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Hey, Baby Boomers!  Marketers Still Put You First!

Jaane Remes, Baby Boomers

With Jaana Remes, Economist and Partner at McKinsey Global Institute

We live in a rapidly changing world with global and technology influences and innovations becoming passe before they even get a chance to become the norm. In fact, the norm is a term that is becoming passe by definition.

Jaana Remes, a partner at the McKinsey Global Institute, says we are in a time of great flux regarding consumer spending around the world and, in particular, in our own national backyard.

The results of a recent McKinsey comprehensive survey revealed the three major groups that will be shaping future global consumption:

  1. The aging and retirement of the developed world
  2. China’s working-age consumers raised in post-reform China
  3. Working-age consumers in the US, the so-called millennials

The surprising takeaway from the study of this survey is that companies are focusing more and more of their advertising and promotion on the first group, the aging and retiring baby boomers, who will account for a much larger percentage of consumer spending than the present working-age population.

Even in the housing market, nearly half of all renovations are done by the over 55 group who, instead of downsizing or relocating to “Golden Pond” communities, are aging in place, in their present homes.

This shift away from the glorification and pandering to the youth market on behalf of companies can be attributed to the reality that many millennials and even Gen Xers are struggling financially. Unlike the boomers who came of age during a relatively simple and economically predictable time, millennials had to launch their careers during the difficult period of the last eight years and most of them may never reach the level of success of their parents’ generation.

Jaana also points out that this growing older generation, the over-60s with an ever-increasing life expectancy, will be different from those in the past due to several factors. One is an inequality between those being financially secure and those who are not, since this is the first generation that has had to be proactive about setting up retirement funds.  In the housing sector, there will be more multi-generational housing based on ethnic diversity but also more single households due to the high divorce rate among boomers.

The full extent of the findings of the McKinsey survey can be found at mckinsey.com.

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

Read The Entire Transcript Here

Steve Pomeranz: You know I’m always reporting and discussing this vast changing economy and this fast changing world of money.  Recently, I had Steve Case, the founder of AOL on the show.  He made the case for a 3rd wave of the internet, describing how the pace of change is accelerating from the old economy to the new.  There’s some new information around, as far as the way consumers are spending and as the world changes and ages.  To this effect, I’ll ask my next guest, Jaana Remes, to join us. Jaana is a McKinsey Global Institute Partner.  She’s going to discuss a survey that they did, a comprehensive survey, which captured the real state of consumers spending trends. Welcome to the show.

Jaana Remes: Thank you so much, Steve, for having me.

Steve Pomeranz: First, tell us about this survey.  Give us a good idea of what you guys did.

Jaana Remes: We are in one of those moments, indeed, as you said, where things are changing.  We have had China’s investment boom of the last 15 years come to a slow end.  It’s time for us to start thinking where the next wave of growth is going to come from.  It really will have to come from consumers who are going to be the next wave of global growth.  When we started to reflect on that, where exactly the consumers will be who will have the numbers and the spending power to really fuel expansion and growth.

We found that there were three big groups that really will shape more than half of global consumption growth.  It’s the developed world retiring and elderly, whose numbers are growing like 30%, that’s the baby boomer’s age, China’s working-age consumers that by 2030 all of them will have lived all of their life in the post-reform China.  It’s a very different cohort, unless the North American working-age consumers or millennials will replace baby boomers.

Steve Pomeranz: An interesting statement was made in the survey, and I want to quote it because to me this … this actually surprised me, but I quote, “The glamorization of youth by marketers and advertising buyers is a vestige of the past.” I’m a baby boomer myself and all the marketing in my whole life has been geared towards the youth and being young and vital, but now I guess millennials are really not doing as well as their parents or as their parents were doing at their age.  That’s not really the market anymore.  Am I stating that correctly?

Jaana Remes: You are indeed.  Even though the working-age consumers today across the developed world in the US are by far the largest spending groups as the baby boomers’ age, the 60+ age group will generate a 5th of global consumption growth in the next 15 years.  The working-age population that includes the millennials and more only generate 10% in North America.  I think that’s a big gap.  When we’re thinking about where the scale and consumption are going to come from, it really will come from a consumer group that a lot of companies and a lot of other groups in the society have not really focused on as much in the past.

Steve Pomeranz: Those companies that are in the consumer business, you’re suggesting—or are suggesting from the survey—they really should start concentrating more and more on the aging adult population because they’re the ones with the money relative to millennials, and really move away from this youth marketing that we’ve seen for so many years.

Jaana Remes: Indeed.  Just to give you some numbers, the 60+ year-old consumers will generate more than 40% of demand for food and drinks, personal care, entertainment, but also in housing and transportation.  The already 50+ year-olds already buy almost 2/3 of all new cars sold.  Even if things like housing renovations, which we tend to think of people doing relatively early stage of establishing their families, now almost half of all house renovations are done by people 55+.  It’s partially because many of these folks are now thinking about aging in place, of making their homes accommodate new needs as they become older.

Steve Pomeranz: Which I think has ramifications for those in the real estate business because if more of the older individuals are really not moving and downsizing, they’re just aging in place, as you said, a lot of that burden is going to be on the millennials, which is demographically or economically a weaker demographic.

Jaana Remes: Absolutely.  I think that is the flip side of it.  Even though we hear a lot about the millennials and their new power in numbers, this is actually the first generation that now is poorer than the previous one.  The average millennial at 27 is earning $4,000 less than the Gen X-ers did at the same age.  This is a generation that is more indebted, their incomes are lower, their student loans are higher, they’re more unemployed in many of the segments.  It really has been a tough time to come to the work market, to the workplace, and it has really beat millennial generation quite hard.

Steve Pomeranz: I don’t know if this is the place to examine this kind of thing, but I just wonder how much of the millennial’s current situation has to do with the fact that the last eight years have just been so tough, economically speaking.  I think as we come out of that shock of the great crash in 2008, things are going to improve as the years progress.  I don’t think we’ve got this, perhaps, dire trend that’s never going to change.  I think it’s just a function of world economic events over the last 10 years.  Would you agree or disagree with that?

Jaana Remes: I think things will improve.  However, there are two things to keep in mind as we look ahead.  The first one is that there’s very strong evidence that the first five years of when you enter the labor market, your first job, the kind of training you get, just had a lasting impact on your earning power for the rest of your life.  Surely, that cohort is going to pay an economic cost for the tough times.  We have seen that happen before in the US, as well as elsewhere.

The 2nd thought—and this is particularly important for companies who are thinking about this cohort—is that when you’re young you generate a lot of your attitudes towards how and where do you buy, how cost conscious you are, for example.  It is very clear that this cohort is paying more attention on prices of the purchases they make.  They are more careful about how they spend their money.  It is exactly what we saw in the generations, for example, that came of age right after the World War Two or tough times, and which was just the flip side of the baby boomer generation, that when they were young, times were largely very, very good.

I think there will be a change going forward.  It’s an interesting question, not just for the millennials, how are they going to be different than the previous young folks.  A very interesting question is how the elderly will be different from the older groups we see today.

Steve Pomeranz: Give us one example of how the elderly will be different.  In general, the elderly, or the older generation, the over 60, are going to be wealthier for the most part.  How is that going to be different?  I know you mentioned consumer spending.  Is there some other area that you see some change on the horizon with these new demographics?

Jaana Remes: Absolutely.  First of all, even though they will be as a group of big spenders, it is also the age group that has always been most unequal.  The elderly have some people who have plenty of money to be able to afford the lifestyle they want, but there are others who are not as well-prepared.  This is going to be even more the case as the baby boomers age because we estimated 2/3 of the people approaching retirement age are not financially ready.  Given that this is also the first generation that has had to save their own retirement savings because we’ve shifted from defined benefits to defined contributions, we will probably see that inequality only rise. There’s going to be a divergence on those experiences.  That’s one.

Second example is that we will see more ethnic diversity in the group.  We’ll see much more, for example, the share of Hispanic elderly is going to rise from 7% to 18% in the next 15 years.  I think that will have implications for many things, including housing arrangements, things like multigenerational housing where we see significant differences across the ethnic groups.

Steve Pomeranz: What are one of those differences you see in the Hispanic demographic about housing?

Jaana Remes: For example, multigenerational housing.  The share of Hispanic families living in multigenerational housing is higher.  That means that, in particularly in cities where you see a high share of Hispanic and some other particularly recent immigrant communities, we expect to see more demand for housing that accommodates shorter family configuration.  On the other flip side, on the elderly, on the housing side specifically, the other characteristics of this age group is it will have more single elderly, simply because of the fact that baby boomers have much higher divorce rates than the previous generations who aged.

That means there’s going to be single households, single houses, which translates into a different capacity to pay for housing as well as to care for housing.  It’ll also care for health and other needs for the folks.  It will change the environment of cities where many of the elderly live.  Last example, it’s kind of an exciting opportunity, particularly for the older consumers, is that as their numbers rise, many of the small niche markets will become more attractive because there’s just more people in almost all categories as the number of older folks grows.  Just to give another example again on the real estate market.

We are very likely to see much poorer offerings of retirement houses.  In my neighborhood in San Francisco, we have retirement homes that cater for Chinese retirees that have language skills in the care personnel as well as activities from Tai Chi to calligraphy. It’s a very tailored offering.  On the other hand, in Livingston, Texas, there is a community where you can drive in your own RV and get healthcare and food services provided to your home because you don’t want to move away from a place that’s become dear to you.  There’s going to be different arrangements that are not just what we have traditionally thought of as the Sunbelt Retirement Communities, for example.

Steve Pomeranz: Leave it to the entrepreneurs of this world to figure out how to make money on all these different niches.  This is an important survey, which is why I’ve asked Jaana to join me today.  Unfortunately, we’re out of time. Jaana, if I was running a business, I would want to know more about the survey, I’d want to know what things that I would need to do in order to benefit from these emerging trends.  What website can people go to in order to see the survey?

Jaana Remes: It would be on our website at www.mckinsey.com M-C-K-I-N-S-E-Y [dot] com.  The name of the report is Urban World.

Steve Pomeranz: Urban World. Of course, we’ll put this up on our website nice and clearly, so don’t forget to visit us at onthemoneyradio.org and join our conversation.  Thanks, Jaana, thanks for joining us.

Jaana Remes:       Thank you so much, Steve.