Baby Boom and Bust

It’s not always fun being a Baby Boomer. Nobody calls us the Greatest Generation – those are our parents. We’re not the cool, creative generation – those are our kids. And because we’re so numerous, people, in hushed tones, describe the demographic onslaught when we retire as a tsunami that will destroy Social Security. Sometimes it seems that we’re not so much a generation of human beings as a problem needing to be managed.

But on to a happier (or so it seems) topic: What’s the role Baby Boomers are playing in philanthropy today? And how will that change in the future?

Well, that’s not so positive either. Here are some observations, not about Bill Gates and the high-profile billionaire Boomers, but about regular folks like you and me.

First, a lot of Boomers are struggling financially, even those with relatively high incomes. Boomers are under water with mortgage debt that is larger than the value of their real estate. Plenty of Boomers accumulated credit card debt when they lost jobs or needed cash for necessary medical expenses. Lots of Boomers took out significant loans so they could send their kids to college. And those same kids, now out of college, need some financial transfusions as they struggle to gain traction in the slippery economic climate of 2013. Some Boomers are bankrupt, or nearly so.

Most of these problems happened to perfectly reasonable people. The fact is that many Boomers who made utterly conventional and logical financial decisions over their lifetimes were slammed by the recession and are yet to recover.

So these Boomers, even those who today may have decent incomes, are not in a position to be significant donors to charity. They are dealing with debt and the financial debris of the last decade. If you ask for a donation, and they mumble about other priorities and send you $35, they’re not being cheap. They’re simply unable to give more.

But it gets worse. That’s because lot of us Boomers are utterly unprepared for retirement. Only 15% have defined benefit pension plans – that is, the kind of pension where you get a specified amount of income every month, the kind a lot of our parents and grandparents had. The vast majority will be relying on the proceeds of their 401(k)s, 403(b)s, IRAs and other retirement investments, plus, of course, Social Security.

As Helaine Olen describes in her superb and disturbing new book Pound Foolish, the majority of Boomers have saved far too little for retirement. Many simply haven’t earned enough over the years to pay for necessities, let along to put away for the future. Many others have dipped into their retirement savings to get themselves through recent emergencies. And very few are sophisticated and successful investors with those funds they have managed to set aside. We all pretend we know what we’re doing about retirement, but in fact nearly all of us are equal parts scared and clueless.

So nonprofits that get regular healthy donations from Baby Boomers might expect to see a significant drop-off in contributions when the donors hit retirement. If, indeed, we even can retire.

Kind of a downer of a post, isn’t this? The fact is, the situation is pretty glum, not only for nonprofits, but for society at large and for us Boomers in particular. (Not to mention all the Gen-X’ers and Millennials who are angling for the jobs we are desperately clinging onto.) That said, there is one positive note – though, as with much of what is going on economically, it only affects the chosen few.

Which is to say: some of the Boomers are now inheriting some very significant money.

Back in the 1990s, researchers at Boston College gained a lot of attention when they talked about the great intergenerational transfer of wealth from the WWII generation to the Baby Boomers. (There was an intense decade-long debate about whether it was $10 trillion or $41 trillion or somewhere in between, but trust me: it was and is a hell of a lot of money.) The B.C. researchers opined that this was a great opportunity for nonprofits: if charities could position themselves to get a share of that money through bequests, it could represent a huge infusion of capital into the sector.

It now appears that the charitable spigot never opened. Bequests in 2011 totaled $24.4 billion – about 8% of total charitable giving. In 1999, charitable bequests were $15 billion – 7.8% of the total charitable giving. So adjusted for inflation and as a percentage of total giving, there hasn’t been much of a change at all.

There are a lot of reasons why the generational transfer of wealth to charity never really happened. Our parents were and are worrying about their hapless Boomer kids, and they are funneling as much as they can into our inept hands. The financial markets have been up and down, creating insecurity – and insecure people are not known for their generosity. And Congress has scrapped the estate tax on all but those leaving estates of more than $5 million apiece. Which is to say, all but a tiny sliver of the population can now leave money to their kids tax-free. So for 99.5% of us, there’s no tax incentive to be charitable through our estates.

In any case, for the lucky Boomers who have inherited significant funds – and actually, there are many – these inheritances are game-changers. Inheritances are wiping out debt and fattening investment accounts and changing attitudes. And as this happens, your $100 donor may become a $1,000 donor, and your $1,000 donor now be in a position to buy you a new gymnasium. Or two.

As I mentioned recently in my blog post “The Few,” the growing wealth inequality in many ways is reducing nonprofit fundraising to an all-out effort to gain the support of the 5% or the 1% or the 1/10 of 1% who hold the riches in our society. The disparate financial experience of today’s Boomers will only widen that gap in the future.

None of which will help the reputation of our huge and flawed generation. Society will dismiss most of us as financially inept and a few of us as unfairly, filthily rich. What can we say in our defense? There’s the old line that you can’t choose your parents. And neither can you choose the generation into which you were born.

Copyright Alan Cantor 2013. All rights reserved.

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9 Comments. Leave new

  • I’m betting the dotcommers, many of whom have struck it rich before kids and who I see zooming around Cambridge in their mid 20’s in late model Porsches, are going to be a better bet as social entrepreneurs later in life. We’ve seen a few examples of this already. For those of us who were looking, post kids, to enjoy life and who hit a serious reef in the last turndown, it’ll be a real struggle. Dead on observation about retirement savings, BTW.

  • Jack N Shoemaker
    May 7, 2013 2:28 pm

    I am taken aback by the sanguine gravity of this post. I guess a 3-game losing streak will do that to even the most positive and optimistic among us.

    • As we discuss the failing of the Baby Boomer generation, the last thing we need is to delve into the psychosis of those among us who are Red Sox fans.

      That said, hang in there, Jack: we’re still in first place.

  • Downer, Alan, but essentially true. Many of those who might have anticipated a windfall from the transfer of wealth are seeing aging parents, are watching those parents whittle away at their potential inheritances — because they are living longer and requiring expensive long term care.
    We baby boomers have really taken a bad rap. I remember when we were being touted as the socially conscious, the best and brightest — cover stories in Time Magazine about all the mountains we would climb, all the glass ceilings we would smash, all the board rooms we would control and all the good we were destined to do in the world. I’m thinking of the first stanza of a classic song by a 1-hit wonder: Mike and the Mechanics:
    Every generation
    Blames the one before
    And all of their frustrations
    Come beating on your door…

    Carry on alan

  • Alan, the transfer of wealth that experts predicted hasn’t fully happened yet, especially for mid-Boomers born in the mid-to-late 50s. The cycle’s peak is yet to come. Then, hopefully, we’ll see an increase in philanthropy.

    • Thanks for your very good thoughts, Elaine. And you’re right — we’re not done with the wealth transfer. And it’s not as though the $24 billion a year coming through bequests is a small amount of money. But it certainly seems that there would/should have been much more of an upward trajectory by now. I would love to run a simulation to see what might have passed to charity had the estate tax not been changed so drastically — but we’ll never really know.

      Wiser heads than mine can parse the numbers and interpret this with greater nuance. I hope you’re right, and that the next few years sees a significant rise in giving. But I wouldn’t bet on it.

      Thanks again for reading and writing!

  • I think that not only do the baby boomers have less to give but they give primarily to the causes that they personally relate to, specifically health related causes. Other causes have a more distant relationship to an aging population and become less likely to appear on the radar screen. That said, I do see a tremendous number of baby boomers giving more of their time to non-profits, something I think is admirable about our generation!

  • Bill Laskin
    May 14, 2013 12:00 pm

    I heard Paul Schervish, the man behind the BC wealth transfer study, speak recently. He brought up the question of why the wealth transfer so far hasn’t happened as he predicted 15 years ago. He says that it largely has, in fact, but that much of the funds that might have gone directly to charities have gone into donor advised funds (Fidelity, Vanguard, etc.) instead. I’m not sure I buy it, but there it is. He also said that he’s working on an updated and refined wealth transfer study.

    • Thanks, Bill — always good to hear from you.

      Certainly Paul Schervish knows more about this than I do, and I’ll be interested to see his updated report. That said, if considerable dollars have indeed gone to donor-advised funds like Fidelity and Vanguard, they would have shown up in the statistics as gifts to charity, since those entities (for better or worse) are considered 501-c-3s.

      Surely there’s been a flood of money into donor-advised funds. (I’ve written about this trend several times here and in the Chronicle of Philanthropy, including a new piece in the edition coming out later this week.) I have no doubt that that’s siphoning funds from genuine charities. I’ve also seen some anecdotal evidence that people are leaving money to commercial donor advised funds, rather than to charities or to family foundations. But again — charitable bequests are charitable bequests. If bequested dollars are going into donor-advised funds, they would be counted as charitable bequests already. And that intergenerational surge in donations seems not to be happening.


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