It sounds like a no-brainer, encouraging members of the large and aging baby boomer population to think about starting their own businesses. After all, many have the capital and experience you would be hard pressed to find in even the most promising of millennial entrepreneurs.
Not surprisingly, a movement has emerged over the last couple years to support entrepreneurship specifically among older individuals.
Karen Mills, the former head of the Small Business Administration, spearheaded the push with new programs tailored for what she called “encore entrepreneurs.” Congress has introduced legislation called the Empowering Encore Entrepreneurs Act, calling for more support for business owners over the age of 50. Even AARP has joined the party, partnering with the federal government to develop training programs for older individuals interested in starting a company.
“Boomers have been, and will continue to be, an entrepreneurial generation,” researchers from the Kauffman Foundation, an entrepreneurship research and advocacy group, wrote in a report released last week. “As they work longer and live longer, boomers also will be entrepreneurs for longer.”
But is that really such a good idea? One expert isn’t so sure.
During an event last week touting the Kauffman report, William Galston, a senior fellow at the Brookings Institute, played devil’s advocate – and convincingly so – in a debate over whether sound public policy should encourage aging and retiring workers to extend their careers by starting new companies. At the very least, he said to those trumpeting the encore entrepreneurship movement, “let’s curb our enthusiasm.”
Galston started by noting that many boomers’ savings were hit hard by the recession, and today, the average American household now has only around $25,000 in savings and investments (excluding home and pension benefits), as shown in research by the Employee Benefit Research Institute. American households comprised of individuals in their 50s and 60s now have markedly smaller net worth on average than similar households in the 1980s.
“Do we really want to encourage people of relatively limited means to draw down their home equity?” Galston asked at the event in Washington, later noting that “we’ve been down that road before.” He continued: “Do we really want them to draw down their savings? Do we want them to go into debt at a time of life when recovery is much harder?”
Indeed, it stands to reason that older entrepreneurs have a shorter window in which to bounce back financially from a failed business venture. In part, Galston said, it’s that limited recovery time that has resulted in most business owners making the leap while in their 30’s and 40’s.
“There are stages of life, and those stages of life are characterized, among other things, by different perceptions of the right balance between risk and security,” Galston said. “When you’re younger, you are less likely to have people dependent on you if you fail, and you have more time to recover if you fail.”
Consequently, he said: “It is rational to take risks when you are younger. It is less rational to take those same risks when you’re older.”
Rep. Tulsi Gabbard (D-Haw.), who sat on a panel with Galston at the forum, raised another important concern about the underlying priorities – rather than the economic implications – of older entrepreneurs starting businesses.
“One of the things we hear in the halls of Congress is that the boomer generation is less engaged and involved with seeking long-term solutions; ones that address a problem not just for the next 10 years, maybe, but really for the next generation,” she said. “How do we solve that problem and get the boomer generation invested and interested in the impact not only for the rest of their lifetimes, but for the lifetimes of their children and grandchildren?”
Rather than helping kickstart the nation’s sputtering entrepreneurship economy, Galston warned that the aging boomer generation may further clog the engine. He noted that, with the retirement of the boomers, the size of the U.S. labor force will shrink over the coming decades, potentially slowing economic output. At the same time, their increased dependency on services like Medicare and Social Security will pose additional problems for the country, further threatening the economy.
“Slow economic growth means less opportunity for entrepreneurship and new businesses,” Galston said.
It wasn’t all doom and gloom from Galston, though. He argued that baby boomers can play a potentially vital role to play in the country’s economic and entrepreneurship recoveries – but as investors, not start-up founders and business owners.
“In my view, the most significant contribution to entrepreneurship that boomers will make is with capital in the right tail of the economic distribution curve that might conceivably be devoted to entrepreneurial investments,” Galston said. He later urged policymakers to look for ways to encourage older, wealthy individuals to invest more money into early-stage companies, such as tweaking estate (death) tax laws in a way that would tax the passing of start-up investments at a lower rate.
“That would provide some incentives for boomers in the top third of the economic distribution to make more of their capital available to entrepreneurs,” he said.