The baby boomers are such brutes. This huge generation with its fickle consumer demands floods into a new stage of life and wreaks havoc on unsuspecting marketers. Then it moves on like a tidal wave receding from the shore, and businesses wonder where their customers have gone.
Now the boomers are doing it again. Between 1997 and 2002, the number of U.S. households headed by people aged 25 to 44 will decline by 1.7 million, to 43 million. Meanwhile, the number of householders aged 45 to 64 will increase 5.5 million, to 37 million. By 2008, they will overtake the younger set: 43 million to 40 million, altering the landscape of consumer spending in the 21st century.
As this overstuffed cohort - 77 million Americans now aged 35 to 53 - moves into a new stage of life, it signals fundamental changes that go far beyond the demand for products and services that appeal to middle age, according to new projections. The bottom line? The break up of the once-dominant young adult market: While a modest increase in demand in some product sectors can be expected, fueled by the swelling cohort of boomer children, stagnation may be the cheeriest word for many products aimed at Gen X households. At the same time, mature householders aged 65 and older will gain spending power - not through increasing numbers, but through increasing affluence.
To be sure, changes in age structure, divorce and marriage trends, immigration, and other demographic markers also have a major effect on the patterns of household spending. But life-stage is one of the most important predictors of spending patterns. The benchmarks for this article are estimates of spending by age group taken from the Bureau of Labor Statistics' 1997 Consumer Expenditure Survey (CEX), the most recent data available. Our five-year projections by TGE Demographics, a forecasting firm based in Honeoye Falls, New York, combine population and household trends in order to show where markets are going, and what the most likely levels of household spending will be in 2002.
The projections suggest that as the baby boom leaves youth behind, many markets are likely to be substantially affected in ways that may not have been anticipated. Traditionally, marketers have devoted much of their attention to younger married couples. The high spending of this household segment on a wide range of items is often considered to be the bedrock of consumer demand in the United States, and it has been closely identified with the concept of "mass market." But the face of that mass market has been changing. In 1997, for example, it was householders aged 35 to 44 who had the highest aggregate spending in seven major categories identified by the CEX. By 2002, householders aged 45 to 54 will be the biggest aggregate spenders in three of those categories - health care, transportation, and entertainment. And their spending will be nearly equal to the 35-to-44-year-old households in food and apparel.
In other words, those notoriously self-absorbed boomers are preparing for life after work and parenthood, when there will be even more time to focus on - what else? - themselves. The number of "empty nest" households will increase 19 percent, or twice as fast as the national average in the next decade, and empty nesters could become the nation's most common type of household.
And once the kids leave home, married couples often find themselves enjoying a big increase in spending money. This is especially true for two-paycheck marriages, which are the rule among married couples younger than 65. Empty nesters may not spend as much in total on food as active parents do, for example, but they spend more per capita. They are prime consumers for gourmet foods, high-quality fresh foods, and take-out from restaurants and supermarkets. Householders aged 45 to 64 claimed 36.5 percent of spending on food away from home in 1997, and they are expected to jump to 40.8 percent of that market by 2002.
In general, people in the empty nest stage are also highly focused on feathering that nest. Spending on household furnishings and equipment is high among couples aged 45 to 64: They claim 38.3 percent of this market now, and may increase their share to 42.9 percent by 2002. They also have a keen interest in preserving their appearance, health, and well-being as the aches and pains of age begin mounting up.
But the boomers are not the only market in America. In fact, only about four in ten U.S. households are headed by boomers. While marketers are often obsessed by this generation, there are four others now active as adult consumers, and some non-boomer markets will hold up better than a cursory glance at the projections would predict. In particular, our data also show that generations older than the baby boom are gaining in consumer power, so that robust spending on some products may be emerging among householders in their 70s and 80s.
new youth markets
The youngest householders belong to a generation demographers call the echo boom, because most of them are the children of baby boomers. This is a large group of 72 million people now between the ages of 5 and 22. Echo boomers are currently forming their first households, and the number headed by someone younger than age 25 should increase by about 600,000 between 1997 and 2002.
The share of all households headed by someone in the youngest group will also increase slightly, from 7.1 percent to 7.3 percent, driving up total household spending of that age group by about $11.5 billion. This modest growth will be a welcome change for marketers who court the young, because the smaller baby bust generation has been pushing spending down for the last decade.
Householders under the age of 25 claim less than 4 percent of all household spending in the U.S., but their influence is growing in several markets. They account for more than 5 percent of the market for men's apparel, women's apparel, and footwear, and they claim more than 10 percent of spending on infant clothing. They are also above-average consumers for televisions, radios, and sound equipment; computer hardware and software; alcoholic beverages; shelter; and gasoline and motor oil. In all of these areas, householders under age 25 are projected to increase their share of total spending between 1997 and 2002.
Retail choice is a key issue in selling to echo boomers. This generation's high educational attainment means that it will embrace the trend toward e-commerce, so advertising and product information directed at this group must be available on the Internet. And their upbringing in a world of malls and cable television has given them sophisticated tastes. At the same time, their comparatively low household incomes make echo boomers keenly interested in bargains. Loyal young customers should be rewarded with discounts.
Most young adults belong to the baby bust generation, the 45 million people now aged 23 to 34. This group will always seem small in comparison to the boomers, and these days the roller coaster from boom to bust is challenging the marketers of apartments, children's clothing, and other products that appeal to young adults. The total spending of households headed by someone aged 25 to 34 should decrease by more than $49 billion between 1997 and 2002.
Their share of total spending is projected to drop as well, from 18.9 percent in 1997 to 16.8 percent in 2002, a loss of 2.1 percentage points. Still, while spending growth and affluence are concentrated among boomer households, younger cohorts still wield consumer clout and some declines will be less than the overall numbers suggest. Young adults are not the most important market for health care - they claim only about 12 percent of spending in this area - and they are the age group most likely to lack health insurance. Yet their spending on health insurance, life and other personal insurance, medical supplies, medical services, and prescription drugs is projected to decline only slightly in the next few years. Perhaps the health and insurance spending of young adults is already at such a minimum that it cannot decrease much further.
Householders aged 25 to 34 are also projected to retain their relatively robust spending on reading and educational materials, perhaps because more Americans in their 20s and 30s are enrolling in college. In fact, some time in the next decade, the number of college students aged 25 and older will surpass those aged 18 to 24. College is more and more of a part-time, life-long activity, and marketers focused on higher education must play to this trend.
The 25-to-44 group is also expected to account for 41 percent of spending on computers and 48 percent of spending on software in 2002, even as their spending shares in these areas decline almost 4 percentage points.
But the projected decline in household spending among young adults will be severe in several categories. The share of spending among 25-to-34-year-olds is expected to plunge for alcoholic beverages, vehicle purchases, and household services such as lawn care and housecleaning. And while these householders claimed almost 40 percent of the market for infant clothing in 1997, their share may decline to about 35 percent in 2002, as the spending on infant clothes by older households - including older boomer parents arriving late to the nursery and doting grandparents with deep pockets - is projected to increase.
During the Great Depression and World War II, birth rates in the U.S. sunk to all-time lows. The small generation produced by this birth dearth is now moving past the age of retirement, pushing down the number of 65-to-74-year-olds. Between 1997 and 2002, the number of householders aged 65 to 74 is expected to decrease from 12.1 million to 11.8 million. Although the total spending of households in this group is expected to decrease as well, by $7.3 billion, they will still spend about $330 billion a year.
Older Americans are increasingly likely to have a college education, and a rapidly increasing share of the elderly are comforted by generous savings accounts, pensions, home equity, and increases to Social Security and Medicare. Moreover, the life expectancy of men has increased dramatically in the last decade, which means that more couples are making it into their 60s and 70s. For these reasons, the 65-to-74 segment is expected to make inroads in several markets where you might not expect to find older consumers.
As older householders gain spending money, their relationships with their grandchildren are likely to include more financial support. That's one reason why the spending of newly retired householders on clothing for children and infants is expected to hold nearly steady between 1997 and 2002, despite their shrinking numbers. Spending on education among this group is also expected to be strong, perhaps because increasing numbers of grandparents are contributing to their grandchildren's tuitions and fees. Retired couples are also enjoying better health and more physical activity, so their spending on shelter and transportation is expected to be relatively robust. And more of the "young elderly" are affluent enough to pay taxes and contribute to pensions, so they will spending more in these areas.
gold in the gold
Beyond the age of 75 lies a fourth generation not ordinarily targeted by marketers. Households headed by someone aged 75 and older are still a small group, but they are growing, from 9.8 million in 1997 to a projected 10.7 million in 2002. In contrast, the number of Americans confined to nursing homes is steady at about 1.6 million. Better health is allowing more of the oldest old to remain active as consumers, and it's showing in the numbers.
Householders aged 75 and older are about 9.3 percent of all U.S. households, but they account for only about 5.5 percent of all household spending. That's because the majority of householders in this segment are people living alone. But this group's spending is still strong on housing and household operations, especially services like cleaning and yard work. Not surprisingly, they also account for more than 14 percent of all spending on health care and are projected to show robust spending increases on health insurance, medical supplies, and medical services. The oldest old are also expected to step up their spending on cash contributions to charities, from 13.8 percent of the market in 1997 to 14.4 percent in 2002. If you have more and you can't take it with you, you give more away.
The numbers are clear: The baby boom generation is still the 800-pound gorilla of consumer markets, and it is entering a new life-stage. But there are lots of opportunities in its wake, if you know where to look.
behind the numbers
Household spending patterns are derived from the Bureau of Labor Statistics' CEX, which provides the most comprehensive, detailed data available on spending at the household level. Government interviewers ask a large, random sample of household heads to estimate their spending on nearly 1,000 products and services. While the purpose of the survey is to support the monthly calculation of the Consumer Price Index, it gives an invaluable portrait of how Americans spend their money.
Using its own proprietary model, TGE Demographics projects the number of U.S. householders by age of household head, by type of household, by presence of children in the household, and by race and Hispanic origin of household head. These projections are compared with spending patterns from the CEX to project household change in spending. When using the numbers, remember that a projection of future behavior is not a prediction. Recessions, product breakthroughs, and other unforeseen events could change consumer spending patterns.
The complete projections series, showing 1997 and 2002 levels of total household spending and market share for over 300 products and services, are in The American Marketplace: Demographics and Spending Patterns, due out this month from New Strategist Publications.