Generational Productivity and Spending Waves - the 2020 Vision

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Generational Productivity and Spending Waves - the 2020 Vision

When all is said and done, the health of the economy depends on two factors: first, growing supply; and second, growing demand.

Fortunately, the U.S. economy depends far less today than at any point in its history on producing and consuming everything it needs to be healthy.

But what will happen to the massive $2.1 trillion annual spending power of the Baby Boom generation as the 77 million Boomers reach their senior years? According to futurist and economic analyst Harry S. Dent Jr., the result will be a serious economic retrenchment in the next decade. As his colleague Charles Sizemore explains in a recent edition of H.S. Dent Forecast,1 “Consumer spending is a function of age. We spend increasingly more raising our families until our late 40s, after which time we pare down our spending and save for retirement.”

What this means, according to Dent, is that aging Boomers will spend less than they once did on big-ticket items like houses, cars, and boats, just as previous generations have done. The generation that follows, Generation X, which is only two-thirds the size of the Baby Boom generation, won’t consume as much as the Boomers, leading to a downward spiral: Supply will drop as the number of skilled producers fall, and demand will plummet as fewer people spend fewer dollars on fewer products.

However, Trends has previously documented several reasons why this view is overly pessimistic. We argue that the downshift is not likely to be as big as Dent expects, and its impact is likely to be far more contained than it would have been in prior eras.

First, Boomers aren’t retiring like their parents for eight reasons:

  • The shortage of labor keeps them from being pushed out of the workplace.
  • Progress is so fast that everyone has to be retrained every few years, meaning that Boomers are typically as up-to-date as Xers.
  • “Knowledge work,” which dominates the 21st century economy, does not favor youth, but rather experience.
  • For Boomers, their identity is wrapped up in their jobs, so they feel a sense of loss when they retire, and many of them have no plans to retire in their 60s, or even in their 70s.
  • Boomers never think of themselves as old, and most regard retiring as an admission of being “old.”
  • Boomers are the healthiest generation in history, and only a few of them have a physical need to retire.
  • New technologies and new outsourcing arrangements make it easier for Boomers to become entrepreneurs or freelancers, finally doing what they have always dreamed of doing...

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