How Financial Demographics Have Changed Since March 2018

Demographics could be the destiny shaper of economic growth and success of financial markets. However, this will not happen if the western economics are not ready to solve the underlying social and environmental challenges. Population growth in western countries as compared to Asian, Middle Eastern and African regions is very low, and this affects growth of private capital.

Financial markets need stability of private investors so that they can provide the government and philanthropists with supplementary support. Financial markets used to be dominated by elderly people, but today young investors are joining financial markets as early as they hit 20 years. Apart from age, there are other demographic factors that are shaping financial markets today.

Age

Traditionally, it could have been very hard for you as a potential investor to risk with the financial market if you are under 40 years of age. The reason why this was the case is that people were expected to work for several decades before they can get a promotion and earn enough income for such an investment. Things have changed a lot today, and numerous young entrepreneurs have succeeded in their twenties and therefore can afford to become investors like any other person.

There are several factors that help new businesses to prosper faster today than some decades ago. Apart from the young entrepreneurs, the older adults over the age of 70 who could have been considered ineligible to invest in the financial market are also successful investors in such investments. Despite that age used to be an important consideration when it comes to financial markets, today, it cannot be used as a limitation to do the same.

Globalization

Globalization is one of the factors that is playing a big role in the growth of the economy and different investments. Globalization is helping people to move from one state to another easily and also trade in these nation without many limitations. Previously, it was very hard for a business to expand its operations in other countries due to numerous conflicts and lack of relevant technology. However today all this has been changed by globalization and the tremendous advancement of technology among other inventions.

For instance, communication has been made so easy allowing people to continue monitoring their business even when they are away. This means that for a person to invest in financial markets in another country or when away from home, they will easily do so through a few simple clicks. Globalization is opening ways for potential investors to invest in financial markets all over the world. Previously many limitations used to deter them from doing so.

Vulnerable Groups

A few decades ago, there are groups of people who were considered ineligible to do certain things or carry out certain businesses. For instance, some careers were only considered fit for men only and women could not join such industries. People were also limited to get chances at work because of their race, religion or gender among other demographic factors. However today sexism is not something considered in the business industry as a limitation because men and women have ventured in industries that were previously dominated by women and men respectively.

People have decided to break the ceiling with an open mind so as to create more opportunities for everyone. This means that no one is limited to venture into financial markets because of their race, gender, ethnicity, religion or any other demographic. Every person is qualified as long as they have the necessary know-how and capital required to invest in financial markets.

Education

Traditionally, people had limited chances to get academic qualifications unlike it is today where People tend to obtain more college degrees and other credentials. Education has always been linked to success at work, entrepreneurship and investments because educated people have been taught more on taxation, financial statistics and technical calculations among other things. The advanced information acquired by today’s millennials will shape the financial markets because they have more know-how than older generations. This will lead to a modernized way of handling operations in the financial markets and most probably make things more efficient.

Things seem to change by day due to numerous evolvements in the world. This include changes in how people view others, growth in technology, globalization and modernization. Today, people’s demographics do not limit their success in different aspects of life because a lot has changed within the last few decades. It means that changes in demographics’ perception are reshaping financial markets and other investments.

How Demographics Will Be The Biggest Driver Of Financial Markets

The world where the financial markets are vastly used by professionals of older age is long gone. In the midst of the workforce getting younger almost daily, one can now witness anything from a retirement account to highly-complex investments being made by people in their twenties. Not to forget that it has been over 70 years since the first Baby Boomers came to the world. With that entire generation growing older, their input in the financial market is thinning and most principles of investing conservatism are slowly getting replaced with high-risk individuals who are not afraid to make unlikely purchases.

Age is an Important Factor

Throughout history, the trend of people who would achieve the level of financial freedom that enables them to make humongous investment used to be no less than 40. That is because the working industry was set up in a manner that requires someone to dedicate at least a decade and a half to collect enough promotions and bonuses to have any noticeable capital. Well, by analyzing the markets in the present, one can easily recognize countless popular individuals who achieved stardom through financial success while only in their twenties. This is something that did not happen with many generations in the 20th century as the world was battling innumerable issues that had to be prioritized. Just considering the fact that World War I, World War II, Cold War, and much more happened in the 1900s makes it perfectly logical that there was no time for young entrepreneurs to test their luck in the investing waters. Consequently, this reverse aging is making the financial markets more approachable. The long-lived stigmas and stereotypes of people who are deemed under the expected age to invest are no longer around. Meaning, one’s decisions and willingness to indulge their financial passions will be judged solely on merit, not on various external factors like age.

Globalization

One of the most important trends that are taking place is known as the globalization. The term covers everything from people migrating across the planet to economies spreading around different countries without interruption. For example, investors would seldom have opportunities to engage in trades with other countries during the 19th or even the 20th century. With so much international conflict and almost non-existent technology for personal use, reaching foreign industries was unimaginable. That has permanently been altered by the inventions that facilitated globalization. For example, someone looking to place their funds into an opportunity that appears successful does no longer have to worry about locations. Those thinking that companies doing IPOs in the United Kingdom will be profitable? They can easily buy stocks in those businesses through a few simple clicks. Such simplicity was not even deemed possible when people used to get their stock certificates mailed to them back in the 1900s. Luckily, the globalized world is opening financial markets to forever-changing demographics. This gives birth to a diversified body of investors from all over the globe.

Breaking the Glass Ceiling

Sadly, the history has imparted many glass ceilings on members of the protected groups. For instance, women were not exactly welcome to many men-operated industries in the past. This same concept applied to other demographics that were sabotaged by racially-motivated prejudices. In 2018, however, things like sexism and racism have been addressed through many political and social campaigns. Although there is a lot more room for improvement, reading about topics that cover female CEOs, per se, is no longer uncommon. This helps every industry evolve as the opportunities have been widened by ever-spreading concepts of open mind. Going back to the idea of people being evaluated based on merits, the fact that gender, race, or ethnicity are no longer used to quantify someone’s knowledge is certainly a great step forward.

Modernization

Having a statistical battle between Baby Boomers and Millennials who have a college degree is a fight that will be easily won by the Millennials. Thus, the knowledge-based demographics are also an important factor in the evolving industry of investing, trading, or leading successful entrepreneurship endeavors. People nowadays have to go through rigorous education that implies learning about things like taxes, advanced levels of math, and much more. This is not something that was available to older generations who used to run the financial markets for the past 50 years. As one glances on the upcoming century, it seems that the workforce with many tangible credentials will lead to a modernized and educated manner of operating.

What Japan Can Teach Us About Achieving Economic Growth Despite Rapidly Changing Demographics

The prevailing opinion that Japan’s economic performance since the turn of the century reflects a lack of dynamism is often supported by the paltry 15 percent rise in the country’s real output. While most economists correctly view real output as a key metric concerning economic performance, it can be somewhat misleading if relevant demographic trends are not taken into account as well.

With Japan’s real output checking in at an average of just 1 percent per year over a period of 15 years, it perhaps should come as no surprise that there is substantial disparity between opinion and reality: Accounting for Japan’s demographic factors reveals an economy that is performing exceptionally well under circumstances that are far from optimal.

Instead of solely relying on real output to measure Japan’s economic performance, economists benefit from a much clearer picture by looking at relevant demographic trends and focusing on the growth rate per working-age person. At two percent, the growth rate among Japan’s working-age population rated much better than the United States and Europe, with the US checking in at just one percent in the growth rate per working-age person.

Looking at it in this way, it becomes evident that the American economy’s 35 percent growth since 2000 was driven at least in part by demographic trends that saw substantial growth in the working-age population. It also reveals that these advantageous demographic trends were not leveraged in the most optimal fashion. Given Japan’s economic performance in the face of suboptimal demographics, it is clear that there is much to be gained from a careful study of Japan’s economic approach.

One of the principal factors enabling Japan to achieve growth without inflation lies in its ability to deal with substantial public debt through internal financing. With a countrywide savings surplus, Japan has been able to handle a debt-to-GDP ratio greater than 150 percent. Of course, this is not without its downsides, particularly since a rising debt-to-GDP ratio poses the risk of quickly growing unmanageable in a low-growth economy with large fiscal deficits.

The potential downside of the Japanese economic model might be mitigated through a strategy employed in Europe, where a deficit cap of three percent of GDP is mandated by the Stability and Growth Pact. Economic analyses seem to indicate that the deficit cap has succeeded in ensuring the debt-to-GDP ratio remains stable and does not go beyond the point of control.

Strong Job Creation Numbers Inspiring Young Workers to Enter Housing Market for First Time

For an entire generation of young people, growing up during a time of economic uncertainty has had an undeniable impact on way they approach all manner of financial decisions. Members of this generation have exercised great caution while adopting a risk-averse financial philosophy, and this philosophy has in turn limited their willingness to consider entering the housing market for the first time.

The limited interest among members of this youthful demographic has had a measurable effect on the real estate industry, but it appears that the strength of current economic conditions might finally be enough to convince these young people to test the housing market. It appears that the recent reports of strong job creation numbers — along with a wealth of job openings representing a record high — have inspired a sense of confidence among the group of people least likely to act hastily based on a report of the most recently available economic statistics.

Of course, this does not mean that this youthful generation has not faced difficulties upon entering the housing market for the first time, particularly since the inventory of single-family homes available for purchase is currently at an all-time low. Combined with the fact that apartment vacancies presently stand at just under four percent (3.8 percent, to be precise), it is clear that the sudden increase in demand cannot be met given the currently available supply even when one considers that 371,000 new units are expected for delivery in the next 12 months — not to mention the fact that new apartment construction has never been higher in the past 30 years.

It is not only the residential real estate market that is experiencing the influence of the continued return of strong economic indicators, as the commercial real estate market is also dealing with a level of demand that cannot be met by the current pace of new commercial real estate construction.

This is especially true as it relates to financial services employment as well as professional and business services employment, all of which have outperformed the labor market as a whole. Since companies within these fast-growing categories have primarily targeted recent college graduates for recruitment to new, office-based positions, the demand for new commercial real estate has increased at a rapid rate greatly exceeding the current pace of commercial sector construction.

With the expectation that 2 million new jobs will be added by the close of 2017, there is some concern that a large percentage of these positions will nonetheless go unfilled due to a shortage of skilled workers available for what is now a total of 6 million job openings currently available in the United States. Keeping these and other economic figures in mind, the Fed has continued to favor a moderate monetary policy in an economy lacking any sign that it may be prone to overheating.

From ZIRP to NIRP Part III: How Low Interest Rates Devastate Retirees

Whereas central banks’ experiments with historically low interest rates have had mixed results on economic growth at best, they have also had devastating effects on American retirees’ nest eggs. As discussed in earlier segments of this series, rock-bottom (or even lower) interest rates and aggressive quantitative easing have done little to spur robust and sustainable economic growth in Japan and the US. Instead, they encourage risky investments and hurt savers and conservative investors.

Another negative outcome of such policies is that retirees on fixed incomes who are reliant on savings and interest are hurt by an extended period of miniscule returns. This is not an insignificant portion of the population. There are now more than 45 million Americans age 65 and older, representing over 13% of the population– a higher portion than at any prior point in US history. While nearly 20% of this group is currently employed due to the effect of the recession on their meager retirement savings, by some counts, an average of 10,000 boomers retire each day.

Once they transition into retirement, and shift from saving to spending, retirees normally seek to de-risk their portfolio. They typically turn to fixed-income products and move their retirement money into assets like certificates of deposit (CDs), low risk treasury bonds, and annuities. Unfortunately for this group, interest rates are extremely low. Whereas ten years ago, retirees could have relied on a yield on 10-year Treasury bonds that exceeded 5%, they are lucky to get 2% today. Rates on CDs, money market accounts, and savings also remain low. While some are sticking with their meager 1-2% returns, others have been encouraged to turn to higher risk investments in the stock market and real estate, pushing them to lofty valuations.

A 2015 report from Fidelity found that 35% of those between ages 51 and 69 are overexposed to the stock market. Moreover, 10% of this group have their entire 401(k) assets invested in stocks, meaning any sort of stock market volatility to could devastate them. Conversely, economists warn that if this generation begins to transition and de-risk their portfolios, the stock market could experience a sharp drop.

References:

http://money.usnews.com/money/retirement/articles/2012/01/09/65-and-older-population-soars

https://www.bloomberg.com/news/articles/2016-05-13/-i-ll-never-retire-americans-break-record-for-working-past-65

http://money.cnn.com/2015/08/14/retirement/retirement-baby-boomers-stocks/

http://finance.zacks.com/impact-baby-boomers-retirement-stock-market-5643.html