Ep 263: Boomers, Heavy Metal, Avocado Toast, and the Algorithm… Which Generation Was Dealt the Easiest Financial Hand?

Let's have a little fun today.

I want to talk about some of the challenges that each generation has with their finances and also talk about some of the numbers and the things that each of those generations needs to be thinking about.

Now, I know everybody says my generation, whoever my generation might be, has it toughest.

So the baby boomers say that the new generation is soft and doesn't want to work.

The new generation says that, yeah, but the baby boomers bought their house for like $15 and now they can sell it for 10 million.

So let's talk about some of these, see which one our myths.

Let's have a little fun and let's also talk about how each of the generations can make the best financial decisions for themselves.

This is going to be a fun one and I hope that you enjoyed this episode.

You are listening to the Weekly Wealth Podcast.

My name is David Chudick and I am a certified financial planner.

This podcast is where business owners, high net worth and the mass affluent come to think differently about their money and also to learn differently about their money.

These are the conversations that I'm having in my wealth management practice on a daily basis and I'm bringing it straight to you.

Well, before we dive into this week's episode, let's remember this podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

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We want everybody to learn and we would be greatly indebted if you would share this podcast and our social media content with your friends, your family, your colleague and your coworkers.

So all that is out of the way.

And here's a question I want you to sit down with for just a second.

What if someone had sat with you and before you made the biggest financial decision or decisions of your life and just showed you the math?

Now, not to lecture you, not to scare you, just to say, hey, here are the numbers.

Here's what the decision actually looks like over time.

How different might things look to you today?

Because here's what I found after years of sitting across the table from clients of every age and generation.

The financial pain usually wasn't just from the hand they were dealt.

It was from not knowing the numbers.

It was from making emotional decisions and it was from from slow creep of maybe the not ideal decisions.

And today that's exactly what we're going to do.

We're going to talk and walk through every generation.

So we're going to talk about some things that the baby boomers and these people were born somewhere between 1946 and 1964.

What they're going through, we're going to talk about Gen X.

This is me born between 1965 and 1980, the era with the best music, by the way, and that is undeniable.

Millennials born from 1981 to 1986.

And then, of course, we have Gen Z's born between 97 and 2012.

And we're going to take a look at some of the real numbers.

We're going to take a look at the actual, real challenges that each generation is facing and some of the advantages.

But most importantly, I want to talk to each generation about the numbers that they need to know in their own lives.

Now, before we jump into generational breakdowns, there are some numbers that we all need to know about ourselves.

So regardless of your age, these are some universal numbers that we all should know.

And most people, even very successful people, have never actually sat down and calculated those.

All right, so, number one, your net worth.

This is not your income.

This is not the value of your house.

This is not your car.

This is your actual net worth.

And it quite simply means everything you own minus everything you owe.

Okay?

So this is the only number that tells you the real truth about where you stand financially.

So if you own a $2 million house, but you owe $1.9 million on the house, you know, that's not a really strong positive net worth.

Most Americans have never calculated this.

And if you haven't, this is your homework for the week.

So make a net worth statement.

Make a list of your assets, make a list of your liability statements, and then know what your net worth is.

Now, the facts are the facts.

Sometimes the financial facts are not what we want them to be, but avoiding them does not help them.

Number two, let's talk about your savings rate.

Not how many dollars you save, not how much money you have, but what percent of your income are you savings.

So a 10% savings rate and a 20% savings rate, especially if you're younger, over time, will produce dramatically different results over your lifetime.

And most people, quite frankly, couldn't tell you what their savings rate is within 5 percentage points.

Now, here's another one, and this is something that a lot of people maybe don't understand.

But the rule of 72, this one is simple, and it will change how you think about money forever.

So take the number 72, divide it by Your interest rate.

And of course, if we're talking about like a market based investment, we don't know what the actual interest rate or growth rate would be, but you can take an average.

So at a 7% average market return, your money will double in 10 years.

Now, in a 1% typical savings account, your money will double in 72 years.

So at a 7% rate, let's say you have a $10,000 account and you put it in an account that's getting an average of 7%, it's going to be $200,000 in 10 years, same $100,000, and you put it into a 1% savings account, it's going to take it 72 years to double.

So the same dollar, same amount of money doubled in 10 years versus 72, depending on where you put it.

Number four, something that we all need to know is our debt to income ratio.

This is the number that lenders actually care about more than almost anything else.

And most people have never calculated it.

You take your total monthly debt payments, divide by your gross monthly income and that's your DTI debt to income above 43%.

Most lenders won't touch you.

Below 36% is where most doors start opening.

Let's say you have a $10,000 per month gross income and let's say you have $6,000 of debt payments.

That's going to be a 60% debt to income ratio and things are going to be tight.

And let's add credit score onto that.

It's a great idea for everybody to know their credit score.

Yes, there are times when doing things like paying off a credit card might actually make your credit score drop.

But we need to know where we are credit wise because our credit score does affect us in a lot of areas in life, even if we are not borrowing an excessive amount of money.

Let's jump into some different generations and let's talk about maybe their profile when they grew up and maybe some of their challenges.

Now one of the big kind of jokes with the young people, with the kids in this day and age is they'll kind of tell people, you know, you're a boomer, and this is you're a baby boomer, which is basically saying you're kind of an old fuddy duddy.

So let's start with the boomers.

They're born roughly in 1946-1964.

And look, if you're a boomer, listen to this.

I want to acknowledge something right up front.

Your generation carried burdens that the generations behind you simply did not face in the same way.

So Vietnam, it was real.

The threat of the draft was real.

You may have had friends that were drafted and you never saw them again.

And then, just as you were trying to buy your first home and build your life, the economy handed you mortgage rates that peaked at 18.

Remember, mortgage rates right now are 6 to 7%, 18%.

The average 30 year mortgage rate today is somewhere around 7%.

And people are complaining.

18% On a $200,000 home would cost you nearly 3,000amonth in interest alone.

So that was genuinely brutal.

Then of course, the oil crisis came in the 70s.

And by the time the late 70s rolled around, inflation adjusted gas prices were surged to nearly $5 a gallon.

And by the way, yes, gas was 31 cents a gallon in 1960, but adjusted for inflation, that's $3.42 in today's dollars.

So the cheap gas argument, it's a little softer than people think.

And the further back we go in time, the less available information was right.

So back in 1964, you didn't get to just log on to Apple podcast and learn everything that you needed to know about finance by listening to the weekly wealth podcast.

Maybe your parents, grandparents would have taught you, maybe you went to the library.

So information was not as available.

Social media was around, and that's probably a good thing, but that's a whole other story.

But let's talk about some of the numbers that the baby boomers needed to know and still need to know.

So the Social Security break even point, claiming at 62 versus 67 versus 70 can mean a difference of hundreds of thousands of dollars over lifetime.

At age 70, your benefit is 77% higher than it is at 62.

The break even for waiting is typically around 80.

Do you know your number?

Have you run that calculation?

What about the 4% rule?

So the classic retirement rule is that you can withdraw 4 or maybe 5% of your portfolio annually without a significant risk of running out of money.

Now again, that doesn't apply to everything.

Sometimes we go through bad markets, but as a very general rule on a $1 million portfolio, and most people would think a million dollars is a lot of money, right?

That's 40 to $50,000 per year that you can kind of safely take out of your account and not have a significant chance that it will go to zero.

So I want to ask you honestly, does that math work for your retirement lifestyle?

Because a lot of boomers are finding out too late that it doesn't.

So maybe if they had made some of these calculations back when they were a little bit younger, maybe they would have saved a little bit more and that would have given them bigger retirement plans.

Now, in many cases, not all, but in many cases, pensions and guaranteed income were much more common for people who are of the baby boomer age.

And that is certainly a great thing for them.

Now, longevity math.

A 65 year old couple today has a 50% chance that at least one partner lives to age 90.

That's a 25 year retirement.

Is your money built to last 25 years?

And here's the one that doesn't get talked about enough, and that's long term care costs.

The average nursing home today can run 95 to $105,000 a year, depending on where you are in the country.

Assisted living facilities can be $60,000 a year or more.

Medicare covers almost none of this.

This is a number that quietly wipes out estates that took a lifetime to build.

So what do the boomers have as advantages?

Well, many of them have pensions, and these are increasingly rare.

And it's an enormously valuable asset to know that there's just a coming for the rest of your life.

And quite frankly, pensions are really, really expensive to administrate.

So they almost don't exist anymore for younger people.

Boomers were able to buy homes at price points that the younger generations can only dream about.

And Social Security is intact for now.

So a lot of advantages for the boomers.

But again, we're not looking to say in this podcast that any one generation had it easier or harder than others, because I do think that there are lots of positives and negative and struggles and advantages for each of the generations.

Let's look at a bonus point here.

I think the boomers had some pretty cool music, but they did not have the music that was as cool as the music in my generation, which is Generation X.

So let's move on to Generation X, born roughly between 1965 and 1980 and have a special place in my heart for Generation X, because this is the one that gets overlooked constantly by marketers, politicians, and even by financial product designers.

You are sandwiched between the massive baby boomer population and this massive millennial population.

And somehow everyone just skips right over you.

But yet, in addition to having to walk uphill both ways in the snow to school with no creature comforts, Generation X also had some complex financial challenges.

Our generation, Generation X, were the first generation for whom the 401 replaced the pension.

So there's the difference between a defined benefit plan, which is a Pension, Right.

So the pension says you're going to get a defined benefit.

It's going to be X amount of dollars per month when you retire for the rest of your life.

And then there's a defined contribution, a dc and that's where it's going to say your employer is going to match X amount of your contribution to your 401.

And then whatever it's worth when you retire is what it's worth.

The so this tool was brand new when we entered the workforce.

Nobody really explained it.

A lot of us started late because we fully didn't understand what was being handled.

A lot of us were just hitting our strides.

And then in 2008, a sledgehammer took the value of our homes and portfolios and we did all of this.

We didn't have Google, we didn't have smartphones, we didn't have YouTube tutorials, we didn't have the weekly wealth podcast.

So we figured out adulting with a phone book and a handshake and oh by the way, the greatest musical decade in human history.

You look back at Bon Jovi, you look back at the hair bands.

Yeah.

So yeah, you're welcome.

Music was awesome.

There were some great sports years in the Gen X heyday and we were just quite frankly cooler than anybody else.

But here's the things that a lot of the Gen Xers need to know.

Well, first is the retirement gap check.

Right?

So common benchmark is having 10 times your salary saved by retirement.

So by age 50 you should have maybe six times your annual salary saved.

A lot of Gen Xers are way, way behind that benchmark.

And the question isn't whether you're behind.

The question is by how much and can you close the gap.

And the answer often is yes if you start off now.

So maybe look at your catch up contributions.

When you hit 50, the IRS lets you contribute an extra $7,500 per year to your 401k on top of that standard limit.

And you can also put extra money into your IRAs.

So are you using this?

A lot of people don't even know that this exists.

So you know, maybe look at your budgets, see if you can scrape a little bit of money out of the budget for lifestyle and put a little bit more towards savings and retirement.

And you will thank yourself later.

Now we're the sandwich generation.

So a lot of us now are simultaneously supporting colle college age kids and aging parents.

And I know that college is expensive and studies show that this costs families an average of 10 to $15,000.

Per year or more if you happen to have twins like I do in direct costs.

And that doesn't even count the cost of caregiving.

Now, one of the things I do want to encourage the Gen Xers, who are parents of children who are either in college or considering going to college.

Your college decision and how you choose to pay for college will affect both your children and you for decades.

We're going to talk more about that later.

But how you pay for college is incredibly important.

All right, so what did my generation have as some advantages?

Well, in addition to having awesome music, we have home equity.

So many of us bought our homes before the big price surges of the last decade, and we might be sitting on some significant wealth, even if it is paper wealth or brick wealth.

Our peak earning years are either here or just ahead.

And there is going to be a wealth transfer from a lot of boomers to Gen X that may be the largest intergenerational wealth transfer in American history.

So as the boomer parents begin to die off, there should be some inheritances for Gen Xers.

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Okay, so we're gonna move on to a group.

The Millennials take a lot of flack from the boomers and from the Gen Xers.

We like to say that they're lazy.

And, you know, I don't think that that is an accurate assessment of the entire generation.

So the Millennials were born roughly between 1981 and 1996.

And I want to say this clearly.

This generation got hit with a combination of financial headwinds that no prior generation faced simultaneously.

So, student debt at scale, a financial crisis right at career launch.

Childcare costs rival mortgages, a housing market that moved away from you faster that you could save.

So you probably graduated in one of the worst job markets since the Great Depression.

A lot of you took jobs you were overqualified for just to pay the bills and then carry the student loan payment on top of that.

And speaking of student loans, this is the number that I think is a single most important Financial concept that nobody ever explained to this generation before you signed.

So I say it all the time.

Your student loan or how you finance school is one of the most important financial decisions that you will ever make.

Now, I have kids in college and I'm in a University of South Carolina Facebook group.

And I see a lot of posts by parents and I saw a parent post that they didn't have any savings and where could she borrow the most money for her kid to go to college?

Now this kid was going from out of state and they were expecting that the cost would be $220,000 over four years.

So I just respond, I don't know who this person is.

I just said, hey, look, I'm a financial advisor.

I see lots of people really struggle with their student loans for years and years and decades.

Be careful on how you make this decision.

And I just went to Google and I said, what do you think a $220,000 college debt would cost per month?

And of course, Google's always right, right?

Google said it would cost between 2,200 and 2,800 per month.

And I just sent that screenshot to this person.

It was even an anonymous post.

I don't know who this person is, but I wanted to just let them know that, hey, you know, maybe think twice before going to an out of state school.

Maybe go to a community college for the first two years.

But yeah, be careful with how you pay for school.

Now, the loan to salary ratio.

So before you take out student loans, you should know what is your expected starting salary in your field and how many years it'll take you to pay this back.

100,000, $20,000 Communications degree from a private school doesn't make sense.

Maybe with a 38 salary.

So the math doesn't work.

And nobody showed you the math before you signed.

So the average millennial with student debt owes about $38,000.

And at a standard 10 year repayment at 6%, that interest is $421 per month.

Now most people stretch that over 20 or 25 years to lower the monthly payment and ended up paying nearly double in interest.

Did anybody show you that number before you chose the repayment plan?

I don't know.

Did you get shown?

And maybe not listen, I don't know.

But it is really important.

And lots of millennials are just stifled with college debt.

Now there is a real cost of waiting to invest.

So a millennial who started putting $500 a month into the market at age 35 instead of 25 will have $400,000 less at retirement.

That's one decade.

$400,000.

The cost of waiting is brutal.

And oftentimes the cost of waiting is due to student loans.

Now we have child care math.

So the average cost of child care in the US is now between $15,000 and $30,000, depending on where you live.

That's after tax money.

And for a lot of millennial families, it generally rivals their mortgage payment.

That's a squeeze that prior generations simply did not face at this scale.

So that's some of the doom and gloom.

But what are some of the advantages that millennials have?

Well, those who bought homes even in 2018 or 2019 may have some significant equity and may have got low mortgage rates.

Your peak earning years are either here or they're arriving.

And you are the most financially sophisticated generation in history when it comes to understand index funds, expense ratio, investing.

And you still have time on your side, right?

You have 20 to 30 years before retirement.

So course corrections are absolutely possible if needed.

But you have the Internet, you have information, you have lots and lots of advantages, you have some challenges like any other generation.

But there are lots of millennials that are just simply making it happen.

And now Gen z, born roughly 1997-2012, this is the most financially aware generation in history and one of the most financially at risk.

And how is that possible?

Right, but let's talk about it.

And here's the tension that I find fascinating about Gen Z. Gen Z has more access to financial education than any generation that came before you.

There are podcasts and I'm kind of biased, but I think the weekly wealth podcast is really valuable.

There are YouTube channels, there are TikTok accounts.

Now go back to the episode, I'll reference it in the show Notes where I talked about how you should be aware of TikTok and Instagram financial advice, because sometimes it's not incredibly accurate, but a lot of it may be fairly applicable to your life.

There are apps, there are spending apps, budgeting apps, unlimited amount of free financial content at your fingertips, 24 hours a day.

And yet the headwinds and the challenges are genuinely severe.

Housing prices relative to income are clearly at an all time high.

The starter home is nearly extinct in most major markets.

The gig economy, this is uber doordash, et cetera, offers flexibility, but no 401k match, no benefits.

And the self employment tax bill catches a lot of young people completely off guard.

Then there's AI, right?

Gen Z is looking at artificial intelligence the same way a factory worker looked in 1985 looked at a robot on the assembly line.

This is a real and legitimate concern.

The jobs that Gen Z is training for today may look fundamentally different or they may not exist at all by the time they hit their peak earning years.

That's an unprecedented level of career uncertainty and of course that will cause a lot of stress.

So Gen Z has some advantages.

There's a lot of information out there, but they certainly do have some challenges.

So let's look at some things that Gen Z needs to know.

So the same as millennials, but even more urgent.

Now, before you sign up for a single dollar of student loans, know your expected starting salary, know your total debt load and run the payoff math.

Do not sign without those numbers.

Now, if there's a, quote, dream school that you want to go to, but it's going to stifle you with debt for decades, think about not going.

Think about potentially going to community college for the first year or two that can be almost free.

Think about really searching for scholarships.

And also think about, in today's world, do I really need a four year degree?

I don't know those answers for you, but you need to be thinking about these things.

Don't automatically take out a boatload of student loans because you might regret it for literally decades.

Now let's go back to compound interest.

A dollar invested at age 22 at an 8% average market return becomes $88 at 72.

So every single year that you wait will cut your greatest financial weapon.

And right now you have more of it than anybody.

So if you have too much money going out the window in student loans, that's less money that you can save.

Now, the Roth IRA window.

Most Gen Z earners are in the lowest tax bracket of their entire lives right now.

So a Roth IRA contribution means tax free growth for potentially 50 years.

This is one of the most powerful financial moves available to any human being in the history of the world.

And it is sitting right in front of you.

So the Gen Z advantage, well, first one is time, right?

Pure compounding time.

No other generation at the table has this.

The Gen Z also has many different tools.

So there are fractional shares of ETFs you can buy.

There's information, there's AI.

You have a lot of advantages if you are a Gen Z now, you have some challenges, but you have a lot of advantages.

And so let's take those advantages and let's turn them into positive results.

All right, so before we wrap up this episode, I want to leave you with something.

We just walked through four generations, four completely different sets of challenges.

Four completely different sets of advantages.

And here's what I want you to take away from all of it.

Every generation has and had real headwinds.

The boomer who faced Vietnam and 18% interest rates, the Gen Xer who rebuilt after the dot com crash had no roadmap, no Google.

The millennial who carried student debt into a broken job market.

The Gen Z er who's trying to build wealth while wondering if their career will even exist in 10 years.

Every single one of them has a legitimate case.

But here's what I've seen over and over again in my practice.

The people who come out ahead in every generation are not necessarily the ones who got the best hand dealt to them.

They're the ones who knew what was in their hand.

They ran the numbers.

They understood the math before they made big decisions.

They didn't sign without seeing the payoff timeline.

They didn't retire without knowing their longevity risk.

They didn't take out loans without knowing the salary on the other end.

So here is the question I want you to sit with this week.

What's the one number in your life that nobody showed you before you made the decision?

And who is in your life right now?

Maybe a child, a grandkid, a younger colleague, someone you mentor, a friend who is about to make a big financial decision without seeing that math first.

Because that's really what it's all about, right?

Life, in a large part, is a math question.

Money is good for the money.

Good that money can do.

And sometimes the best thing money can do is make sure the next person sees the number before they sign.

And hey, I want to hear from everyone on this one.

So which generation do you think had it toughest financially?

Go to www.weeklywealthpodcast.com, click on the microphone icon and leave me a voicemail.

Tell me which generation you are.

Tell me your biggest financial challenge and tell me the number you wish someone had shown you before you made your biggest financial decision.

Who knows, maybe I'll feature some of your responses and on an upcoming episode.

All right, everybody, don't forget to share this episode with your friends, your family, your colleagues, your co workers and your kids.

Especially your kids.

Because the numbers we talked about today, somebody needs to show them to the next generation before they sign.

Help me to build this tribe.

Until next episode, I wish everybody a blessed week.

Thanks everybody.

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Your bonus Content so we talked about some numbers that everybody needs to know.

Since we're in April, a lot of people are thinking about their taxes.

I want you to understand which tax bracket you're in, what your income needs to increase in order for you to hit the next tax bracket, and truly understand the progressive nature of our tax system.

So just because you hit the next tax bracket, that doesn't mean that all of your money will be taxed at that rate.

It means that every additional dollar will be taxed at that rate.

So if this doesn't make sense to you, and if you want to understand tax brackets a little bit more, make sure to email me davidarallelfinancial.com all right, we'll see you next time.