Colorado Springs Most Entertaining Talk Show
719.633.8483
KRDO Sat. at 8am-9am

Demographics in America: Tsunami

generational             It is an under-appreciated truism that all of history has been leading up to the present. While we can shape our futures, we do so with clay inherited from past generations. Like an earthquake beneath the sea and its resulting tsunami, we know what to expect based on what has already happened, though we may not know its exact features, severity, or duration. We know only that a tsunami is coming. And today, we’re discussing the generational tsunami of the Millennials.

To understand what effect distinct generations can have on America’s broader economy and culture, consider the economy’s performance over the last few decades. Our economy’s two-decade boom from the mid-1980s through 2006 was the direct result of the Baby Boomers entering their productive peaks. Generally, people are at their most productive between the ages of 40 and 60. The first Boomers, born immediately after World War II, entered this stage in the mid-1980s. As the largest generation in American history, the Boomers brought unprecedented levels of productivity and consumption to the US economy, until they began retiring in 2006.

The housing crisis and financial meltdown of 2007-2008 were short-term trends that culminated in a mania and a crash. The aftermath, however, has been the result of long-term macro trends in our economy. The sluggish growth and anemic economic performance of the last six years can be traced directly to one fact: The Baby Boomers are retiring, and Generation X is not large enough to pick up the slack.

When individuals retire, they stop working and they cut back heavily on their consumption, both of which have a detrimental impact on the economy. In the past, each generation was larger than the one preceding it, so the effects of one generation retiring were not felt so acutely. Generation X, however, is almost half as small as the Baby Boomers. The homes, cars, appliances, electronics, etc., that were being sold to Boomers just a few years ago suddenly have a far smaller market. Fewer goods and services are being consumed because the generation currently at its productive peak—Generation X—is not large enough to offset the reduced consumption of the Boomers.

This will change, however, once the Millennials begin to enter their most productive years around the year 2020. At 87 million, the Millennials are the largest generation in US history. They will produce far more than Generation X could, and ideally consume far more as well. Many demographers and economists project this massive influx of productivity and consumption will finally return the economy to a period of robust growth.

There are, unfortunately, some trends that might dampen the Millennials’ contributions to the economy. They are delaying many life decisions until later in life, such as home buying, marriage, and having children. This means all the items and consumables necessary for raising a family—a larger home, more food, children’s clothes, and so on—aren’t being purchased until later. Also, Millennials are deeply in debt—particularly student loan debt. Because of how student debt repayments are structured, many will shoulder a significant debt burden for decades. Rather than contributing to the economy through consumption, their earnings will instead go to banks or the government to service their debt.

Millennials will enter the national stage in due time, but it’s unlikely they will arrive with quite the same vigor and health as previous generations. While their numbers are substantial, there are many factors that may diminish their ultimate impact on the economy. As mentioned earlier, we know what’s coming but not exactly what form it will take. We can, however, make predictions on what form it will take, and that will be the subject of future installments of this series on the Millennial tsunami.

 

7-26-2014 American Tsunami Has Formed Hour 1

71-26-2014 American Tsunami Has Formed Hour 2

Leave a reply

Your email address will not be published. Required fields are marked *

About Jay Garvens

Standing at the intersection of our local real estate market and the nationwide financial industry, Jay Garvens gives you the complete picture of every story affecting today's mortgage market! From personal finances to the political decisions moving markets, tune in for a weekend dose of straight talk from Colorado's most candid mortgage industry commentator! Honest, unbiased, and always unpredictable, Jay explores every facet of today's mortgage industry with an approach that's refreshingly blunt and enormously entertaining!

Follow Jay