What Is the Baby Boomer Age Wave Theory?
The baby boomer age wave theory is a theory regarding the economic impact of current demographic trends developed by psychologist and gerontologist Ken Dychtwald and also popularized by investment manager Harry Dent. Based on this theory, Dent predicted that the economy would enter a sustained period of decline once the baby-boom generation passed the age of their peak consumer spending and moved toward retirement and that U.S. and European markets would likely peak between 2008 and 2012, the period when most baby boomers reached age 50.
- Ken Dychtwald's baby boomer age wave theory argues that the aging of the baby boomer generation has had, is having, and will continue to have a transformative effect on society and the economy.
- Extending Dychtwald's idea, investor Harry Dent further predicted that the economy would enter a sustained period of decline as the baby boomers passed their peak spending years.
- According to Dent, U.S. and European markets would likely peak between 2008 and 2012, the period when baby boomers hit 50.
Understanding the Baby Boomer Age Wave Theory
Baby boomer is a term typically used to describe any person born between the end of World War II and the mid-1960's. After the end of WWII, birth rates spiked across the globe. During this period, 76 million babies were born in the U.S. alone, a phenomenon known as the baby boom. Because of the huge size and purchasing power of baby boomers, this generation tends to have a big impact on economies.
Baby boomers make up a significant proportion of the world's population and account for roughly 23% of the American public, down from a quarter in 2010.
In his 1989 book, Age Wave: The Challenges and Opportunities of an Aging America, Ken Dychtwald observed population and cultural shifts, grouping them into three major demographic forces:
- The Baby Boom: An increase in fertility rates in the United States, Canada, Europe, and Australia in the mid-20th century.
- Elongated Longevity: Life expectancy increased significantly during the 20th century due to advances in medicine, nutrition, and public health.
- The Birth Dearth: Following the baby boom, fertility rates dropped sharply, and many parts of the world are now experiencing sub-replacement fertility rates.
Dychtwald's theory suggested that due to the size and tendencies of the baby-boom generation, this population had the power to transform consumer trends and life stages. Significant market shifts across a range of industries have been associated with the age wave, including the impact on the manufacture and sales of suburban homes, fast food, gym equipment, toys, minivans, and SUVs.
Noting the impact of the baby boomers, Dychtwald claimed that their aging will likely result in a shift in consumer activity from youth-focused products toward products and services catering to the old. Eventually, he warned that the age wave will put a strain on the economy as the baby boomers draw a pension and experience health issues.
In 2006, Dychtwald also predicted a massive slowdown in workforce growth, arguing the generations that followed the baby boomers would fail to replicate the quantity of labor provided by the vast number of people born in the 19 years after World War II.
Following Dychtwald, investor Harry Dent had made predictions since the 1980's, building on the age wave concept to warn that an economic peak in U.S. and European markets would occur between 2008 and 2012 as the last members of the baby-boom generation reached 50—the age he believes consumer spending habits peak.
According to the Dent method, after age 50, boomers reside in smaller households, have less to purchase, and gradually pare back on spending.
Economists and cultural critics continue to debate the validity of the baby boomer age wave theory and its effects. However, one thing most of them appear to agree on is that the baby-boom generation has had a clear and significant impact on economic and cultural trends, both in the U.S. and around the world.
As the baby boom population continues to move into retirement age, economists expect to see a decrease in overall consumption and increase in demand for services such as caretaking, estate and retirement planning, as well as products for the elderly. This shift will likely, in turn, impact interest rates, inflation, real estate, stock prices, innovation trends, and other economic factors.
Some forecasts expect that the U.S. economy will continue to slow until the next generation, known as Generation X, reaches its spending peak around 2022.