focusing on the long-term success of their portfolios or pension plans.
Appropriateness was a huge factor in these decisions, as a whole not over stepping their own
feeling of security. As consumers many of those born inside of 1946 to 1964 were content with
what they had and tended not to look for a leg up on their neighbors like many do now, discipline
and sustainability provided financial security for a large part of the generation. This article is
based on the idea that baby boomers were disciplined financially at a young age while those born
into the millennial generation are far less conscience of their spending.
The millennial generation or those born from 1980 to 2000 is the topic of Neal E. Cutlers
article Millennials and Finance: The Amazon Generation. Listing off difference between the
two generations such as population size, college graduation rate, etc. The downfall of the
millennials will be the under appreciation and understanding of finance, under consolidation of
debt combined with the confusing jargon (pg. 36) used by their financial advisors that only
creates unintentional miscommunications. Lack of diversity and use of cookie cutter financial
advice open sited on the internet, lack of savings to start a financial plan, which explains 31
percent (pg. 34) of responses when asked if they had substantial savings accumulated. In a
study conducted in 2000 by the National Council on the aging designed a comprehensive survey
of attitudes toward health and finance millennials were asked if they had discussed their
retirement plans with any form of financial professional, 53 percent (pg. 36) said no. Short
term millennials are preventing their own futures, along with long-term costing themselves a
comfortable retirement. Overall this is unbiased, but uses many external sources for their
findings and evidence.

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Emotion is a powerful force behind consumption, along with what the authors of
Emotional Accounting: How Feelings About Money Influence Consumer Choice, Jonathan
Levav and Peter A. Mcgraw describe as virtuous expenditures. Mental accounting (pg. 73) is
one of those expenditures, invoking consumers to not keep rigorous financial records but to
mentally keep track of their allocations of money. This cognitive financial mistake only becomes
an issue if it is done over long periods of time. A variant of metal accounting is income
accounting, which is described as label usage from the moneys source determining where the
money is spent. Example, money won in a football betting pool might be used for dining at a
restaurant, but a tax refund is more likely to be used for paying bills (pg. 81). The deciding
factor for both are the individuals awareness of their finances along with their financial goals,
which both are determined by action. The authors remain unbiased as they observe the
differences in spending habits from individuals and groups.

Debt
Jonathan Skinners article Precautionary Saving, Wealth Accumulation, and
the Saving downturn of the 1980s gives more insight into the differences between the two
generations reactions to recessions no matter the size. In particular, he states that shifts in the
demographic composition of the population led to higher consumption and fear of nuclear war
discouraged saving for the future (pg. 52). The lack of trust between the consumers of the age
and the government is more than clear, the tax reforms under Reagans administration played a
powerful role in the dismantled savings rate. The uncertainty the consumers were experiencing
even swayed many to pull their portfolios out of the market in fear of losing more money than
they already had. Thus the idea of Thriftiness spread across the country, holding their money in

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any and all ways, cutting corners with the intended purpose of setting it aside for a proverbial
rainy day. The growth rate of real earnings plummeted from 8.74% to .06% over four short
years, with the real after-tax interest rate was nearly removed, jumping from 17.77% in 198084 to .6% by the end of the decade (pg.55). This article is very biased towards the college
students who are affected by credit cards. Skinner is clearly against the establishment big
business behind college students.
Next, the influx of credit cards on college campuses in the early 2000s in Jill M.
Norvilitis and Phillip M. Santas article credit card debt on college campuses: causes,
consequences, and solutions. In 1999 about 70 percent (pg. 358) of college students possess
at least one credit card, continuing on with 93 percent of college seniors have acquired at least
one card (pg. 358). Alarming news for any parent who sent their child off the college, but The
1998 The Education Resources Institute credit risk or credit worthy study reported that 59
percent of students pay off their credit cards monthly. others have estimated that only one in ten
students is irresponsible with credit card use (pg. 360). The easily accessible lines of credit due
come with a hefty price, and many institutions at the time where in on the $13 billion in
discretionary income [that college students accounted for] (pg. 356). Those who went on to
struggle with the debt they accumulated faced heightening debt, reportedly students would
acquire multiple jobs to slow accumulation of debt. 19 percent (pg. 361) of students across the
nation have only charged their tuition and fees onto their card, yet only one-third of those
students have a balance of over $1,000 (pg. 361), those who do in essence are paying 18 percent
on their tuition. The exposure to such accessible lines of credit ravished students all over, many
overestimate their ability to pay off the accumulated debt before they inevitably assume debt
after compound interest. Many of these students are undereducated in finance and will go to their

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parents for advice, 21 percent of students who had taken a personal finance course and the 79
percent who had not (pg. 362). The issue here is not the lack of knowledge most students have
about finances, the undermining credit card companies, with the complete lack of discipline and
awareness of students. Companies will offer lower introductory rates in order to lure more
students to apply, and intern offering a heavier debt to students long term. The authors are bias
throughout the article, without providing an argument for the credit card companies.
John J. Watsons article Materialism and Debt: A Study of Current Attitudes and
Behaviors, took a sample size of 299 (pg. 203) college students across all different majors,
ages, and employment statuses, he is able to show the correlation between debt and materialism
in everyday college students. In fact, those students who selected degrees in higher paying fields
of study such as law, commerce, and engineering were the highest percentage materialistic by a
notable margin. The study included three students who were above the age of thirty, all of which
filled out the questionnaire to find that they had little to no interest in materialistic items. The
article compiles the data into anova to give proper statistics among the respondents of the
questionnaire and the findings. The hypothesis of the author was found correct, in comparison
to people with low levels of materialism, people with high levels of materialism are more likely
to (a) be spenders, (b) have positive attitudes toward debt, and (c) have larger amounts of debt
(pg. 205). Many factors went into the formulation of the multiple regression equation like,
demographic, annual income, materialism, and economic behavior. All of which came with one
manipulating factor, attitude towards debt, that being the effort established in order to prevent
debt, or reverse it. Materialism is commonly found on college campuses, along the findings of
anova which showed that those with high materialism would accumulate on average $6,836
(pg. 206) in debt, while those who displayed low materialism still amounted $6,094 (pg. 206)

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in personal debt. This article is not bias; the conducted survey provides clear evidence to
Watsons findings.
Financial planning
Dr. Kathryn Yarkonys article Personal Finance: There Are No Shortcuts to Financial
Security, provides answers to financial uncertainties most Americans come across in their
lifetimes. Providing the benefits and difficulties to the changes in financial decisions like,
individual retirement funds, employer contributions on pension plans, only investing in
companies who meet ones own preset guidelines, and new job opportunities. All of which can
influences income, but the author mentions importance of having enough cash or liquid assets
(pg. 847) to get through ones annual living expenses. Assessment, diagnosis, planning,
implementation, and evaluation are what the author describes to be the undeniable evidence
(pg. 845) in financial planning or household budgeting. The comparable decline in financial
literacy has inevitably slowed the planning of some households. The long-term effects of
improper planning can have dramatic outcomes for those individuals who are not prepared for
their retirement, or do not give themselves the one they had hoped for. This article is full of
informative information which is broken down for those who are just starting and those farther
along in their lifetime income, thus being unbiased.
Conclusion
In conclusion, my research explains why baby boomers will have a more comfortable
retirement in comparison to millennials due to their preparation and disciplined financial
endeavors. The gap between the two has widened due to frugal spending or thriftiness of the
baby boomers, continuing to accumulate profound wealth into their retirement unlike a
percentage of millennials. The research conducted within this paper was sparked by the lack of

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information on personal finance that provided when taking out loans for college, blindly
requesting financial aid. The impact of the research is that as generations age, their predecessors
do not excel to the same degree as those who came before. Without education, and rejuvenated
the financial endeavors, retirement of the millennial generation looks bleak.

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Citations

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Cooper, Daneil. "Impending U.S. Spending Bust? The Role of Housing Wealth as

Borrowing Collateral." Http://www.bostonfed.org/. N.p., 1 July 2009. Web.

Stanley, Thomas J., and William D. Danko. The Millionaire Next Door: The Surprising

Secrets of America's Wealthy. Atlanta, GA: Longstreet, 1996. Print.

Angrisani, Marco, Arie Kapteyn, and Scott Schuh. "Measuring Household Spending and
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