Lifestages Drive Boomers’ Financial Decisions

They make a lot and they spend a lot more than they make. These are the twin truths about baby boomers upon which the world has been able to depend. Just give them what they want or need, and boomers will pay for it – regardless of whether they can afford it.

For the financial industry, this “gotta have it” attitude made the boomers a difficult target to hit. The Great Depression was just an idea to them – a fable passed down by their parents. The stock market was an exhilarating game. There weren’t many rainy days; and for the few scattered showers that did occur, the boomers carried an umbrella of plastic. And as for their own lives, well, the boomers were immortal.

Then a funny thing happened. The first boomers began to turn 50, and they will be celebrating their 60th birthdays in 2006. Many are faced with tough care-giving decisions regarding their aging parents. They have begun to develop chronic ailments of their own and to see the effects of declining health in some of their friends. Meanwhile, the possibility of amassing more and better possessions feels more like a chore than a reward.

For the financial industry, this physical and emotional maturing of the baby boomers offers both opportunities and challenges. The opportunities lie in the boomers’ realization that they need to address their financial needs for the future now and in their newly fledged willingness to trade at least some short-term gratification for long-term security. The challenges lie in the persistent individuality and skepticism that are part of the boomers’ very make-up.

As the most-marketed-to generation of all time, boomers have by necessity honed a resistance to being “pitched.” They are suspicious of motive even before the message is sent. And so, the financial services industry finds itself in a conundrum: The boomers are (finally) ready to hear the message that they need help managing their finances, but they don’t believe anyone who tries to tell them.

The answer lies in addressing boomers by lifestage.

At its most fundamental, a “lifestage” is simply a turning point in one’s life, a period of sudden, perhaps dramatic, change that requires new skills and a new frame of mind to navigate it. In generations past, lifestage changes were fairly predictable and easy to target: birth, childhood, education, work/homemaking, retirement, death. Rarely did an individual vary from this path; certainly few viable market clusters diverged from the pattern.

But the longer lives, higher incomes and greater flexibility of today’s mature adults allow for great fluctuation in lifestage patterns. In many cases, adults today follow more of a cycle than a straight line in their lives, leaving and re-entering lifestages several times, as their interests and circumstances allow.

To illustrate the importance of lifestage analysis in presenting a message, consider three men born on the same day 54 years ago. They’ve been clustered together as a target market for a direct mail campaign for retirement planning. Of the four, only one man fits the “traditional” lifestage pattern for the group. He is a mid-level executive in a firm he joined more than 20 years ago. A grandfather, he and his homemaker wife look forward to spending more time with their children and grandchildren in retirement. He’s been diligent about contributing to his retirement plan, but is very conservative in all other areas of money growth. His goal over time is to develop a meticulous plan to make his money last in retirement and to ensure his wife’s comfort in the event of his death.

The other men with the same birthdays, however, require very different marketing approaches because they are in different lifestages. One is newly remarried to a woman in her forties with three children who live with the couple. This man has already put his two older children through college and is now trying to formulate a plan to educate his three young stepchildren and still retire, hopefully, by the time he is 68. He leveraged his retirement plans to the hilt fifteen years ago as his two oldest children went through college and he negotiated a divorce settlement. His current savings will barely pay the college tuition of his stepchildren. Over the next five years, he expects to continue to spend a great deal and save very little. He’d like help in reversing that trend.

The third man is a single professional with a vice-presidency and a corner office in a blue-chip firm. He’s indulged his material whims for most of his life, driving Porsches, wearing Armani and skiing in the Alps. Now, he’s beginning to notice the things his life doesn’t have, those that cannot be bought with money. In a radical shift from his typical “nose to the grindstone” posture, he has decided to retire early and comfortably, with a free-floating plan to travel for four months a year. A financial sophisticate, this man now would like to “hand off” some of the details of his financial management to someone he trusts to be as smart and savvy as he is. His goals for the next five years are “simplification” and “self-discovery.”

As their disparate lifestages clearly attest, these men represent three distinct marketing segments, despite their identical birth date. Therefore, a direct-mail campaign designed to excite and entice the cautious grandfather will fail when it is delivered to the other two.

Understanding the importance of lifestages is fairly simple. The execution of a lifestage analysis and plan, however, is somewhat complex. To date, we have identified 20 distinct adult lifestages and dozens of life events within each lifestage. These life events are highly predictive of changing buying patterns. The lifestage indicators, when overlaid against a database of clients, can allow precise campaign executions. Each lifestage offers a window of opportunity for products, services and messages that correctly address it. By extension, each also closes the window on ideas and products that are no longer relevant.

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