Posted by: goalpath | August 18, 2009

The Generational Demographics Factor Doesn’t Bode Well for a Quick Economic Recovery

Now that Newsweek has declared that the Recession is Over in their latest issue, we should be able to get the economy jump started and America will be back on its way to prosperity right? Not so fast, Virginia.

The Newsweek article is based on the comments of a number of economists that said that according to the latest economic indicators the economy had stopped contracting. So they are basically saying the since the economy is no longer shrinking, we can assume the recession is over. That is all well and good, but when can we expect to see economic growth start back up in America? Unfortunately, when you look at the demographic factors, the chance of economic growth doesn’t look all that promising in the near future.

That is where the Generational Demographics begin to kick into play. The economic downturn which was basically the result of both deregulation of the securities and financial services industry 10 or so years back, along with excessive greed on the part of both Wall Street and the banking industry. The resulting downturn has put a significant damper on the free spending habits of the Baby Boomer generation. They have seen the devaluation of their most valuable assets like their homes’, their 401K’s and stock portfolios. Add to that the fact that their gainful employment, if they are still employed, is anything but guaranteed in the coming years, and it is easy to understand why they have reigned in their free spending habits of the past.

Since a large proportion of the Boomers have been in their prime with regard to earnings and consumption for the last 18 years, most prognosticators predicted that the Boomers would continue accumulating wealth and buying whatever they wanted until they got close to retirement. The majority of Boomers would retire in the next 10 years or so. Since the Boomer generation covers an 18 year span, a lot of the leading edge Boomers have already retired and the trailing edge Boomers won’t retire before 2025. But, once they retire, most of them will move into the thrift mode and not spend their money so freely.

Over the last 15 years or so, most Boomers were only concerned with ensuring that their savings, investments and 401K’s were growing at a rate that would satisfy their retirement needs. With the decline in value of their primary retirement funds and home values, they are now focusing on shoring up those accounts and not spending their disposable income on anything but the most basic necessities.

This is certainly a major set back for our economy since Baby Boomers were responsible for more than 75% of the GDP growth in America between 1995 and 2005. Last year, Boomers spent approximately $2 trillion on products and services. That amounts to some $400 billion more than any other generation group. With that kind of drop in consumption, the economy can not continue to grow as fast as it had in the previous 20 years without another generation to take up the slack. Gen Xer’s represent a slightly smaller population group and haven’t reached their peak earning potential. They won’t be able to power up America’s next economic growth spurt all by themselves.

But in reality, that is not the biggest issue here. The real problem is not who will replace the Boomers as the next wave of free spending consumers. The problem is that the economic downturn has caused the Boomers to rethink their strategies with regard to saving and spending to such an extent that when the economic recovery begins, the Boomers’ consumption will not ramp back up to where it was before the downturn. The Boomers are too concerned about their ability to retire and enjoy the lifestyle they had envisioned prior to the economic downturn.

It is reminiscent of our parents and how they changed their saving and spending habits after the Great Depression of the thirties. So what can we do to get America back on track and restart our economic engine? A great many economists discount the Boomers’ ability to kickstart the economy with new technologies like biotech, biomed, alternative energies, environmental remediation, alternative power plants, etc. They say the Boomers are past their prime and can’t provide the innovation required to create these new business sectors. They don’t believe the Gen’xers or Millennials can get it done either.

So, I guess we are doomed if some techno wizard doesn’t step in and invent a whole new industry segment. It should be evident that the Boomers alone can’t restart the economic engine. However, Americans have never stepped away from a challenge. It will have to be a multi-generational effort. If we put our considerable talents and expertise to work on meeting this challenge, maybe, just maybe we can return America to its leadership position in the world.

And if you are selling or marketing products to consumers, I would strongly suggest you segment your markets by generation and see to it that your value proposition zeros in on the exact needs of your target customers and the campaign optimizes your return. You also will need to ensure that your market share grows not only domestically, but internationally as well. The pie is smaller, so you will have to work smarter and harder to grow your business and grow America’s GDP. Your country expects nothing less.

What’s your take on this issue? Inquiring minds want to know. Comment on this blog or any one of our polling questions. Also check out the latest articles and content on our homepage. We are always looking for Baby Boomers with an opinion that don’t mind speaking out and can successfully complete a sentence.

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