Education debt figures to delay millennial boaters

The conversation took place maybe a dozen or more years ago at a Trade Only roundtable meeting at the Miami boat show. We were having a discussion with industry leaders on a wide range of issues, including the ascendancy of the baby-boom generation.
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The conversation took place maybe a dozen or more years ago at a Trade Only roundtable meeting at the Miami boat show. We were having a discussion with industry leaders on a wide range of issues, including the ascendancy of the baby-boom generation.

Back then, the boomers were fast becoming a force to be reckoned with, and there was a lot of talk about the largest transfer of wealth in the history of the world taking place between the Greatest Generation and the boomer bunch. Anyway, everybody was feeling pretty good about what it all meant for the future of boating — and they were right.

Looking toward a more distant horizon, I remember asking the panel what happens once the boomers depart. Were they concerned? Who would take their place? It was as if I had broken wind in church. The question got pooh-poohed, and we returned to more immediate issues. It would be years before the phrase “millennial generation” would be coined.

You can no more hold back a demographic tidal wave, be it the one sweeping boomers into retirement or the one moving millennials to the fore, than you can stop an actual tsunami. Today we’re all wrestling with exactly who or what comes after the boomers. How will the millennials take to the water?

In a briefing paper earlier this summer titled Build & They Will Come, Yardeni Research’s Melissa Tag analyzed the current demographic profile of the housing market.

What I found particularly interesting was the Yardeni discussion of the typical generational progression into homeownership and what implications we might draw from that regarding traditional boat ownership.

Based on experience, Yardeni says the generational progression in housing should unfold as follows, with the bracketed material being my additions: “The millennials (in their 20s and 30s) should start moving out of their rental apartments and buy their first homes. [This is when many us bought our first boat.] Gen Xers (now in their 30s and 40s) should trade up from their starter homes to get more rooms for their growing families [remember 2-foot-itis?]. The baby boomers (in their 50s and 60s) should begin their retirements, downsizing into condos and apartments [and smaller boats, perhaps?].”

This natural progression, says Yardeni, has been disrupted by the lingering impact of the financial crisis and demographic factors, including those affecting the millennials, who are straddled with a boatload of student debt. That’s the downside of being the most educated generation in history.

The Pew Research Center estimates that about 37 percent of U.S. households headed by an adult younger than 40 have some student debt, according to Yardeni, which provides investment strategy and economic research for institutional investors. Although the median amount of outstanding debt is about $13,000, a Harvard housing report found that 19 percent of those between 20 and 39 with student loans had at least $50,000 in debt, notes Yardeni.

With so many young people struggling to repay existing debt and other recurring expenses, such as rent (and perhaps also trying to save money for a down payment on a home), it’s not a stretch to say that many millennials are not yet strong prospects for boat ownership. And that’s a concern. They are reaching the age when many of us bought our first boats.

There is a direct correlation between new-home sales and new-boat sales, and NMMA president Thom Dammrich has long maintained that the new-boat market won’t fully recover until housing does. Dammrich told Trade Only associate editor Reagan Haynes that student loan debt and the interest on it was a big issue for both the nation and the industry (see Page 24). Reduce the interest rate on student loans, Dammrich maintains, and you’ll significantly increase the spending power of millennials, which will impact the housing market and, eventually, new-boat sales.

A fully recovered housing market is the key.

For some time now we’ve seen used boats flow into the preowned market from boomers stepping down in size or getting out of the sport. It’s a natural and inevitable progression when you consider that roughly 10,000 boomers a day are turning 65. Those boats should provide a nice pathway for younger boaters who are either new to the sport or perhaps stepping up in size, although it hasn’t worked out that way with housing.

When it comes to home sales, Yardeni says many Gen Xers aren’t in a position to buy the larger homes that boomers are selling. “Many of them bought their houses prior to the crash and now have little equity to trade up,” Yardeni writes, quoting Harvard’s housing study, which indicates that there are about 15 million owners with less than 20 percent equity.

“Since these owners would be hard-pressed to cover the costs of selling their homes and also come up with a down payment on another property, they are effectively shut out of the housing market,” according to the report.

There have been plenty of studies that suggest millennials prefer experiences to possessions. If that trend holds, it should mean a spike in business for boat rental companies such as the Freedom Boat Club and various peer-to-peer operations. Those businesses may prove to be an increasingly affordable and important gateway to boating and eventual ownership for the next generation.

One more thing: The newest largest transfer of wealth in history will now take place during the next three decades between boomers and their children. Inevitably that will float some boats.

This article originally appeared in the September 2015 issue.

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