The Generational Budget Gap

Stocks were flat yesterday. Gold was flattish. Oil was flat.

Everything was flat. Nothing much happened, as near as we can tell.

So, let’s turn our attention elsewhere. To greedy old people, for example.

Here’s a letter that appeared in The Financial Times on Saturday:

“I have recently returned from the first leg of a world cruise. Many of the elderly passengers were on their way around the world at a cost, for a couple, of between [$75,000] and [$140,000] and I met several who were on their third of fourth such voyage. This at a time when their grandchildren or great grandchildren may be struggling to pay university tuition fees…and later to find a deposit for a house…

“It is time for the elderly to step up to the plate to support the younger generation.”

In America, each generation is expected to make it on its own. At least that is the idea. So, old people think they are quite within their rights to spend all their money themselves, leaving little for their heirs to inherit. They do not see themselves as selfish. Many even think they are doing the next generation a favor – protecting them from sloth and dependence.

They go around with T-shirts that say, “I’m spending my kids’ inheritance.” Instead of taking care of grandchildren or helping their sons and daughters with the family enterprise, they retire to Florida, organizing their financial lives so their money lasts not a minute longer than they do. They grow old and lame – and then expect special parking places. They spend their time playing golf, watching daytime TV or pressuring their elected representatives to give them even more benefits.

The old have not merely abandoned the young to their own fate – they have stabbed them in the back. It’s bad enough that they use up all their own money. But they don’t stop there. They spend other peoples’ money too. And then they spend money that hasn’t even been earned yet.

The biggest items in the budget – Social Security and Medicaid – benefit the graybeards, not the young. And the budget is so far out of whack that for every dollar of tax revenue, the feds spend $1.70. That is to say, they add 70 cents that will have to be paid sometime in the future…most likely, by their own sons, daughters and grandchildren.

How lucky the next generation is! If a lack of money breeds tough self-reliance, the young in America must be the toughest generation ever. They not only have to pay their own way in the world, they’re also expected to shoulder a debt burden that would break Atlas’s back. Their parents and grandparents bequeath them public debt and unfunded obligations of more than $200 trillion, according to Professor Laurence Kotlikoff’s estimate.

Forbes publishes a list of the world’s richest people. Who would it put on its list of the world’s poorest? Surely, America’s young people would lead the rankings. Each one is shackled to a ball and chain of debt – hammered into place by an older generation – before he even begins to compete.

It hardly seems fair.

Economist Robert Samuelson, writing in Newsweek, shares our opinion:

“Whether our elected politicians will take back government from AARP, the 40-million-member organization representing retirees and near retirees,” – that’s the big question for the 2012 budget debate. Obama’s budget proposals left Social Security and Medicaid untouched. Why? The greedy old geezers vote.

Those programs have become a form of “middle class welfare,” says Samuelson; they must be cut.

Here at The Daily Reckoning, we do not believe in trying to change the course of history. We are not world improvers. Still, we do our damnedest to improve our own lives.

About two years ago, we began to think seriously about what to do with our own money. What was the plan? Spend it? Save it? Forget about it…and hope for the best?

But what was the plan for the children? What would become of them if something happened to your Daily Reckoning editor? Would they be able to “make it” on their own? What if something went wrong? Should they depend on the charity of the state…or the planning of their own father?

It was about that time that we discovered the concept of the “Family Office.” Poor people have food stamps and bail bonds. The middle class has Social Security and Medicaid. The rich people have family offices.

We’re not talking about people who win the lottery or a million-dollar contract to play football. We’re talking about people who make their money the old-fashioned way and try to keep it in the family, often for several generations. They treat their money differently. They see it as an heirloom, to be passed along, not used up.

Just because people are rich doesn’t mean they are stupid. Old money must have its secrets…its tricks…its wisdom too.

Not that we know what they are. We had no old money in our family. We inherited a few banged up pieces of furniture from our mother…who inherited them from her father. That was it. What money we have now is so new the ink isn’t even dry yet. But should we spend it all ourselves? Should we retire to Florida too…and wish the family “good luck”?

No. We decided to share…to prepare…to work together…to involve the whole family in our financial life – with trusts, an investment committee, a family constitution, budget goals, and everything else the family office guidebooks recommend. We decided to burden the children with the fruits of our own lives. The children are supposed to join in our key financial decisions, help manage family property, and partake in the family business. They’re meant to help preserve and enhance the family wealth – such as it is.

Don’t get the wrong idea. We’re not taking the high road. We never like the high road; it makes us a little queasy. Besides, we don’t like the high life much either. Spend our time playing golf? Fishing? Cruising around the world? Doesn’t sound like much fun. And we have no interest in fancy cars or expensive clothes. We drive a Ford pick-up and wear what we get for Christmas.

So, we’ve taken a different route. To us, it is more interesting, exciting and challenging. And there’s much less traffic.

“I know what you’re up to,” said son Jules, 23, shrewdly, “you’re just drawing us into your problems…putting them on our backs. I don’t have time for this… I’ve got my own life to lead.”

Hmmm. We haven’t actually succeeded at this yet. We’re just getting started. Check back in 20 years. We’ll let you know how it turns out.


Bill Bonner
for The Daily Reckoning

The Daily Reckoning