Saving Boomer Businesses
In today's day and age, with the young entrepreneurs of Spotify and Instagram, many assume starting a business is for the younger generation. Some believe their new ideas and social media savvy-nature provide the perfect combination for entrepreneurship.
Contrary to conventional wisdom, baby boomers are more likely than millennials to own and operate a business. In 2014, 14% of 55- to 59-year-olds were self-employed compared to about 4% of those aged 25 to 29, a trend gap which has persisted for at least the last quarter century. In fact, the boomers between the ages of 50 and 68 are likely to be America's major entrepreneurial engine.
For example, rates of self-employment increase with age, and the self-employed are far more likely to be middle aged or older; over 62% are at least 45 years old. Some of these workers have been self-employed for much or all of their working lives while others have transitioned to self-employment later in their careers, often as a way of moving into retirement.
However, according to Case Western Reserve Professor Scott Shane, young people may show considerable interest in owning their own business but they lack the money to invest or the work experience to go out on their own. The financing available to entrepreneurs is often easier to get at an older age.
The Bureau of Labor Statistics projects that the 55-and-older population will peak at close to 40% of the total U.S. population in 2020. This raises the question of whether we will see a large increase in boomer entrepreneurship. Interestingly, it may not be the case.
According to a study by Indiana University economist Bradley Heim commissioned by the SBA's Office of Advocacy, the self-employment rate among individuals nearing retirement has dropped substantially in the past 20 years. The self-employment rate among individuals aged 55 to 64 went from 18% in 1994 to 14.3% in 2012.
The study cited several factors behind the decline, including older self-employed individuals are switching to wage-earning jobs, fewer, younger baby boomers (those at 55) are choosing self-employment and the high cost of health insurance is creating a job lock where individuals are hesitant to leave jobs that provide health insurance.
There are some ways to release the brakes and unleash boomers’ potential to start businesses. For instance, healthcare reform may free would-be entrepreneurs from job lock. In addition, financial education and training may show boomers how to leverage their resources to start a business, especially in the wake of the housing crisis when home equity is no longer the deep cushion.
Credit unions can play a significant role in helping boomers realize their entrepreneurial potential. In addition to providing much-needed capital, they may supply one-on-one counseling and referrals to other experts. While banks’ small business lending declined during the economic downturn, credit unions have become a bigger player in this area.
A 2011 study by UC-Berkeley business professor James Wilcox for SBA's Office of Advocacy found that credit unions have partly offset the recent decrease in small business lending by banks.
Credit unions can help finance startups by providing personal loans based on home equity or personal assets. After startup, they can provide loans for capital equipment, buildings, and other business needs.
Overall, long-term, sustained economic growth and a complete housing recovery may be the key drivers of future entrepreneurship. A healthy small business lending environment, which includes credit unions, can also play a prominent role in reviving baby boomer entrepreneurship.
Jules Lichtenstein is senior economist with the SBA's Office of Advocacy. He can be reached at firstname.lastname@example.org or 202-205-6941.