Baby boom and gloom

This is the title of an article in today’s FT. You need a subscription so I will summarise the main points.

The link between demographics and financial markets is based on the life cycle theory of investment; young people borrow, the middle aged save and the elderly run down their savings.

As the baby boomer generation retires the ratio of dependents is set to rise, savings decline implying the cost of money (interest) will increase.

The popping of the dotcom bubble in 2000 coincided with a peak in savings, as the baby boomers retire and start to live from their savings, the real share prices should decline.

This article is written from the perspective of the effect of aging on the financial markets. I am more concerned with the impact this has on the level of consumer expenditure and what this means to marketing. In the short term the biggest threat is an increase in interest rates and what this means to the different age groups. To my simple mind it appears the older you are the less impact it has on your level of demand. In fact, it has the opposite effect since older people tend to hold interest bearing investments. Since older people have paid for their homes and funded their children’s education their demand for debt is less. At the other end of the age spectrum the sensitivity to interest rates starts young as most students now leave further education with high debt levels.

I think “age/interest-rate sensitivity” is something we might hear more about. Dick Stroud www.20plus30.com