In an August blog post, I referenced a New York Times Economix blog article highlighting the falling median income among 55 to 64 year olds during the past three years. One of my blog readers asked me about consumer spending for this age group. Has it fallen along with income?
Alas, my new NCPA study finds that the spending habits of 55 to 64 year olds (and 45 to 54 year olds for that matter) have changed in 2010 compared to the same age groups 20 years ago. The good news is that expenditures for items such as food, clothing and home furnishings have fallen significantly. The not-so-good news is that other necessities have increased; housing expenditures as a share of total spending have increased about 25 percent; mortgage interest accounts for about half of this increase even though interest rates have fallen over the past 20 years! What is going on here?
Several things have happened. Since 1985 the median age of the homebuyer has increased and the median square footage of house has increased. If individuals are waiting longer to buy a home, and buying bigger homes with smaller down payments, it is no surprise that more 55 to 64 year olds report having a mortgage compared to the same
age group 20 years ago. Add to that my finding that utility payments as a share of expenditures have increased as well. No surprise here since bigger homes mean more energy consumption, and the cost per kilowatt hour has increased over time.
Finally, not only are baby boomers trying to secure their own finances, many are evidently helping out their adult children, perhaps to the detriment of their own needs. Fifty-nine percent of parents are providing financial support to adult children who are no longer in school. This is quite a shift from back in the day when asking your parents for money was like Oliver Twist asking for more gruel.
Even if parents are offering to help their adult children, they should keep in mind how much it
will cost to retire and limited workings years they have ahead of them compared to their adult children.
There is no doubt that the economy downturn has severely affected boomers” ability to prepare for retirement, but some of the lack of preparedness rests with individual decisions about how income is spent. It”s time for them to take a hard look at where the money is going.