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| AUGUST 2006 NEWSLETTER On the Topic of Key Demographic Statistics It’s been five and a half years since we began using demographics as a way to guide your financial planning. It seems like a lot longer than that doesn’t it? There isn’t room in this month’s newsletter to list all the unpredictable events we’ve encountered since that time. There is room, however, to review some of the big trends that demographics drove and what trends demographics may be driving in the future. Most importantly, which trends should you prepare to take advantage of or protect yourself from? A basic fact to consider is that the largest number of births in America occurred first in 1957, and then again in 1961. The number of births in the US and most other developed countries then began to tail off. So, for easy math, subtract 1960 from whatever year you are planning for. This will give you the average age or peak of the wave (The Age Wave, that is) at that moment in time. The next important fact is that as we age we do predictable things (see chart). For example, we no longer need diapers, or we get married, or we buy our second, and last, most expensive home. So, now you can see that there are a series of waves that the Baby Boom has created, here and around the world. Inflation subsided dramatically as the Boomers ended their periods of “train/educate me”, and “equip/house me” in the early ‘80’s and entered their 20’s full of vim and vigor. It is expensive to ‘pay forward’ for two decades of education. The government borrowed on a huge scale to do this and thus created inflation along with historically high interest rates. The Boomers then spent years developing experience and wisdom that made them very productive and efficient. By age 40, a person typically enters their most productive phase of life. Thus, they have paid back their debt and inflation and interest rates have dropped. Housing and real estate demand has been driven by the natural progression of marriage and family formation since the first Levittown was built back in the 1940’s. As the Greatest Generation began selling their homes to their Baby Boomer children, prices went up. This is because the supply of homes was smaller than the demand. Then compound this phenomenon with the high inflation and interest rates of the time. Remember the Baby Boomers are now in the phase of life when they have no money and have to borrow to buy these homes that have been bid up due to lack of supply. As the family grows, the move-up home becomes necessary. This typically happens at around age 44. The basic math, 1960 plus 44, gives us an explanation for the dramatic increases in residential real estate that may have peaked for now. Notice that the second home and retirement home buying wave typically peaks around age 52 (again, see chart). Immigration is a good thing for the US economy. In fact, the developed countries of Europe are in terrible shape due to the natural infertility of mature cultures. We have had a huge influx of very fertile nuclear families from Hispanic and other countries. This underpinning is our ace in the hole to delay the crumbling of our Social Security and Medicare systems. The demand for everything from consumer goods to housing is the envy of the world’s central bankers. Pay attention to what Italy and France experience as they attempt to fulfill the promises made to their retiring Baby Boomers. Japan’s economy and stock market went into a tailspin when their Baby Boom stopped spending and entered their retirement phase of life. Their peak birth year was approximately ten years earlier than this event. In response, their central bank lowered interest rates to zero, however this still did not cure the economical disease caused by low consumer spending. That’s all for now. We hope you enjoy the remainder of your summer, and we look forward to speaking with you soon. Until next month: Take care.  | |
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The path Ahead
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Key Demographic Statistics
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Revising Dent's Expectations
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Service Integrations
IRA ADVISOR NEWSLETTER 2006
Trow profiled in the April Newsletter
MATTHEWS ASIA NOW
NEWSLETTER 2006
The Demographics Issue
BNET BUSINESS NETWORK 2001
Ready to Retire