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19 Jan. 2012 | Comments (0)

When will the economy pick up? Are the stimulus packages being considered the right ones? Where should I invest? What strategies should my company follow to get back on track as quickly as possible?

Here's the sobering reality we all need to consider as we shape personal, business, and policy decisions this year: demographics support a view of a slower-growing rate of consumption, not just for this year, but for at least the next decade or so in the United States, Europe, and even parts of Eastern Asia.

The number of big spenders is decreasing.

Historically, consumers in their forties and early fifties spend the most money. This is when most people move up to bigger homes, furnish those homes, and support their growing children's economic needs for goods and services, including education. It's also when most people reach their peak earnings, thus reinforcing the propensity to spend.

The unshakable fact, impervious to any stimulus, is that the number of people in this "big spender" age group is declining in many parts of the world.

Harry S. Dent, an investment advisor, draws the line even more narrowly. Using data from the United Nations, he tracks the number of people from age 46 to 50 in countries around the world, as a proxy for growth in consumer spending in each economy. (See Changing Global Demographics, H.S. Dent Publishing, 2007.)

This narrower age range, 46-50 year olds, will decline in number in the United States for the next twenty five years, until about 2035, when members of Generation Y will begin to enter this age category - and will decline in Europe for the foreseeable future.

Clearly looking only at the 46-50 year old age group is a narrow cut at spending patterns - people typically begin to spend more throughout their thirties and early forties. However, an indisputable fact is that the big bulge of high-spending Boomers is moving out of peak spending years, replaced by members of the much smaller Generation X.

And, to add to the conservative picture going forward, members of Generation X have already proven to be cautious spenders. Between 2000 and 2004, the average U.S. household boosted its spending by 4 percent. But the vast majority of this growth came from Boomers; the spending of householders aged 25 to 34 did not increase at all and the spending of householders aged 35 to 44 increased only 1.8 percent, less than half the average rate.

As Boomers move out of peak spending years, Generation X's smaller number and more conservative spending habits will dampen economic conditions compared to the upbeat decades past when Boomers where fully engaged in the accumulation of worldly possessions.

What does this all mean for you, your business, and your country? Here are a few of my thoughts; please join in with yours.

Trying to stimulate consumer consumption, as was attempted last year, is unlikely to be effective or, at a minimum, focuses on a lever that is not sustainable long-term. The cards are stacked against this approach.

A successful economic rebound will require developing goods and services that can be sold to economies that do have significant upside in consumer spending. (There is significant growth ahead in the number of 46-50 year olds in India, for example.) Given the demands these growing economies will place on global energy consumption, the newly-offered products must be green.

Most of us should settle in and plan to stay in our current homes for a decade or so. The housing market in the U.S. is unlikely to rebound fully until Gen Y's are ready for home ownership. For large, expensive homes, the uptick is several decades away.

Investment strategies should echo these patterns - housing should be viewed as a long-term investment; technology applicable in developing economies should provide the quickest upside.

Business strategies should reflect an assumption of low- or no-growth in major markets.

Demographic trends would indicate that the economy that emerges throughout 2009 will be substantially different that the economy of the past thirty years. What do you think will be most important for personal and professional success?

This blog first appeared on Harvard Business Review on 1/24/2009.

  • About the Author:Tammy Erickson

    Tammy Erickson

    Tamara J. Erickson has authored the books Retire Retirement, Plugged In, and What's Next, Gen X?. She is the co-author of four Harvard Business Review articles and the book Workforce Crisis.…

    Full Bio | More from Tammy Erickson


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