Big seniors’ spending forecast
OTTAWA — The Canadian economy may not need to fear the advent of the frugal aging shopper after all, according to a new report.
The paper from Bank of Montreal senior economist Sal Guatieri suggests the impact of the aging baby boomer generation on consumption may not be as great as some have feared, if tomorrow’s seniors continue to be the big spenders they were in their youth.
And there’s evidence to suggest they will.
Recent data from the U.S., which Guatieri said applies to Canada as well, shows that seniors have been picking up their spending levels in the past decade.
“There’s every reason to believe the next generation of retirees will spend more than the previous generation,” Guatieri said.
“The current crop of retirees will be the richest on record, but it also is because of different lifestyle. They plan to be more active, they expect to live longer and work longer, so they will have more disposable income.”
Based on established consumption patterns, Guatieri said that the aging of the baby boom generation will be a modest but significant drag on growth during the next two decades.
Research shows that seniors 65 and older spend about a third less than those between 45 and 54, who tend to consume the most of any age category.
During the next two decades, there will be a lot more of the former group and not so much of the latter.
The paper does not examine other impacts of aging demographics, including a smaller workforce, reduced tax revenues and higher costs for such services as health care.
Guatieri said seniors will account for 27.7 per cent of the population in 2033, up from the current 18.2 per cent, hence consumption levels could fall by 4.6 per cent in the next two decades. Economic growth could be slowed by more than two-tenths of a percentage points.
The negative drag will be about half that in the United States, which tends to have a younger population profile.
“It’s clear for retailers an aging population is not great news,” said Guatieri.
“We will likely see an adverse impact on retail sales and we will see more of an adverse impact on products and services that seniors tend to buy relatively little of, such as clothing and possibly entertainment.”
But the impact disappears if the next generation of retirees up their spending by 15 per cent — a significant but not unattainable level.
He said the data shows seniors are spending more on nearly everything, from food, to clothing to entertainment, such as the concerts put on by aging rock stars.
Marketing consultant John Williams of the Toronto-based J. C. Williams Group said while it is true, on average, that seniors tend to spend less, the more dramatic effect may be on what they buy. He notes that health care will be a big expense in the future, and hence drug store owners will likely do very well as the population ages. Also, older people who can afford it tend to travel more.
Guatieri agrees, pointing out that even if they spend less on average, retailers will need to cater to what will become the most powerful consumption force in the economy because of sheer numbers.
“As a group they will increase spending by 230 per cent by 2033,” and that’s assuming they do not become bigger spenders than previous generations. “In a little over a decade, they will become the largest spending group, accounting for one-in-five shopping dollars versus one-in-seven today.”