Change Blindness? | Chief Investment Officer

Joseph Coughlin

The Fed, inflation, regional wars, consumer confidence, and of course, artificial intelligence are among the most watched factors in investment strategy today. Why not? Each of these are fast-moving and flashy. Unlike these, demographic trends unfold over long periods and are slow to change, making their impact more predictable and lasting. Because demographic change does not typically benefit from attention-grabbing events or headlines, decision-makers often suffer from change blindness, that is, the failure to see how their markets are being transformed slowly but surely right in front of them.

Today, investors face the challenge and opportunity of navigating unprecedented demographic and societal change. Population aging, plummeting fertility rates, delayed adulthood, solo living, and women’s growing economic power challenge long-held investment assumptions while presenting new opportunities.

Population Aging

Global aging is the most significant global demographic trend. The growing number of older people and a steep decline in children challenges long-held investment assumptions about markets and workforce. The transition from a world with more young people than older adults to one where older people outnumber the young is unprecedented. In less than a decade, the U.S. Census Bureau forecasts more Americans over 65 than under 18. By 2050, United Nations projections show that more than 2 billion people globally will be 60-plus, outnumbering the number of children under 10 worldwide.

Population aging is about more than a burgeoning number of older consumers. It is also about longer life spans. The average life expectancy worldwide was 60 in 1980; today, it is 73 and is forecasted to be 82 by 2100. Longer life spans do not necessarily mean more years in retirement but potentially more years as workers, consumers, entrepreneurs, volunteers, caregivers, and life stages yet to be imagined.

Global aging has created a new longevity economy of older consumers with unprecedented buying power. If the 60-plus population worldwide were a nation, it would represent the third largest economy after the GDPs of the United States and China, creating vast new markets. The obvious sectors include health care, home care, pharmaceuticals, medical devices, and senior housing. Less attention has been given to how global aging will drive innovations in education for workers who may work for six decades. Technologies, such as collaborative robotics, or cobotics, and robotics, will be in high demand to keep older workers on the job. Rarely explored is the business of fun for older people. More years must mean more than golf and pickleball.

Adulthood Postponed

Young adults are postponing many life milestones, disrupting projections of future market demands. Plotting age cohorts with yesterday’s assumptions of when children typically leave the parental home, purchase a car, enter the workforce, find a partner, establish a household, buy a home, and have children is, at best, misguided in today’s marketplace.

Traditionally,18 or 21 years old marked adulthood. Today, reaching adulthood extends well into the mid-20s and even 30s. Effectively, a new life stage, emerging adulthood, has evolved. This new stage allows for youthful exploration before committing to adult responsibilities. More young adults are financially reliant on their parents and living with them longer than previous generations. Many delay independence due to prolonged college education. Only 41% complete a four-year college program in four years. Finding a partner and establishing a household, once markers of adulthood, are also postponed, with more than half of young Americans not having a partner by their mid-30s. These new social patterns may explain why the only women showing a modest uptick in fertility are women over ages 35 and 40 years old. These delays have financial consequences, pushing back career starts, income growth, and homeownership, affecting wealth accumulation and shifting traditional adulthood milestones and consumer behaviors to later years.

Delayed adulthood reduces behaviors that investors may assume based on consumer age alone. Delays in establishing new households reduce the demand for appliances, furniture, and home décor. Delays in finding a partner and establishing a family impact home purchasing, mortgage lending, and the need for insurance. In contrast, young adults with fewer financial demands may be a prime market opportunity for the travel, leisure, spa, gym, and self-care industries.

Baby Bust

The world is experiencing unprecedented declining fertility rates. Populations remain stable at 2.1 children per female. The global fertility rate has declined from about 5 children per female in the 1960s to about 2.3 in 2021 and with some researchers suggesting it will fall below replacement rate in less than 40 years. Many nations are facing extreme declines. The United States has gone from 2.4 in 1970 to the lowest level recorded – 1.6 children per female. Canada has fallen over the last 50 years from 2.3 to 1.4. Although China eliminated its one-child, one-family policy years ago, it has an astoundingly low fertility rate of 1.2. Japan’s current fertility rate is 1.3. Likewise, Europe has seen a dramatic drop from 2.3 in 1970 to 1.6 in 2024. South Korea provides the starkest example of spiraling fertility rates, as the rate there has dropped to 0.6 children per female.

The assumption of a steady stream of children buttresses traditional markets such as baby and children’s clothing, toys, and foods. Fewer children may also reduce investment in childhood healthcare and medicines and redeployment of capital to cater to a growing aging market. Even today’s education system, from school systems to colleges, may shift from a traditional focus on children and adolescents to focus on upskilling education for people already in the workforce, impacting everything from public bonds to support local school construction to REITs investing in university housing. Likewise, theme parks and entertainment catering to children and families may need to develop a more multigenerational appeal. Pension funds will confront the demands of many more recipients than contributing participants.

New opportunities will emerge. Larger homes near good schools may be in less demand, but smaller homes with more adult amenities will become more attractive. Robotics will be used to replace missing workers on manufacturing floors and farm fields, and artificial intelligence will replace empty cubicles and corner offices due toa shrinking knowledge workforce. Home services will be in higher demand to provide care for elderly adults once traditionally provided by adult children. A smaller but highly lucrative market may emerge in society with fewer children. Parents who choose to have children are likely to seek premium products and services to pamper the child they choose to have.

Solo Living

Long before the pandemic, the percentage of people living alone was increasing. Although most prominent in affluent societies, single-person households are the fastest-growing living arrangement in the world. In 2020, the U.S. Census reported that 29% of households in the United States are one-person, compared to only 13% in 1960. In Denmark, Finland, Germany, Norway, and Sweden, more than 40% of households are households of one. National averages can obscure regional realities. In cities such as Stockholm and Washington, DC, half of all homes are occupied by only one person.

Solo living will make everything smaller. Large homes and cars may be less in demand. As households shrink, big box stores may find so too will product sizes and retail store sizes. Two or more people in a home often share tasks. With fewer hands, people living solo will seek more services to do tasks typically shared by a couple. Services, including home cleaning, security, maintenance, meal delivery, subscription services, and long-term care, will see growing demand. Living solo does not mean being alone – pets are the new companions, creating new demands for various products and services.

Future Is Female

While women make up more than half of the population, their economic power is often overlooked. In the United States, women outnumber men in the college-educated workforce. According to the European Commission, 36% of women have completed college or technical training compared to 31% of men. Although not yet at income parity with men, increased education will likely lead to more women in lucrative professions, increasing their incomes and independence.

Traditional roles, not gender, have made women the chief consumer officer of the home. Women significantly influence purchases across various sectors, from automobiles, consumer goods, and foods to home improvement. As mothers and caregivers of older loved ones, women make an estimated 80% to 90% of healthcare decisions, from choosing the family physician and the medications purchased to the insurance selected. Women’s combination of education, growing economic power, and purchasing influence presents a growing opportunity for businesses that can cater to the preferences of female consumers..

Slow and seemingly lackluster demographic change often leads strategists to suffer from change blindness, not seeing transformative shifts hiding in plain sight. But demography is destiny, which may be the only factor investors can truly bank on.

Joseph Coughlin is director of the Massachusetts Institute of Technology AgeLab. Author of “The Longevity Economy: Unlocking the World’s Fastest-Growing, Most Misunderstood Market ” (Public Affairs, 2017). His forthcoming book with MIT Press with MIT’s Luke Yoquinto is “Longevity Hubs: Regional Innovation for Global Aging” (forthcoming, MIT Press, 2024).

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of CIO, ISS Stoxx or its affiliates.

Tags: aging, birth rates, demographics, economic impact, Investment Strategy, population trends