In the next few years, the world will see dramatic transformations in how people consume and buy. These changes will be brought about by gradual aging of the population. The imminent retirement of the “baby boom” generation, combined with longer life expectancies, will place extraordinary pressures on the economic resources necessary to sustain the rising standard of living that most people have come to expect.
This demographic change has become more significant at the start of the new millennium than at any time since the end of World War II. The world population is aging, which means that the average age is increasing at a rate that is unprecedented in the history of civilization. Indeed, seventy percent of everyone who has ever lived is alive today.
The prolonged graying of the world, with an escalating ratio of elderly to young people, will have profound social, economic, medical, and personal consequences. More importantly, this demographic change will change the face of small business.
The Changing Demography
The increase in the number of people over 65 and the rise in the proportion of older people represent a marked change in the demographic patterns. It is estimated that the population of 65 years and older will increase from 6.9 percent in 2000 to almost 16 percent in year 2050. A higher percentage of the old population will be concentrated in the more developed countries, where those aged 65 and above is estimated to comprise 26.9 percent of the population in 2050, from only 14.3 percent in year 2000. This population segment will comprise about 14.3 percent of the population in less developed countries in year 2050.
In the United States, individuals over 65 constituted a mere 4 percent of the American population in 1900 and nearly 10 percent in 1972. By the year 2000, older people comprised over 13 percent of the population and by 2050 will represent more than 21 percent of Americans.
Let us look closely into this phenomenon of aging. In about 10-15 years, the first wave of post-war baby boomers will begin to retire, and we will start to see a large generational shift from the young to the old. This demographic revolution is expected to continue well into the coming centuries.
According to the U.S. Census Bureau, the aging phenomenon will have the following features:
- One of every 10 persons is now 60 years old or above. By 2030, one out of five will be 65 years or older.
- In 2010, the 65 and older comprised about 13 percent of the population and this percentage will increase to 19 percent in 2030.
- The older population itself is aging. The increase in the number of very old people (aged 80+ years): that group is projected to grow as much as eight to 10 times on the global scale between 1950 and 2050. The oldest-old age group is projected to grow from 5.8 million in 2010 to 8.7 million in 2050.
- Among those 65 years and over in 2050, 55 percent are projected to be female.
- Striking differences exist between regions. One out of five Europeans is 60 years or older, but only one out of twenty Africans have attained the age of 60 or older.
- In some developed countries today, the proportion of older persons to the general population is close to one in five. During the first half of the next century, that proportion will reach one in four and in some countries one in two.
- As the tempo of aging in developing countries is more rapid than in developed countries, developing countries will have less time than the developed countries to adapt to the consequences of population aging. Less developed nations as a whole are aging much faster than the more developed counterparts. The world’s 60 and over population increased by more than 12 million persons in 1995; nearly 80 percent of this occurred in less developed countries.
- By the end of this century, the majority of the world’s older persons (51 percent) will be living in urban areas. It is projected that by the year 2000, almost 78 percent of older women and more than 75 percent of older men in more developed regions will be living in urban areas. The majority of older persons of both sexes in developing regions are expected to remain rural (about 58% of women and 60% of men).
The United States is aging at a pace that reflects the pattern in other mature societies. In the United States, 30 percent of the population was older than 45 years of age as early as 1988. The number of population 45 years old or higher is expected to increase to 37% by 2003. By 2020, 41% of the population will be older than 45.
Between now and 2050, the percentage of people 65 and older in the United States will increase from 13% to 22%, while those less than 20 years of age will fall from 29% to 22%. The working population will also shrink, from 59% of total population to 56%.
Consider other statistics: in 1940, there were 9.6 million college-aged people versus 9 million retirees. In 1994, the proportion was 14 million vs. 35.5 million. In 2040, retirees will be significantly more as their number is expected to increase to 75.2 million compared to 20.2 million college-aged.
The Shifts in Tastes and Preferences Due to Aging
In about 10-15 years, the first wave of post-war baby boomers will begin to retire and we will start to see a large generational shift from the young to the old. In the United States alone, the structure of the economy is changing more dramatically than at any time since the 1950s, in no small part because of the aging phenomenon.
Many economists agree that people work and save when they are young and live off the proceeds when they retire. Thus, wealth peaks at retirement age and then begins to decline thereafter indicating that people will have different consumption and saving patterns at different stages in their lives. We will see a gradual substitution away from such purchases as new family homes and automobiles to greater spending on rent and services.
With the change in the age structure, consumption patterns of the population will also change. The needs of older people are very different from the needs of middle aged and younger people: older people buy different things than younger people and have less need for borrowing money.
We are already seeing massive shifts in business investment, much of which is responding to the changing tastes of an aging population. There appears to be a trend towards lower residential investments, while investments in non-residential structures appear to be increasing. While consumption of durables is expected to rise, it will be increasingly dominated by household equipment and furniture purchases.
Impact to Small Businesses
The aging population is both a boon and a bane for small businesses. One thing is sure, though, small business will have to reorient their policies to hurdle the special challenges as well as the opportunities aging society presents.
In the 1990s, among the biggest challenges facing the small business community was access to capital, government regulations, and taxes. However, in the new millennium, we can add a new challenge to the list the pervasive labor shortage.
Small businesses are likely to suffer most from a labor shortage: they do not have the economies of scale and have capital constraints that inhibit their ability to compete on salary. If small businesses are forced to continue to raise wages and benefits in order to attract employees without receiving higher productivity in return then profits will decline and inflation will increase. Moreover, if smaller businesses continue to be constrained by the labor shortage, their output could slow or stagnate, thus slowing the overall growth of the U.S. economy. With productive capacity shrinking as the traditional labor force declines, only exceptional growth in productivity could ensure sufficient resources to sustain rising standards of living for aged and working Americans alike.
On the positive note, small businesses can capitalize on this growing segment of the population. Entire new products and marketing strategy will need to be developed targeting the older generation. The trend is starting now: a growing number of e-commerce sites are providing products and services to the baby boomer generation.
The changing tastes of the gradually aging population will definitely shape our economic future.
For more information on how small businesses can take advantage of this trend, check out the following articles:
- 10 Ways To Get Your Share of the Mature Market
- Benefits of Baby Boomers as Mentors
- Business Ideas Targeting Seniors and the Older Population
- Baby Boomers: Still Changing the Business Landscape
Article was originally published on February 2, 2002.