What to do when you are born in a trough?
January 21, 2011 12:59 PM   Subscribe

I'm looking for resources that clearly spell out the advantages and disadvantages of being born during a 'demographic trough' (when the birthrate of a generation is lower than the birthrate before and after that period). US-centered materials are preferred but any data points concerning other developed nations info is good, too.

I'm a Gen Xer, born in the early 1970s. After thumbing through the last issue of National Geographic and the accompanying Meta post, and revisiting Outliers (chapter 5, section 7) I got to wondering – what does being born in a demographic trough mean to me personally? For example, how should it affect my investments or what career path I pursue? What opportunities can it potentially afford me that the Boomers and Gen Y+ers may not have access to? What are the obvious 'risks' to being a part of group. Help me to connect the dots.
posted by quadog to Society & Culture (4 answers total) 12 users marked this as a favorite
I don't have resources for this, but some historians believe that the demographic trough caused by the Black Death (the big mid-14th-century plague epidemic) precipitated the Renaissance.
posted by madcaptenor at 1:19 PM on January 21, 2011 [2 favorites]

I was going to recommend a RadioLab episode, but that was probably based on Outliers because it was a conversation with Malcolm Gladwell.
posted by anniecat at 1:24 PM on January 21, 2011

I don't think calling it a "trough" is quite right. You were born just as birth control, abortion, and divorce all became easily available for people who didn't want to have kids, so you're at the beginning of a long (possibly permanent) period of lower birth rate that is still ongoing.

This sucks for Social Security purposes, since you're after a huge bubble in the pipeline. But it might work well for your career, since you're basically in the oldest cohort of gen-Xers and could end up supervising them after the last of the previous generation retired.

You'll probably have fewer kids than your parents had. That means your kids will have more aunts and uncles and cousins per kid. Probably a good thing.

It shouldn't affect the stock market at all. Big investors are more than sophisticated enough to incorporate birth rates into their economic models and compensate for them.

On the whole, I think the randomness in any individual's life means inductive reasoning from population statistics is impossible.
posted by miyabo at 4:20 PM on January 21, 2011

It's difficult to spell out advantages/disadvantages in a generic fashion for a population as large as a generation. However, these are a few things I can think of that may be relevant; I'm sure it has occurred to others. What one does with these information, and how one turns it into your advantage depend a lot on the individual.

1. Property transfer: As the boomers age and retire, they will start to convert ownership of assets into cash to pay for services for the olds. As the gen X'er generation is smaller, there are fewer buyers and the asset market will have more supply than demand. This may result falling prices for assets, from stocks, bonds to real estates. However, this presumes that our market is closed; when it is not. More likely, young international savers (like those living in BRIC countries) will enter the U.S. market and buy up those assets, thus prop up the price. Certain assets are more liquid (e.g. financial assets), thus benefit more from international investments; others (e.g. real estates) may not. However, a big caveat is the presumption a free international market. China, as a country, has a lot of young people and a lot of savings. However, most of their savings are in the hand of the government, who wields its investment power as a political tool. Her preference will distort the market. For example, the Chinese government has disproportionately favors US Treasury. This in turn allow the US government to be irresponsible in its spending up until now. This also creates a domino effect, causing large institutional investors to pull out of Treasury market (because the interest was too low) and enter risky markets (like the mortgage loan market), setting the stage for the dot.com bubble of 1990's and the real estate bubble of 2000's.

2. Effect on industry: Old people works less and needs more services. Hence, US manufacturing industry has seen a slow decline while US health care enjoys a prolong expansion. The demand for health care will sustain until the last of the Boomers die. But increased demand does not necessarily mean it will be lucrative, since old people only have savings to pay for their care (they can't work for it). Boomers are also known for low saving rate. This will mean three things: more reliance on public services (e.g. Medicare), private services (e.g. home care from family) and on the Boomers themselves (e.g. working after retirement; a diminished quality of life).

3. Political: Boomers were politically active; and over the last century, the US government has built up an unsustainable system of entitlements benefitting the old. This created a feedback loop of entrenched interest, which makes fixing the current system very difficult. The burden of high public spending on Social Security and Medicare will fall on the existing tax payers one way or another, via higher taxes, fewer services, large public debt to foreign investors, inflation, and finally bankruptcy (private and public). Political life will be more difficult because of this general imbalance.

That's my general overview; which is not original, I'm sure. But if I'm allow to extrapolate from those information and attempt to answer your questions, I would:

1. Invest in assets with a long horizon: a. because the over-supply, price probably won't go up in medium term; and b. in the long run, you are getting more bang for your bucks now. When the last generation departs, you will have own more assets.

2. Invest in things that the young generations need. This is obvious; because you want your assets to be in demand from people with money; and the young people will be those with money when you need to sell your assets for retirement. Certain dubious assets that are peculiar to the boomer's generation may be bad investments, a.k.a Mc Mansions, yatch, things that consume a lot of energy and companies that produce those things (American car companies included).

3. Hedge yourself for the possibility of unemployment, inflation, raised taxes, reliance of public welfare; in general, don't put all your wealth in financial instruments. Public finance of the entire Western world is in crisis at the moment, and there is no easy solution. There are more trouble down the road. I'm not saying you should buy gold; but if there is hyper-inflation tomorrow, make sure your wealth don't evaporate. The risk of systemic instability can no longer be discounted.

4. In the medium term, there will be high demand for old-age services; with the caveat that your customers have limited ability to pay. In the long term, the prospect is always better if you align yourself with the young generation; and the largest young population right now is in India. They will have voracious need, and they will have the earning power to pay you and your investment. China is enjoying its demographic dividend for now, but their population will hit the "trough" in the next 5-10 years.
posted by curiousZ at 6:48 PM on January 21, 2011 [3 favorites]

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