Wednesday, August 31, 2011

"Duh Generation Y, Buy Stocks!"

Fallacies From Financial Experts

Ms. Rapacon argues that Echo Boomers ought to line up and buy stocks. Do you want to know why, Echo Boomers. You're YOUNG and you have all the time in the world! Of course, she writes this because Echo Boomers are fleeing stocks, and at a much quicker pace than other generations (which, according to Mish, would be the wise thing to do in a disaster - "panic first").

While stocks may offer more potential for investors in the future, they also may not. For instance, evaluate the Nikkei index:

Imagine if you had just bought the Nikkei index at the 20,000 level (in 2000), you would ... actually, you would have lost over 50%. Speaking of which, when is the Nikkei going to return to its former glory (40,000)?

Betting on past performance works well in the media, but they won't give you examples of how it failed. Echo Boomers have seen disasters (think dot com bust, housing bust, Enron collapse, et cetera), and their skepticism is wise. Keeping a decent amount of cash to seize opportunities or even have some security remains an excellent strategy. In fact, Mark Cuban even states that "cash is king."

In the meantime, maybe Fidelity and Kiplingers can find better writers?

Tuesday, August 30, 2011

Will Generation Y Abandon Ownership?

Echo Boomers have earned the reputation of a group of kids who share, as opposed to own. Although experts can debate whether this is because the Millennial generation direspects private property (think music "sharing" which in reality is theft), the effects of sharing will impact the economy, especially businesses.

One columnist highlights this problem that Ford is facing with Echo Boomers:

That's a serious challenge, indeed. Panelists agreed that Millennials are more interested in sharing things and being able to get those items -- jewelry, music, handbags, cars, you name it -- when they need them, and jettisoning them when they don't. Clearly, there isn't so much cachet these days in being encumbered by big, expensive toys. It is, however, worth noting that such a sentiment is at least as old as Marley's ghost, who, after all, was shackled in death to the valuables he amassed in life.
Major factors included in this bit are the fact that Echo Boomers don't seem to want these big ticket items to weigh them down. Too much stuff equals too much responsibility. However, if you're a business, how do you sell to a generation that doesn't value ownership?

While Ford struggles with this, companies like Apple have succeeded. The appeal of Apple's products among Echo Boomers are that they can perform many different tasks and remain convenient to carry and use. Can you sell cars, houses and big ticket items in the same way? I have argued in the past that these will pose major challenges to businesses (see No Houses Please. We're Echo Boomers and No Vehicles Please. We're Echo Boomers.

Friday, August 26, 2011

Echo Boomers: "Marriage No, Cohabitation Maybe?"

I read an excellent article discussing marriage and cohabitation. In general, I haven't written much about cohabitation on this blog since it's mostly concerned with economics and the assertion that single people won't buy homes as much as married people (see Will Low Marriage Rates Sap Future Housing Demand for why that's an absurd claim). However, I'm unsure of cohabiting couples and whether they're likely to be or not be homeowners. That stated, Laura is right - Echo Boomers already see cohabitation as an alternative to marriage.

One thing to note in the article:

An average of 22% of people ages 18-31 are not married.
Actually, according to Pew Research and my brief marital study, 79% of Echo Boomers are not married.

"Does Pre-Marital Sex Prevent Marriage?"

Each Friday, The Echo Boom Bomb will feature a common question among Echo Boomers and/or their parents concerning economics or finance for the Millennial generation. These questions are often asked by Echo Boomers and/or their parents that I survey or can be directed to my email at echoboombomb [at] gmail [dot] com. If you email a question, please be sure to keep it concise and direct.

Question: In Generation Y and Sex you write that 70% of Millennials feel sex between single men and women is okay. Do you think that might be causing low marriage rates?

First, according to the study (which I did not conduct) 70% of Echo Boomers view sexual relationships among single males and females as moral. Similar to other studies, how are these terms being defined?
  • Does single include Echo Boomers without boyfriends/girlfriends/fiances? Or does single only mean "not married?"
  • What constitutes a sexual relationship? [/Bill Clinton moment] But on a serious note, I've spoken with Echo Boomers in college and sex studies that defined sex very different than other Echo Boomers.

For the sake of keeping things simple, I'll assume it means that 70% of Echo Boomers see any and all sexual conduct between never married people as moral. But remember that the Echo Boomers, who responded to these questions, may not have meant that.

That being written, I see 3 major obstacles to marriage among the Millennial generation, which have nothing directly to do with pre-marital sex. If you read any media, you'll see the claim that pre-marital sex will prevent marriage, but logically evaluate the claim: why would people, who enjoy sex with each other, not marry because they are having sex? That makes absolutely no sense. However, an Echo Boomer might not want to marry another Echo Boomer, who has two kids from a former partner due to financial, economic and personal reasons. In that sense, pre-marital sex played a part for one of the partners. Likewise, the Millennial generation didn't see people divorce because of pre-marital sex, so if they choose to opt out of marriage to avoid divorce, pre-marital sex plays a little role (if at all).

My point here is that pre-marital sex won't directly stop Echo Boomers from marrying each other, though it might result in some other factors that encumbers marital formation. There may be a few cases in which Echo Boomers reject others because they have engaged in pre-marital sex, but I doubt that will be likely to occur in a generation where most think sexual conduct among single people is moral.

The short answer essentially is that, statistically writing, pre-marital sex won't be the major reason why marriages won't form among Echo Boomers.

Thursday, August 25, 2011

Debt Isn't Sexy

Nor Is Caring About the National Debt

Maybe Echo Boomers don't really care about the national debt, as one columnist writes while arguing that Echo Boomers should care. These issues will affect Echo Boomers the most. For instance, if social security adjustments aren't made soon (ie: raising the age), it will be the Millennial generation that pays for "young" retirees. Likewise, Echo Boomers should evaluate how any increase in taxes will help/harm their standard of living.

Pundits and writers will post their surprise, but frankly, the Millennial generation isn't known for wise money management. How many Echo Boomers even understand the debt limit, the national debt or the implications of a rising debt (start the research)? Add that to the fact that even if Echo Boomers are informed through media, how many in the media understand these issues? Blind men don't lead other blind men very well.

If someone wants to motivate Echo Boomers to care about these issues, they will need to learn how to market their message in way that Generation Y will listen. Sadly, posting numbers and data will have little - if any - impact. On top of that, discussing issues will have little, if any, impact either.

While uncovering financial needs at a major institution and collected data on Echo Boomers, I noticed some interesting trends with getting Echo Boomers to open up and be receptive to a financial message. While it couldn't work on every one of them, it worked on the majority. An opening question like, "What do you do for fun in [location]?" From there, I used their hobby/passion/interest as the selling point. Example: "Dude, automate your money this way so that you can fish more and stop worrying about whether you're meeting your budget goals."

It worked, very well.

If I had to market concern about the national debt to Echo Boomers, I wouldn't start with numbers, data or issues. I'd post an image of an impoverished 30 something professional in a dilapidated city with a name across his body: John Doe MD. And right below his name? That's why the national debt matters. You see, hobbies/passions/interest exist only when things are going pretty well, Echo Boomers.

Wednesday, August 24, 2011

Generation Y Says "Yes" To Big Government

Check it out:

Sixty-two percent of Millennials—compared to just 46 percent of non-Millennials—believe "we need a strong government to handle today’s complex economic problems."
Add that fact to:
Young Republicans and conservatives are less anti-government than their older ideological counterparts.
You could essentially argue that, among Echo Boomers, the Reagan view of government (or lack thereof) is dying.

Again, this hurts the chances of a Republican victory among Echo Boomers. Libertarians can keep dreaming: this generation is moving toward the opposite end (also see What Will Generation Y Do In 2012).

Where Religion, Politics and Economics Collide

Two issues that you should never speak with people about: religion and politics. But this is the blogging world.

As the United States faces economic challenges, it will be fascinating to watch how religion can provide Echo Boomers with economic guidance. Although different religions have different economic perspectives (for instance, the Church of Jesus Christ of Latter Day Saints owes absolutely no debt, but owns several businesses), the predominant Judeo-Christian religious tradition in the United States will exert the most influence on Christian Echo Boomers (recall, that 70% of Echo Boomers belong to Judeo-Christianity).

Important Note:

When I write Judeo-Christianity I am referring to Christians and Jews. Catholics, Jehovah Witnesses, Mormons, Protestants and a few others I consider as Christian. Obviously, Jews are included under Judeo-Christianity, though separate from Christianity.
A recent Op-Ed highlights these issues:
It seems that every generation becomes encrusted with its own catchphrases and angle of repose. Christian baby boomers cheered the Great Society; their Gen-X children joined the Reagan Revolution; now Millennials are asking, along with Jim Wallis, What Would Jesus Cut?
Of course, this article assumes a conservative point of view. For instance, Millennial liberals might state, "Give to Caesar what is Caesar's." Still, note that the religious commands and emphasis can change relative to what a generation experiences. As Echo Boomers face economic challenges, I would expect to see Judeo-Christian demoninations and literature adjust to these challenges.

And if some "experts" are right about hyperinflation with food and energy, I'd expect some people to seek out Mormons, who have a year of emergency food stashed. Surprisingly, this advice is unique to the Mormon church; no other demonination of Christianity advises this (though, some advise a large emergency fund and I would expect debt and money to become large issues within Judeo-Christianity, especially for Echo Boomers).

Monday, August 22, 2011

"Republicans, Win Generation Y Now Or ...

... Lose Them Forever"

At least according to Margaret Hoover, who argues that since Echo Boomers voted for Kerry and Obama, a third Democrat victory among the Millennial generation would seal the deal (also see Do Republicans See the Importance of Generation Y?). Where Hoover is right is that the Millennial generation possesses significant power in the elections. However, she assumes that social policies will dominate the Millennial vote.

If Echo Boomers can't find jobs, they won't find issues like abortion or gay marriage as important as if they can find jobs. In general, Echo Boomers will vote along liberal lines when it comes to social issues. But social issues are a luxury of good economic prospects. In other words, Republicans could still defeat Obama if they can convince Echo Boomers that their economic policies will work better than his.

My point here would be that the central focus of this next election will be the current economic outlook and not any major social policy issue. Unless the economy adjusts in the next few months (unlikely to occur), it's back to "the economy stupid."

Frankly, Republicans and Democrats should be more worried how the prospect of QE3 might completely change the election (for instance, if it works, Obama will win in a landslide, but if it fails, Republicans will have a major advantage).

Thursday, August 18, 2011

The Future Brought To You By ... Generation Y

From Monday's post, Will This Long Recession Alter Generation Y, one can only wonder what the economic future of the United States will look like. Don Peck seems to have his own ideas:

Peck says the Great Recession offers a preview of where our economy is headed and what’s in store for our communities. "While this preview is troubling, it is also clarifying. Many of the deepest economic trends that the recession has highlighted and temporarily sped up will take decades to fully play out. We can adapt successfully to them, if we start now."
...
"If we remain stuck in an economic climate in which stagnation and disappointment are the norms for large numbers, the most likely risks to our politics are not rogue leaders or an insurgent populist party. They are endless vacillation, low levels of public trust, and political options that are stunted by a poisonous atmosphere and heavy discontent."
He seems to think that without aggressive government policy, the United States is destined toward a dismal future. He asserts that those who oppose such drastic government intervention seem to be overestimating the risks, while underestimating the consequences.

We can, however, state the obvious: a significant amount of action has already been taken, for instance QE and QE2 with a potential QE3 on the way. Now let's ask the question: how did these programs solve our current problems? They didn't. In fact, QE2 pushed the price of oil and food higher, hurting the same Americans who already face desperate economic circumstances. Printing money doesn't correct economic problems and it won't suddenly bring us a better future.

Likewise, more government intervention, where we have to borrow money for a better future with a large national debt is betting on wishes and hopes. If the government can't manage its resources wisely today, why should its citizens expect it to do so in the future? At what point does the government commit itself to wise resource management (like drug addicts, the answer is always, "Tomorrow, I'll do it.")?

As a contrast with Don Peck's plan of more government intervention, Mish proposed a solution to jobs and education:
1. Scrap Davis-Bacon and all prevailing wage laws
2. Enact national right-to-work laws
3. Kill defined benefit plans for public workers
4. Scrap student loan programs entirely
5. End all support for for-profit colleges
6. Revise corporate tax laws
7. Stop corporate tax repatriation holidays
8. Slash military spending. The US can no longer afford to be the world's policeman.
Note that Mish's plan doesn't sound like any QE program which have failed already.

Wednesday, August 17, 2011

Maybe Marriage Will Be A Minority

Two Major Points To Consider

Earlier I doubted that marriage would become a minority in the Millennial generation (meaning that over 50% of Echo Boomers would marry). However, the article from Monday's post may provide yet another encumbrance:

"Joblessness corrodes marriages and makes divorce much more likely down the road," says Peck, who was told by the director of the National Marriage Project at the University of Virginia that marriage is an increasingly fragile institution among couples without college degrees.

Peck calls chronic and all-consuming unemployment a pestilence that slowly eats away at people and families and becomes society’s most noxious ill.

"One of the largest long-term risks to society is that the norms of a very large class of people, in a very large number of places, are now changing in unhealthy ways." A broad array of measures of family dysfunction are blinking red. The lives of moderately educated families increasingly mirror those of high-school dropouts, burdened with financial stress, job loss, partner conflict, single parenting and troubled children.
Two points to consider about marriage rates among Echo Boomers:

1. Single Millennial parents may experience more trouble in finding partners than Echo Boomers without kids. Why? Simply the economic costs of kids might encumber someone from considering the single parent as a partner - you are not only adding the financial cost of a partner, but also (a) child(ren). Notice that the stress of job loss or fear of job loss also plays a factor in who people will choose to marry.

2. According to the article, the uneducated (high school dropouts and high school graduates only) are less likely to find partners than those who attend college. While this is not a guarantee that the college educated will find partners, those who attend college will be more likely to marry. At this current time, approximately 40% of Echo Boomers (aged 18-24) are attending college, with not everyone graduating. But that means 60% of that age group have not gone to college, many of whom may never have the option of marrying. Recall that the 40% is considered one of the highest enrollments.
Pertinent Side Note:

One could argue that, since males seemed to be less concerned with female education than vice versa (as indicated by the past), an uneducated female might not need to worry about attracting a partner. While this logic may be correct, remember that females are more likely to attend college, especially graduate school.
Of course, if Echo Boomers adjust their expectations financially, they may also socially adjust their expectations. Perhaps, Echo Boomers will look beyond a person's income, education level or parental status. As for now, however, a minority marriage rate is a strong possibility.

Tuesday, August 16, 2011

What Will Generation Y Do In 2012?

In yesterday's post, Will This Long Recession Alter Generation Y, I wrote about an article which discusses the dim economic outlook for the Millennial generation. As the 2012 election nears, and Republicans search for someone to battle Obama for the White House, I would expect the politican who wins with Echo Boomers to win the presidential nomination. However, how will the individual achieve that?

Note what Don Peck asserts about Echo Boomers:

"Trained throughout childhood to disconnect performance from reward, and told repeatedly that they are destined for great things, many are quick to place blame elsewhere when something goes wrong and inclined to believe that bad situations will sort themselves out — or will be sorted out by parents or other helpers."

[Emphasis mine]

In other words, a political figure which promises to correct the problem and states that it is not the citizen's fault will sell a stronger message than a political figure who claims that people have failed to take responsibility in their own lives (the latter may be more accurate than the former, depending on the individual in question).

In other words, Echo Boomers don't want to hear that they are responsible for their own destiny - they want a leader who will "change" their destiny. Add this to the fact that Echo Boomers have also learned that you can receive awards for losing (ie: trophies for finishing last place) and that others control what you do (ie: parents constantly putting their kids in one activity or another without allowing the kids to provide their own direction in life), and you can see what a generation will find appealing in a political candidate: a new mommy or daddy.

Sadly, I don't think Echo Boomers will value freedom and independence like former generations, and I expect the size of government to grow. What this means is that political candidates, who oppose big government and favor personal responsibility, will face opposition among Echo Boomers.

Monday, August 15, 2011

Will This Long Recession Alter Generation Y?

A recent article discusses how Echo Boomers will handle the current economy. Though, the debate about the recession continues to rage ("are we in one or not?"), the economic prospects for the Millennial generation don't look too bright. The prediction from Don Peck:

"Many twentysomethings will emerge from the Great Recession with their earning power permanently reduced, their confidence dimmed and their ideals profoundly changed."

From this article, I'll evaluate how these changes will affect the following, all of which will bring changes to our current economic structure:
1. The 2012 election (Tuesday)
2. Future marriage rates (Wednesday)
3. Economic factors (Thursday)
Recall the the size of the Millennial generation, as these effects will compound with the size of the generation.

For now, however, I agree with the author that assuming things don't change, the Millennial generation will experience a significant decrease in the standard of living of its parents.

Friday, August 12, 2011

Interview: Austrian Economics With Dr. Paul Cwik

The responses to the interview questions may not represent the views of The Echo Boom Bomb's author. These interviews are provided to inform readers of information from field experts and provide these experts with a medium where they can answer questions without any content changes. You can also read other interviews at this link.

Instead of any Millennial Q and A this Friday, I recently had an exchange with Dr. Paul Cwik, an Austrian economist at Mount Olive College. He blogs at Tillman School of Business and provides some fascinating insights to our economy, for instance Economic Distress Index and Yield Curve Inversions. For further information on these, you can listen to free podcasts from The Foundation For Economic Education (FEE).

1. The prevailing C+I+G+(net exports) focuses on consumption as the main driver for economic growth and prosperity. What is the main driver in the Austrian view and how does that look in comparison.

The classic Keynesian formulation for measuring the Macroeconomy is National Income (Y) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X-M). In this formulation, Y = GDP and so it is true that C is the largest share of GDP. The rational conclusion is that GDP will move whenever C moves. In other words, C is the prime mover (main driver) of GDP.

The unfortunate part of the story above is that it is NOT a complete answer. GDP is a measure of final goods and services. It is constructed in the above manner so that double counting does not occur. While GDP does a fair job for what it was designed to do, it does not reflect the overall health of an economy. Just take a moment and think about what we mean with "the final goods sectors" of the economy. The final goods and services sectors are the "Do you want fries with that?" sort of jobs. Most jobs (and really most business activity) does not take place at the consumer level.

It is true that the only reason why we go to work is in order to consume later. We first enter the market place and sell (usually our labor services) to others before we can withdraw goods and services from society. Each dollar is a representation of service. We gain them by serving others. The way in which a market economy reflects the degree of service that we provide to others is through the accumulation of money.

A portion of these dollars are then used to consume, while the rest are saved. We defer consumption. When we choose not to run out to the store and blow the entire paycheck, we are deferring consumption. This suspension of consumption frees up resources to be used in other ways, namely used in the formation of capital.

Capital is absolutely essential for an economy to grow. Not only does it increase the productive power of the individual, it also allows individuals to create something new--products that would never come about otherwise.

And so we see the "Magic Formula" for economic growth: Savings leads to investment; investment is used to build capital equipment; and capital increases our productivity. As we become more productive, we become more valuable as workers. In other words, our real wages rise as a result. The increase in productivity also expands output, which increases our ability to consume. In short, this is how we raise our living standards.

So while the Keynesian economist focuses on the short-run aggregate of Consumption, the Austrian economist looks for the larger picture. When consumption falls, the Keynesian says that this is a calamity and must be reversed at all costs. It requires government to tax and spend in order to boost aggregate demand and supplant the drop in consumption.

Meanwhile, the Austrian economist sees that there is a trade-off between present and future consumption. A decrease in today's consumption is not the end of the world. We are deferring consumption and building up capital for future output expansions. In fact, the Austrian will see the government's attempts to prop up aggregate demand as not only delaying the inevitable, but it is a waste of resources, making a bad situation worse.

Want to know more?

Do you want more details about the Austrian Theory of the Business Cycle? Click here to watch Dr. Paul Cwik at FEE. He provides a great Power Point presentation and further details (you can pull up his Power Point slides directly as well to see a comprehensive view of the Austrian view of Business cycles).

2. How would an Austrian economist view a consumption tax as opposed to an income tax?

There is no real answer here except for personal preference. Murray Rothbard wrote an excellent article called, "The Myth of Neutral Taxation." It is a little long, but the short summary is that all taxes distort the economy somehow.

A tax on beer reduces beer consumption. Why? Because a tax is a disincentive for whatever is being taxed. So a tax on consumption discourages consumption and an income tax discourages earning an income. While it is true that people need to consume and earn an income, that idea misses the economic point. People will do less of the taxed activity. Government is putting its thumb down on the scales and tilting it in a particular direction.

The best that I, as a citizen, can hope for is a minimization of governmental distortions to the market place. In order to achieve that, taxes must be broad, not favoring one group over another, and light. Both consumption taxes and income taxes can be broad and light. The question isn't which tax is better, the question should be which is lighter?

I am in favor of the system that taxes in the least burdensome manner.

The devil is in the details when it comes to measuring burden, because we can't assume that people will voluntarily pay taxes, nor can we assume that the bureaucracy will be incorruptible and efficient. As a result, it comes.

3. This blog is concerned with the Millennial generation, many of whom have told me that they feel helpless about our current economy. However, are there ways in which Echo Boomers can help Austrian economics become an influential view point in public policy decisions? And if so, what would those be?

Leonard Read was the founder of the Foundation for Economic Education (FEE). He would talk about how when he golfed, no one took any notice of him. Then he observed that if Arnold Palmer showed up, he (Palmer) would be mobbed. Everyone would want to meet him, shake his hand and then ask him about his thoughts on their swing, form, grip, etc. Why would no one mob Read, but they would mob Palmer? The answer is obvious--Palmer was an acknowledged expert in the field of golf.

People seek answers to questions from those they think are knowledgeable in different fields. When it comes to the field of economics, each of us has to become more expert. We need to deepen our own understanding of the topic. If we don't, then we won't be able to answer questions.

The next thing that Read would do is turn off the lights in the lecture hall and turn on a single light bulb. The light bulb had an adjustable dial. He would set it at the lowest setting. In that dark room, even the lowest setting drew everyone's eye to it. We are the light bulbs. As we acquire more knowledge, we become brighter. People will find out where the bright bulbs are. They will seek them out. We cannot go out and attempt to bludgeon others with our ideas. People are attracted to the humble. They are turned off by the loud.

This creates a dilemma for us. If we are to be quiet and humble, how can we have our voice heard in the shouting match that we call civil discourse? Well, there is a world of difference between being quiet and not saying anything. We don't have to shout down our opponents. We have truth, reason and empirical evidence on our side.

Now that I am a parent, find it difficult to remember that I don't have to yell at the kids. I have all of the power. If don't do X, they don't get Y. It's really that simple. I don't have to yell.
Obviously, we are not the parents of the US and so we don't have that same power. Nevertheless, we don't have to yell. People are naturally attracted to positive, optimistic, good-natured individuals who can emote their concern with others. We, each, have the capacity to be nice. Be nice and really mean it.

What concrete steps can we take? Well, there is no single answer to this. THERE IS NO CENTRAL PLAN FOR FREEDOM. Each person is the author of his own life. Each must determine what is the best use of his individual talents, and then act.

However, I will give you one concrete example.

My suggestion is to go to one's Town Council meetings. These are usually small, local affairs. Very few people attend. As a result, you will stand out. Almost always there is an open forum for people to address the council. I suggest that you attend each meeting. For each meeting prepare a 5 minute talk on a specific topic that relates to the Free Market and a local issue. Educate. Be kind. Demonstrate that you are a light. Show that you are interested. The local newspapers will initially cover you. You can then build on that exposure.

The goal is to change the hearts and minds of those who are interested in the levers of power (i.e., the people at the council meetings). You must never lose your temper. Must always be above reproach. Must always be dressed nicely (but not over the top). Try to present alternative solutions to local problems. If such things are attainable in a small community, then the larger communities will start to notice. It takes persistence, but it does not take a genius. It takes you.

Awesome stuff. I appreciate Dr. Paul Cwik taking out the time and answering these questions, and I hope that it offers a good introduction to Austrian economics. I cannot recommend the FEE podcast enough. Also, be sure to check out Dr. Paul Cwik’s blog, Tillman School of Business.

Update:

Lesson learned. Never copy and interview from Microsoft Word, as Word quotes kill links. All the links should work appropriately now.

Thursday, August 11, 2011

Will Generation Y Change Investing?

Will Stocks Be the New Losers?

The Baby Boom generation is nearing retirement, and (more than likely) plans to exit the market slowly or quickly to ensure that they have enough funds to survive. Generation X, a smaller generation than the Baby Boom or Millennial generation, may remain in the market, but Echo Boomers are apparently saying no:

Most surprising, the MFS survey found that Generation Y (investors between the ages of 18 and 30) have abandoned stocks for cash sooner and more aggressively than their older peers. So fundamental is their change in attitude, Finnegan said, that such investors "don't even call themselves investors anymore. They're savers."

Generation Y is now 30 percent invested in cash, compared with 26 percent for investors overall, according to the MFS survey.

As for possibly missing the inevitable market rally, "They don't care," Finnegan said. "Their world view has changed. These are 'Recession Babies,' the same way that an older generation were 'Depression Babies.'"
In other words, due to the past few recessions, Echo Boomers' view of the market differs from the prevailing "buy and hold" view of other generations. In fact, I predict that Echo Boomers will prefer more cash than other generations if the market continues to tumble for an extended period of time.

What does this mean from an investing perspective? A P/E ratio of 25 may have been normal or good in the past, but as Echo Boomers see more and more market trouble, they may be less likely to own stocks in the future (recall the size of Generation Y). In other words, a P/E ratio of 25 would be way too high in this new investing world as stocks won't be in high demand.

Of course, this has further effects on other generations. Since Echo Boomers are the second largest generation in U.S. history, if they choose to avoid placing a large amount of money in stocks, other generations can't rely on stocks for retirement. Essentially, stocks may not have the historic returns that everyone thinks is consistent. While a historian, who understands the pendulum analogy, would expect this, how many investors out there have considered what the market will look like in the future due to Echo Boomers?

Wednesday, August 10, 2011

Financial Size of Generation Y

Since Echo Boomers constitute one of the largest generations in U.S. history, consider the financial power of the Millennial generation in this article:

Echo boomers already have massive buying power of more than $200 billion yearly, pointed out Carol Ruiz, assistant chair of ULI's Residential Neighborhood Development Council. "It's been said by experts that if your company doesn't learn [how] to market to this group, you won't have a company by 2020," she said.
$200 billion? Remember, that's for now.

Some Echo Boomers haven't reached their financial peak yet (see How Big Is Generation Y? and How Much Money Do Echo Boomers Make?). As this generation matures, the figure could easily double or triple the above figure. The bottom line is that Echo Boomers constitute one of the most important demographics for businesses.

Tuesday, August 9, 2011

Don't Worry, Generation Y Won't Notice

Or, at least, one columnnist argues that when dealing with tobacco. Some colleges, ironically known for tolerant policies, have banned tobacco - a legal substance. The columnist claims that the Millennial generation doesn't care.

Pertinent side note:

The beauty of this, however, is that the U.S. government makes a huge amoung of money off tobacco, so a ban further hurts the United States1. Even if you don't like tobacco (like me), you appreciate the fact that the substance brings in a good amount of money.

Of course, claims that tobacco can kill even non-smokers will always be used as the rebuttal. However, this news further indicates American absurdity: this maternal idea that we can control how people live, even if it tramples on people's rights and hurts tax revenue.

Like with other issues, such as social security, the columnist claims that the majority of Echo Boomers don't care. Of course, to be fair, it's their future that they're losing.

1 And ponder this for a moment: if the U.S. legalized drugs, such as marijuana and cocaine, not only could it receive income from a consumption tax on the substances, but also income from taxes on the drug dealers, which it currently fails to receive (drug dealers pay no taxes!).

Monday, August 8, 2011

Generation Y, You Won't Receive Social Security

3 Reasons Why Social Security Will Soon Be History


If you're a Benzinga reader, click on The Echo Boom Bomb to view images on posts.


If you're an Echo Boomer, some news on social security appears dismal if you're including it in your retirement plan. However, you'll still be expect to contribute to social security to help out the Baby Boomers, the majority of whom failed to save enough money for retirement!

Three reasons why the Millennial generation probably won't see social security:

1. Interest rates for U.S. debt are currently low. As the government continues to borrow more money (add $2 trillion dollars to an already $15 trillion dollar national debt), creditors will eventually seek other opportunities causing interest rates to rise. When the rates rise, the government will have less money for social programs, such as social security, and will have to eliminate or cut back on the programs. At this point, social security will either be eliminated or drastically cut. In either case, Echo Boomers lose.

2. The social security retirement age is too low relative to life expectancy, and thus is rapidly draining the fund. The social security retirement age should be raised to at least 71, if not 75 or 78. Consider that social security was not intended as a program that all Americans would collect; many Americans would die before receiving social security so that there would be enough money in the program for those who lived long.

3. The U.S. government may default in the future. At one point in time, few thought this was possible, but after recent events - such as politicians cutting programs without raising revenue, pointless budget battles at the last minute, and a downgrade - the world no longer views the United States like it has in the past. Companies, like S&P, and countries, like China, have no qualms with challenging the U.S. as a financial superpower. As more companies and countries challenge the U.S., fewer investors will seek the U.S. since it won't be perceived as "safe."

Thursday, August 4, 2011

How Do I Invest For Generation Y?

One of the many opportunities that Echo Boomers will provide investors is rental income (also see "No Houses Please. We're Echo Boomers."). A recent article covers rental properties as a growing investment opportunity, pointing out that Echo Boomers won't buy homes in the present and may wish to rent nice properties with their "disposable" income.

Echo Boomers also socialize more than former American generations and like to live around their peers. Real estate, which offers multiple units in close areas, will rent or sell better than real estate away from social arenas. The below video explains some of this information - as to what Echo Boomers find appealing - in more detail.



Of course, keep in mind that you have several opportunities within real estate to invest. You can buy REIT funds, or purchase rental properties yourself. A third, yet more expensive option, is to buy land and build apartments.

Tuesday, August 2, 2011

How Generation Y Shops

Along with yesterday's post, 3 tips for building products for the affluent, other research has been conducted on the shopping attitudes of Echo Boomers. Some of the observations are quite obvious, like Echo Boomers prefer technology, while others contradict the financial standing of Echo Boomers. For instance, Echo Boomers prefer high end products, even though they possess few financial resources and tend to eat exotic foods. Both of these behaviors indicate that Echo Boomers aren't weighing themselves in a financially-honest way.

However, to a certain degree, researchers should expect this from young people. While financial growth may occur with big name products, if the economy continues to deteriorate, I would expect Echo Boomers to cut back on this big name items.

Monday, August 1, 2011

3 Tips For Building Products For the Affluent

How To Make Money Off the Affluent Members of Generation Y

According to a brief news release, Echo Boomers are more likely to use luxury goods to communicate their wealth to others (66%) than Generation X and the Baby Boomers. The release points out:

Millennials also agreed they liked brands that helped them feel different and unique, smart, successful, trendy, and helped them feel they owned something rare.
As a general rule, function is seldom a concern of those seeking status symbols.

Three tips for building products for affluent Echo Boomers:

1. Build "one and only" products. Using the example of clothes, build products that don't have duplicates, such as shirts with logos, designs or color arrays. Since duplicates don't exist, affluent members will recognize the unique appeal of your clothes.

2. Start with higher prices. Pull a Timothy Ferriss and charge consumers higher prices to attract the affluent. This helps you in two ways: you avoid the time-consuming consumers and you attract the affluent members, who tend to stick around because they value the elusive quality of your product.

3. Locate cross-selling areas. Affluent consumers tend to shop at certain locations that make them feel unique, so creating cross-sells with your product at these locations will produce superior results. For instance, if you design unique clothes, don't sell them at Walmart, as you'll have missed your target demographic.