Incomes Sept14The New Old 55+ generation is the key demographic for future consumer spending.  Their numbers are rising rapidly as global life expectancy has risen by 50% since 1950.

Over the same period, global fertility rates have halved.  So there will be fewer younger people joining the wealth-creator generation of 25 – 54 year-olds that has historically driven economic growth.

This is very bad news for anyone trying to sell ‘value-added’, ‘premium’ or ‘affordable luxury’ products and services, as a new study by AllianceBernstein makes clear:

“Vast cohorts of elderly people heading into the sunny uplands of their lives does not necessarily imply a bright future for investors”

The reason is highlighted in their chart above:

  • In the developed countries, workers typically reach peak income levels around the age of 45 – 54
  • As we note in Boom, Gloom and the New Normal, spending then reduces on joining the New Old 55+ generation
  • People already own most of what they need, whilst their incomes reduce quite sharply as they enter retirement

As AllianceBernstein highlight, the rise of the New Old means the outlook for consumer spending is even worse in emerging countries:

  •  ”In the emerging economies, people over the age of 45 are increasingly losing their jobs and getting pushed back down to the bottom of the pyramid
  • “And the older workers who are now losing their jobs typically have little or no savings, so instead of living out their lives comfortably, they are falling through the social classes
  • “We believe that this will have a profound impact on the spending power—and preferences — of older people from Chile to China”

Yet until recently, all the experts have tried to persuade us that emerging countries are just about to become ‘middle class’.  But this is only because they choose to define ‘middle class’ as meaning someone with as little as $10/day spending power.  In reality, anyone with this level of income in the developed world would be below the poverty line.

And the true picture is even worse for many older workers in emerging economies, as AllianceBernstein describe:

Unlike in the past, a university degree no longer assures middle-aged workers a bright future, because socioeconomic development is creating a generation of younger people with comparable degrees and better English skills, who are often willing to work for less money.

“Since people in emerging markets are likely to face financial insecurity as they grow older, luxury and leisure goods won’t be priorities. That’s why we think successful consumer companies will be those that understand how to grab a growing share of the older demographic by offering quality products at good value and services such as retirement insurance or cheaper healthcare.

For investors, ageing trends serve as a reminder that traditional research into company fundamentals must be complemented by an understanding of the underlying forces that are shaping the evolution of emerging markets.”

This is further evidence to support our analysis that consumer spending  in the future will focus on core needs such as water, food, health, shelter and mobility.

The New Old are the growth area in terms of numbers, but they won’t have much spare cash.  So affordability and ‘design to cost’ will be the key metrics for success over the next 20 – 30 years.