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How oldies are killing the world economy - and could yet rescue it

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How oldies are killing the world economy - and could yet rescue it


The challenge of getting affluent retirees to spend their money is the key to future growth in global markets

The Telegraph
By Jeremy Warner
20 October 2014

In China, they call it the inverted three, two, one. Historically, families have followed a pyramid structure of three children, two parents and one surviving grandparent. Yet thanks in part to the one-child policy, the pyramid has for many been turned upside down. In some Chinese cities, a typical family might today consist of three grandparents, two parents and one child.

The oppressive diktats of the state may make China an extreme example of the ageing phenomenon – with a growing proportion of the population aged 65 and over – but it exists more or less everywhere, to a greater or lesser extent. As societies grow more prosperous, people live longer, and because on the whole they no longer need children to look after them in their dotage – throughout much of human history, nature’s form of social safety net – they grow more selfish and have fewer of them.

These same demographic trends are observed in all societies, whatever their religions or cultural norms. Even the Middle East, where you see some of the highest continuing fertility rates, will eventually succumb. For Britain, America and much of Europe, however, the trend is made even worse by the post-war baby boom, which created a giant demographic bulge of people now approaching retirement age.

In most respects, these trends should be seen as a triumph of human progress and advancement. Yet because older people tend to cost more in terms of publicly funded upkeep; spend less; and as a group are a great deal richer than their younger cohorts, they are also creating extreme and hitherto unknown challenges for both public policy and commerce.

For the public finances, it’s mainly downside – a growing health-care and pensions bill, but a proportionately diminishing working-age population of taxpayers to pay for it. For commerce, on the other hand, it is potentially as much of an opportunity as a curse.

According to estimates by Euromonitor, cited by the Financial Times this week, the spending power of the baby-boom generation alone will reach $15 trillion globally by 2020. The number itself may be fairly meaningless, but the direction of travel is clear. This is a huge and (outside the fast-growing market for health and social care) substantially untapped market.

Not only are the over-65s living a lot longer than previous generations, but they are more active and, as a cohort, have an awful lot more money. The challenge for business and, indeed, economic policy is getting the blighters to spend it.

Most people will have encountered some version of this reluctance to consume in the face of evident means to do so. You tell your ageing dad that possibly he ought to consider buying a new suit, only to be told, Victor Meldrew-like, “what’s the point; I’ll be dead in a few years”. The logic is hard to fault. There is indeed little point in buying another suit if you already have three or four perfectly serviceable ones. As people age, they work less and spend less, with profoundly negative consequences for growth.

The phenomenon is seen at its most extreme in deflationary Japan, which is in the vanguard of the ageing process. The causes of Japan’s economic malaise are many and varied, but an exceptionally poor fertility rate is right up there at the top of them. Japan has in a sense become a victim of its own success; the link between a rapidly ageing population that prefers to hoard than to spend and a manifest problem of absent domestic demand is impossible to ignore. Something similar may be about to engulf Germany, and much of the rest of Europe with it – “Japanification”, to use the jargon.

Breaking these links is as much a problem for business as for economic policy. In Japan, there is some hope of fuelling a new growth spurt via breakthroughs in robotics, an industry of the future that panders to Japan’s cultural aversion to mass immigration. Why have an immigrant to look after you in your old age if you can have a servile robot instead?

Besides naturally depressing demand, the grey pound also stands traditional marketing on its head. Most advertising is aimed at young people, not just because historically the young have been the most populous elements of society but because buying habits acquired early in life tend to stick. It’s easier to persuade the impressionable young to buy a particular brand of soap, and costs a great deal less, than it does stuck-in-their-ways retirees. Not only are they a much harder cohort to reach but they are also most unlikely to be buying the product for as long.

In targeting robots, Japan may be on to something, for to coax the affluent elderly into spending, it may be necessary to invent entirely new products that cater specifically to ageing needs and desires. Desktop and mobile computers manage brilliantly to bridge the age divide in a way that many of the commodity products on which advanced economies were built do not.

The challenge for macro-economic policy is not so dissimilar – it is to persuade those with the capacity to support demand through spending to disgorge their wealth, while at the same time putting in place adequate incentives for younger people to save, so that they can be in a position to spend at a later stage.

If there is such a thing as “secular stagnation” in advanced economies, it may have something to do with this growing mismatch. Commendably, the UK government has taken a number of steps to make saving more attractive. It has also removed one potent barrier to pensioner demand by abolishing the obligation to buy an annuity. People can now spend their pension pots as they see fit.

Unfortunately, such measures only scratch the surface. Baby boomers have earned record levels of income, generated great wealth, and spurred huge economic growth. But they have also spent at record levels. Many have also failed to save and accumulated unprecedented levels of debt. The mismatch between generations is mirrored by the divides within them. Many of those approaching retirement age are financially wholly unprepared for what’s coming.

Some governments have attempted to address these shortfalls by abolishing retirement ages. But this has only highlighted an even bigger issue, increasingly untouched by age – the gap between the skilled and the unskilled. Janet Yellen was 67 when she took up her role as chairman of the US Federal Reserve Board of Governors earlier this year. The next president of the United States could be a grandmother.

Age is no longer any barrier to these jobs, yet skills and social position plainly are. The highly educated and well connected can increasingly hope to carry on until they drop, spending and accumulating accordingly. The unskilled manual worker cannot.

These are unfathomable social issues that business cannot consciously hope to solve. One thing commerce is good at, however, is developing new markets. The affluent elderly are there for the plucking. Indeed, they seem to be one of the few genuine growth markets left.

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1 comment :

  1. The sad thing with our current corrupt system, is that as soon as a market reach maturation; they pull the money from the market. Then we find it suffering from increased prices and less services or compromised products...then its dumped.
    There should be huge anti-trust lawsuits....they are taking all of the liquidity out of the market...we suffer, they steal the money.

    They create this...they own the Company Store and they are robbing the people of "what they pay for."

    ReplyDelete

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