In the 1970s, the Baby Boom generation discovered condominiums, Cuisinarts, new cars and credit.
Now some economists believe the Baby Boom credit binge may be a factor in the high interest rates the nation has experienced since the late 1970s. And if they're right, are lower interest rates on the distant horizon?
"The qualitative answer would be unambiguously 'yes,' " said Charles Lieberman, a vice president and senior economist for Shearson Lehman Brothers Inc. The current Baby Boomers have "contributed to the demand for credit in all forms," according to Lieberman, and that means a decline in interest rates about 10 years from now when baby-boomers are well into their 40s.
The Baby Boom is defined by economists and demographers as the 64 million infants born between 1946 and 1961 -- those who are now between the ages of 24 and 39.
While the impact of the Baby Boom generation may be higher interest rates, some economists also credit the youth generation with forcing businesses to invest in new plant and equipment to create more goods. They say this, in turn, has created added demand for credit.
Some economists said that interest rates may not actually decline, but they will be lower than they otherwise would have been without the influence of lessened demand. Still others argue that the effect would be negligible.
"The impact is not direct," said Ken Goldstein, an economist with the Conference Board, a New York-based business research organization. He said the impact of the Baby Boom generation will be in terms of narrowing or widening the real costs of money. It will be in the way their buying habits affect other factors such as inflation, which, in turn, will influence interest rates.
Goldstein predicted that interest rates would be changed no more than 1 1/2 percentage points as a result of the Baby Boom.
According to most economists, the main factors affecting interest rates are inflationary expectations, the continuously large federal budget deficit and changes in the banking industry that would increase competition for funds. Other factors are whether the influx of imports is keeping down the demand for business expansion funds, money supply growth, or unexpected disasters such as a drought or banking failures, according to economists.
But the Baby Boomers' demands also affect interest rates, they said.
Interest rates are determined in part by the amount of savings available for loans. Although the United States has a savings rate lower than many countries, it has been able to prevent interest rates from jumping even higher than they are because of the inflow of savings of other countries into certificates of deposits, government and corporate bonds and other assets.
Economists suggest that one reason for the low savings rates was that people under about age 40 tend to borrow more and save less. In this case, an unusually large bulge in the population is under age 40 -- the Baby Boomers.
According to Lieberman, households headed by people under 35 years of age have a negative savings rate. Their savings, in the form of liquid assets such as bank deposits and savings bonds, are negligible, Lieberman said.
For households under age 35, total assets constitute 6.6 percent of total household income before taxes.
This group spends 19.5 percent of its pretax income on housing and 6.2 percent on automobiles. Their net financial investment -- net savings in financial assets less financial liabilities -- is negative 8.3 percent.
In comparison, groups between age 35 and 44 spend 6.3 percent of income on housing and 5.3 percent on automobiles. Their financial investments rose to 2.6 percent.
Savings tend to increase as people get older. Lieberman said people between the ages of 45 and 54 spend 2.4 percent of income on housing, 4.8 percent on autos and have financial investments of 11 percent of their income.
"If you're young, the first priority you have for saving is in the form of durables," Lieberman said. "That first house and that first car put you into debt." Additionally, there are expenses related to children, economists said.
However, Louise Russell, a senior fellow in economic studies at the Brookings Institution and author of "The Baby Boom Generation and the Economy," said the Baby Boom generation has had little effect on interest rates. She said most of the changes are controlled by the Federal Reserve and its monetary policies.
Additionally, she said that any increased credit demands by Baby Boomers have been offset by lessened demands by another fast growing group -- the elderly.
For example, many people attribute the increased demand for housing to Baby Boomers, when it is actually the high divorce rate -- which splits up couples and increases the number of households -- and the tendency for elderly people to stay in their own homes that have led to strong housing demand, Russell said.
"The Baby Boom tended to get credit for anything moving in their direction," but other factors explain what is happening to the economy, Russell said.
Lieberman said in a recent Shearson Lehman Brothers newsletter that the changed demographics of the population in the last 10 years also contributed to the increase in credit outstanding.
"The Baby Boom generation matured during the 1970s and began to engage in the normal gamut of economic activities associated with wage earners," Lieberman wrote. "One element of this activity involves credit cards, the use of which exploded over this period. Most significantly, young adults experience much higher debt-to-income ratios relative to the rest of the population."
Data from the 1983 Federal Reserve Survey of Consumer Finances -- the latest available -- show that more young adults have a debt-to-income ratio between 10 and 19 percent and sometimes above 20 percent than any other age group.
The Federal Reserve said in its June bulletin that "the movement of the Baby Boom generation into the age groups characterized by high rates of family formation, spending and borrowing was approaching a crest as the 1983-84 period got under way." That compared with the 1977-78 period in which the proportion of people in the 35-44 age group had been declining for several years, the Fed said. That group was on the rise at the beginning of 1983, the Fed said.
In 1982, some 29 percent of the population was between 25 and 45 years of age compared with 26 percent in 1977 and 23.5 percent in 1970, the Fed said. However, growth in the oldest age category, "which uses debt sparingly," offset the Baby Boom trend somewhat, the Fed said.
The Baby Boom group -- ages 25 to 44 -- headed 42 percent of the nation's households in 1983 and ranked the highest in proportion of households in debt, the Fed said.
According to Fed calculations, the aggregate level of debt in 1983 was 0.5 percent higher than it would have been had there been no change at all in the population's structure between 1977 and 1983, the Fed report said.
"Marriage rates and birth rates rose 5 to 10 percent from 1977 to 1982, reinforcing the conclusion that demographic trends have been stimulating debt expansion during 1983 and 1984," the Fed said. These rates were higher in the late 1950s, "but current trends appear to be unmistakably upward and should continue to foster consumer credit demands to a small degree."
Other reasons for the increase in consumer debt have been lengthening of loan maturities and growing use of credit cards for convenience.
But Charles A. Luckett, an author of the Fed report, said that the Baby Boom generation's effect on the amount of borrowing was moderate, so "the effect on interest rates is pretty moderate, too."
Does Luckett think that interest rates will decline as the Baby Boom gets older? "I don't know," Luckett said. The effect of an aging population "would be one factor working toward lower rates," particularly if pressure for credit diminishes. But, Luckett said, "It's hard to say."