We are living in an era of rapid change thanks to demographics, digital technology and the internet. Although the technology revolution process started with the invention of the computer, it has really accelerated in the last two decades, particularly since the introduction of the internet.
The Millennials (today between 19 and 35 years of age) and the larger group of Centennials (under 18) comprise 27% and 33% of the global population respectively. All of them have benefited from computers in their hands from an early age. The way they think and behave is reshaping the world that their baby boomer parents created, which was characterized first and foremost by rampant consumerism. For the first time ever, Canadian’s over the age of 65 exceeded those under the age 15.
All of these factors combined are changing the world as we know it and yet so many have yet to adapt. The government, corporations and individuals all need to understand this new reality and adapt accordingly or be left behind.
Much has been said about central banks manipulating the price of money (interest rates) to ridiculously low levels. But perhaps it is worth pondering on whether interest rates would be much higher if left alone. Demand for money relative to supply is what naturally causes interest rates (price) to go up. But what if that demand is just not there?
Generally low interest rates induce corporations to borrow and expand their business. But if the demand is not there for their products, why would they need to expand? If the new generation is not as interested in consuming as the last one, demand would be dropping further and explains the historically low capacity utilization rates. It is well known that as people age, they consume less and if the majority of the population is soon going to be over 65 how much do you really need to produce to meet demand for a shrinking client base? And if you add the benefits of technology, where everything produced is smaller or lighter, requiring less materials and physical plant and equipment, then are we not looking at years of shrinking plant base rather than normal expansion which most economists still forecast and expect?
Consider the facts about this new generation:
They do not want “things” – overall they grew up with lots of “things” so there is no pent up demand, (although they will still happily take it from their parents if given to them for free)
They are very thrifty overall – they tend to save rather than spend and reject the way their parents consume and define materialism
They prefer to have a positive social impact even if it is at a significant cost
They value experiences and quality of life over goods; it is all about sharing these experiences on Facebook, or preferably on Snapchat so that they are also easily erased and forgotten
Globalization means cheaper goods for all as we benefit from cheaper labour elsewhere, so even where the Millennials spend as much as their parents did at their age (for example in clothes), they get more things for less money today than their parents did.
Their interest is in having access, not necessarily owning things. There is no interest in owning a car when you can share a ride or hop in an Uber (or borrow mom and dad’s).
Living in a digital world, the most important thing to them is the internet and their smartphone – actual footprint is not important – they are happy with enough square feet to provide them with their basic necessities as long as they are close enough to their social network. Growing up with helicopter parents (who hovered over every minute of their lives doing everything for them), they are very comfortable living at home and have little motivation to move out.
When it comes to work, this generation is interested in quality of life over pay – long hours for big money does not appeal – working routine hours is also not desirable as they are globally connected and like to have their own schedule and come and go as they please. Having seen their parents work hard and yet still being fired over the years, they have no loyalty to any corporation or anything other than themselves and their peer group. Their dream is to work from home and to work for themselves.
Millennials are very comfortable online shoppers – online shopping now accounts for a large percentage of overall retail sales and this number will keep growing –
They do not trust the government and feel they have to take care of themselves and therefore saving is very important to them
They do not listen to marketing/commercials – they are interested only in peer reviews as their view is companies and governments lie and cannot be trusted
The Great Recession of 2008 has taught them to distrust all government and large corporations but primarily the “banksters” and the banks meaning this industry will be forced to change their image as well as adapt to a more digital world to suit their new clientele
Why should companies be expanding their production by investing in more plant and equipment then? Everything takes less material to produce these days than in the old days because of technology. Boosting productivity is now being done through automation and artificial intelligence as well as advanced algorithms which provide for time sharing of assets. This results in a “capital light” and “data heavy” era, and combined with shrinking demand, why produce more?
As is common, new generations rebel against the older ones and want to do everything differently so it makes total rational sense that their preference is to save and not consume and experience life rather than to buy things that in the end they know from experience does not make them happy anyway. The big question is, can governments and big companies adjust? This is a dramatic change in demand profiles for just about every industry you can think of – except for the internet. Not having the internet, a computer or a smartphone is not something that they are willing to compromise on.
In an era of experiences and sharing things, a lot less physical plant and equipment will be required, a lot less built out space whether commercial or residential will be necessary, and saving money in general will be more important than spending it. That means lots of money sloshing around looking for a place to invest so is it really a wonder that interest rates are so low?
The Summerhill Team