The charmed generation: the last of the lucky ones

The Charmed generation are a cohort of older people who have benefited from the combination of factors that has enabled them to achieve levels of prosperity that is unlikely to be experienced by their children or grandchildren. The reason for their good fortune is explained by the 4Ps: pensions, property, parents and prudence. Not to be confused with marketing's 4Ps!

Pensions

Most of this generation receive, or will receive, a defined benefit pension that is unaffected by changes to the stock, bond, currency or any other market. Recipients receive a guaranteed level of income for the rest of their lives. During the last decade the majority of companies have abandoned these schemes.

PricewaterhouseCooper's recent pension survey found that companies believed the remaining final salary schemes to be 'unsustainable'.

Government employees will soon be the only workers with this type of pension.

Property

This generation has been property owners for the past 30–40 years and have lived through multiple housing price bubbles. Even after the recent decline in prices their properties are still worth 30–40 times the original investment.

This group retains significant levels of equity in their properties that can, if necessary, be converted to provide income.

Parents

Another repercussion of the rise in property prices is the inherited wealth the charmed generation receives on the death of their parents. Historically, most of their parents' property value has been inherited, minus the inevitable death duties.

The combination of increasing life expectancy and stricter means testing means the intergenerational wealth transfer is being reduced, as children are forced to use their parents' house equity to pay for care services.

Prudence

The charmed generation comes from the pre-credit card era, when debt was something to be avoided. Consequently, most of this group retire with little or no debt. The next age cohort of older people is far more likely to have their children's attitude to debt rather than that of their parents. The fastest growing group of people with high levels of debt problems is the 50-plus.

The charmed generation accounts for 25% of the UK's population of 11 million older people aged 60–80 years. They have the highest income of their age group and account for 80% of the population with personal wealth exceeding £200,000.

By any measure this represents a financially attractive group of consumers that warrants the attention of marketers. There is little evidence suggesting their business potential was matched by the level of marketing interest or spend.

THE EFFECTS OF THE RECESSION

In common with all age groups, the charmed generation has experienced a significant deterioration in their fortunes since the original article was published.

Because of their high levels of wealth, both property and investments, they have been disproportionably affected by the:

• Collapse of the Bank Rate to 0.5%.
• 37% fall in the value of the stock market.
• Decline in property prices by 20%.
• The 75% reduction in the number of properties being sold.

During this period they also experienced a surge in the price of energy and an 8.5% increase in the cost of living.

One would expect the combination of these factors to result in dejected and significantly poorer group of people, who have radically changed their attitudes and buying behaviour.

In April 2009, 20plus30 and Mature Marketing researched a sample of 1,600 over-50s to understand how the recession was affecting their attitudes and behaviour. The sample, which included older people of all levels of wealth and income, discovered an optimistic situation (see table 1).

The three areas of expenditure that were most vulnerable to cutback were clothing, eating out and foreign holidays.

The research shows that to date the charmed generation has been surprisingly immune to the ravages of the recession. The changes that have occurred to their behaviour provide marketers with new opportunities, but the most important message is that they remain a highly attractive and prosperous group of consumers.

MESSAGES FOR MARKETERS

There are five key insights for marketers to consider:

1. The Charmed Generation are Affluent and Financially Stable

The value to marketers of the charmed generation as an affluent and financially stable group of consumers is more important than ever. The combination of guaranteed pension income, low debt and investment income has protected them from the fallout of the economic downturn. Our research shows that the recession has made few significant changes to their behaviour.

The 4P factors that combined in making them a unique age cohort of older people have, if anything, become more important. Far fewer of the 50-plus, in a decade's time, will have guaranteed pension income, low debt and the levels of inherited parental wealth. The charmed generation is truly a one-off marketing opportunity.

2. Good and Bad News for the Financial Services Industry

The banks and the Government are seen as the primary villains for creating the recession, with the media, the public and other parts of the political establishment as supporting culprits.

Not surprisingly, trust of the financial services sector is low. A recent Harris Poll in the US showed that over 60% of Baby Boomers do not consider any financial institution to be honest and trustworthy.

In spite of the Industry's negative image, it is surprising how few of the charmed generation (20%) have changed their savings and investments suppliers. An explanation for this behaviour could be that all suppliers are seen as being 'equally as bad', but whatever the reason, it has not created significant churn.

Despite the plunge in the value of their investments the charmed generation are optimistic about the future returns from the financial markets. Saga's Finance Division found that a third of its customers were forecasting strong investment opportunities over the next 18 months. McKinsey's US research found that the 55-plus were the most optimistic, of any age group, about the long-term opportunities of financial investments.

Unlike their children and grandchildren, the charmed generation have lived through the ups and downs of several recessions. The knowledge that eventually recessions end and that markets rebound, gives them a confidence that should be harnessed by the Finance Industry.

3. Charities are the Biggest Losers

Half of the over-50s have reduced their charitable contributions by 50%. This is an unpalatable result for the Charities Sector that is reliant on older people for contributions and, more importantly, legacies.

Prior to the recession, nfpSynergy, the not for profit research consultancy, showed that of all age groups, older people, especially the 55– 64 year olds, were increasingly less likely to undertake charitable work.

The danger for charities is that the drop in charitable giving by the charmed generation becomes permanent which then results in a reduction of legacies provisions at the time of their death. If this situation was not bad enough the income from legacies is also under threat from the inevitable increase in the costs of care that the charmed generation will be expected to pay.

For all these reasons charities should increase their marketing attention on recapturing the crumbling support of this generation.

4. The Charmed Generation's Role as Funding Grandparents

The research shows that the recession has resulted in 25% of the older age group providing their children and grandchildren with financial assistance. MetLife's Research Institute quantified the contribution of US grandparents to their children as in excess of $370 billion over the past five years and increasing because of the downturn. Saga's research came to similar conclusions in the UK.

The charmed generation are the wealthiest grandparents and will be making the highest level of financial contributions to their families. This powerful, and identifiable, need to care for their family means they will be involved in an increasing number of purchasing decisions. In addition, it creates opportunities for new financial, leisure and holiday products.

5. Move to Own Label Brands

More than 80% of older consumers reported purchasing more supermarket own-label brands. This is a significantly higher proportion than was reported in Datamonitor's research, which concluded that 43% of people, of all ages, had switched some of their favourite grocery brands to private label. This suggests that older people appear to have a greater propensity to switch brands than the young, something that makes a mockery of the old assumption about the old being brand loyal!

Obviously, this behaviour is good news for the supermarkets and bad news for the suppliers of branded products. Because of the charmed generation, wealth they are less likely to have switched brands than their poorer peers, however, the research shows their loyalty cannot be taken for granted. This needs to be reflected in the importance brands place on the older consumer in their marketing strategy.

WHAT OF THE FUTURE?

There is little doubt that the recession, and the inevitable reductions in public and private expenditure, will result in an extended period of high unemployment and weak demand. Because of the charmed generation's guaranteed income and asset wealth and lack of dependency on earned income, their importance as consumers is more likely to increase than decline.

The lead article in April edition of Harvard Business Review, by the Harvard Marketing Professor, John Queltch, states that 'the segmentation strategy that you have been using prior to the recession is now obsolete'. The charmed generation, like all consumers, will not be immune to changing attitudes and behaviours as the recession unwinds.

There are four ways in which these behaviours are likely to change that will require marketers to adapt.

• The trend to 'simplify' their lifestyle. The realisation that they already have enough 'stuff' and 'clutter' and that collecting experiences, not possessions, is more important. Part of this results from a greater realisation of their own mortality and partly from the anti-consumerism trend.
• Increasing focus on family bonds. Harris Interactive and AgeWave recently published research showing that family relationships – not money and power – are what Americans most value. The age groups that felt this the most acutely were Generation Y and those of the charmed generation's age. This equates to the bond between grandparent and grandchildren. As has already been explained, this is a massively important dynamic and one that looks likely to increase in importance.
• The desire to minimise uncertainty. The duration and effects of the recession are uncertain. This has resulted in a high degree of unwanted uncertainty being injected into the lives of consumers. Probably more so than other age group, the charmed generation will seek to rebalance this uncertainty by the decisions they make as consumers. The thrill of uncertainty and risk will be replaced with the comfort of predictability and safety.
• Divert conspicuous spending into enriching their personal development. The charmed generation is not immune to the trend to reduce conspicuous spending. Part of the expenditure that would have purchased new cars and holiday homes will increasingly be spent on social goods like education, health are and wellness products.

ABOUT THE AUTHOR

Dick Stroud is founder of the marketing consultancy 20plus30.

[email protected]