Economists often describe the trajectory of the economy using letters to describe the strength or weakness of the market. The visual framework helps us to process the main theme quickly and depicts the Gross Domestic Product (GDP) or employment levels over a period of time.
Some of the most common letter shapes referenced include V, U and W. V-shaped represents a rapid decline followed by a sharp recovery, like the three-month COVID decline in 2020. A U-shaped economy describes a longer prolonged decline where the economy stagnates at the bottom before recovering. W-shaped is the feared, double-dip recession, such as the 1980-1982 recession. New modern descriptions include a K-shaped economy which describes an unequal market recovery in which socioeconomic groups recover with different outcomes – think, the rich get richer, and the poor get poorer.i
However, the alphabet soup just got a new letter, “G.” Visually I initially wondered how the economy goes backwards after the bottom of the G swoops up. However, a G-shaped economy actually stands for “generational.” Economists are noticing a societal trend in which older, financially stable Americans are needed to monetarily support younger adult children and grandchildren. Part of this is the result of the affordability
crisis in America. Zillow recently reported that the median home sales price in Orange County, CA is $1.25 million, up 3.5% year-over-year. A realtor said that some $1m homes sold in the county are considered “teardowns” purchased for the land, with the intention to rebuild.ii
Recent statistics have puzzled analysts because market sentiment has stooped to record lows and disposable income has flattened with inflation, but consumer spending has continued, pushing the stock market higher. The G-shaped economy has exposed that Baby Boomers born between 1946-1964 are being tapped as a fiscal resource to close the gap for the next generations. A study by USA Today noted that Boomers account for
51% of American wealth, including real estate, stock, retirement savings, and other assets valued at approximately $90 trillion in 2025.iii
Parents helping children and grandchildren isn’t a new trend, but the pecuniary dependency to support the living costs and lifestyles of the financial strained next generation have never been so high. This trend reminds us that financial planning is much more than just individual wealth metrics like portfolio return. Rather, prudent financial planning looks at the bigger picture of multi-generational wealth coordination in conjunction with current tax laws and integration of economic forecasting. Our political system also needs meaningful modernization to create a new structure that benefits the majority instead of the 1%, but that is a longer discussion.
If you’d like a financial check-up, please reach out to your Certified Financial Planner™ or CPA Personal Financial Specialist to explore multi-generational planning, utilization of lifetime gift tax exclusions, funding tax-advantaged educational vehicles and other financial milestones that may help your family for generations to come. Whatever the call, we’re here to help you make sense of it all.
Sources:
i https://greenspringadvisors.com/insight/the-alphabet-soup-of-economic-recoveries/
ii https://www.zillow.com/home-values/1286/orange-county-ca/
iii https://www.msn.com/en-us/news/other/what-s-a-g-shaped-economy-and-are-we-in-one/ar-AA24pApZ?ocid=entnewsntp&pc=U531&cvid=6a1efc4dbed643ba815078d270120931&ei=33