If demographics is destiny then high spending could stick

I was struck yesterday but a column in the Australian Financial Review titled: How Boomers are busting homes for rate cuts.

It makes some powerful arguments about wealth effects in Australia and abroad. It highlighted a 2023 study from Visa that changed thinking about spending. Most studies imply consumers spend between 4-15 cents of each dollar
increase in wealth via housing and financial assets. However it found that figure
has tripled from 9-cents in 2017 to an estimated 34-cents in 2023.

Why this is so critical is because Baby Boomers are flush, particularly in places like Australia where the housing market has been a windfall. It’s also true in the US, where Boombers invested in equities have done very well.

The AFR column highlights that more research needs to be done, particularly given the rise in wealth in the past five years and surge of retirements from Baby Boomers.

As a correlate, Ed Yardeni wrote on the weekend that: “.. retiring Baby Boomers are likely the reason that the personal saving rate is falling; they’re depressing the rate as they spend their retirement funds and no longer have earnings to save. In addition, they are spending at a record pace on labor-intensive services, this boosting labor demand.”

This article was written by Adam Button at www.forexlive.com.