Changing Demographics and Rethinking Growth
It was dark and stormy night…so I did what anyone would do: I turned on C-Span radio to catch the day’s legislative news. Predictably, the discussion was on federal budget negotiations – and that’s enough to scare anybody. Or to knock ’em out cold behind the wheel, right?
But far from feeling dopey, I caught myself whacking the steering wheel and saying to the radio, “You don’t get it. YOU REALLY DON’T GET IT.” Policy wonks’ assumptions are wrong, just plain wrong…if I may make so bold as to suggest.
Historically, economic growth has been measured by the production of stuff – goods and services – over time. As consumers consume, producers produce. This makes the economy grow, and everyone benefits economically.
At least that’s how it’s always worked. In fact, from 1982-2007, household consumption of “stuff” comprised 71% of GDP. That’s a whoppin’ big piece of the pie.
But what if the world has changed? And, what if, in this new world, consumers don’t consume the stuff producers produce?
First off, why would I ask this?
It turns out, prime spending years are from ages 25 to 54. During those years people buy homes and furnish them, buy used cars and then new ones, pay for weddings, make babies, pay for school and school supplies, pay for swimming lessons and piano lessons, feed teenagers, pay for braces and for glasses, feed teenagers, spend on family vacations, feed teenagers, pay for college…and all the rest. Household consumption peaks at age 55, and then falls sharply thereafter as kids leave home.
But now, 77 million boomers are over the age of 55, and the oldest boomers have already retired. Already 25% of the population is aged 55 or older, and new boomers join the over-55 crowd daily. So, barring some heretofore uncharted spending pattern, growth inevitably will be dramatically slower than in decades past. If producers are waiting for Americans to get back to the business of consumerism as usual, they’re going to be massively disappointed.
The same theme always comes up when talking heads talk, namely that of “getting the economy back on track.” But there is no track leading from where we’ve been to where we’re going. We need new track. Gone is the age of “If you build it, they will consume.”
What doesn’t work
The watching world has in Japan the perfect field test. Quantitative easing doesn’t work. Hot marketing doesn’t work. Nor does bringing on line more, cool, wants-based stuff. Austerity measures and spending cuts do not work, and neither does cutting – or raising – taxes. These measures didn’t work in Japan, and they’re not going to work in the west.
What is likely to work
A new day has dawned, and that that new day is “old.” Consumer habits have changed.
Rather then buying new stuff, older consumers tend to repair things, so a replacement market will always be around. But that market is a drop in the bucket of what is needed to float a massive economy. However, all stuff eventually wears out, so this is can be a “golden age” of engineering new products and services to meet the needs of the aging.
Another pattern of note is that as aging buyers shop, purchases typically are less wants-based and more needs-based, and value is selected over luxury. As I shop, it seems to me the marketplace has not really grasped this.
We are a nation that rises to meet challenges, and lying before us is an exciting age of invention and innovation – if we play our cards right. The economics of the future will be driven by very different dynamics than were those of the past. But, with extended life expectancy, new technologies, and the best-educated, most sophisticated group of older adults ever to walk the earth we have an enormous pool of wisdom, experience, and creativity. If we do this right, the next decades are going to be a creative powerhouse.
I, of course, never sign off without a word about reverse mortgage. Increasingly, reverse mortgage is used as part of a sound retirement plan to get our parents, our neighbors, and our clients through their retirement years. It can augment financial plans already in place and slow the burn-through rate on other retirement instruments.
If you are, or someone you know is, looking into reverse mortgage, give me a call – I always love hearing from you.
Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant, President’s Club · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem
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