On Demography and Economy

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Essays

Lately, the hottest topics in the technology community have been focused on municipal regulation of drones and cars, federal regulation of labor markets and health insurance, the IPO window, and the scary dominance of FANGAM. And always, it seems, there’s the topic of China and India, and their growing influence in the global technology market.

In a conversation with Morgan Housel week before last, however, we ended up taking a very different tack to our conversation. On his view, and I’m paraphrasing, if there’s any one fact that has had an outsized influence on the health of the American economy over the last quarter century, it is that the average consumer reaches their prime spending years at ~age 35, and leaves it at age ~55. The Bureau of Labor Statistics measures it as follows, below: 

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It makes sense. At age 35 you are likely have 10 years of work experience, and so are a manager or director within your organization. You likely are starting a family, or may have one or two kids already, so planning on buying a home, if you haven’t already. By 55, your kids are likely no longer in the house, either in college or in many cases out of college, you are starting to shift into a lower gear, perhaps planning out retirement in the next 10-15 years, hopefully finishing your mortgage. Right.

Second piece of the puzzle: the size of this demographic – call them the ‘prime spenders’ – has not been fixed in time. As we all know, the post World War II era was a crackin’ time for babymaking in the United States. The Baby Boomers were the largest generation in the history of the country. The 1970s, not quite so much. The economy was slow, morale and confidence were low, population growth was sluggish. And then, of course, the 1980s! The LBO boom, the widespread tax cuts, economic reforms, end of the Cold War, and, well, the Baby Boomers became new parents 🙂 

There are no shortage of metrics we could use to track the ‘health’ of the American economy, but if you ran most of them against this chart (credit to Morgan Housel) I bet you’d see heavy correlation. It is, simply: how big was the prime spending population during that period? When it balloons, we do better. When it shrinks, we do worse. Simple as that.

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If you layer on the waves of immigration lately, the Millennial demographic is ballooning even further. In her 2015 “State Of The Internet” report, Mary Meeker made reference to the Millennial Generation as being the cause of the rise of Uber, AirBnB, and the rest of the peer economy. We were fortunate to have caught some of this trend with our early investments in Lyft, Kickstarter, Skillshare, and others.

But we Millennials are growing up! We are thinking about families, deciding how we want to pay for our homes, making important decisions about our kids’ livelihoods, if we want to live in houses at all, which city we want to live in, and which consumer brands we’ll be putting our faith in. So what makes a Millennial different? How will we shop? Where will we want to live? Will we own our homes? Will we buy crossover SUV’s? For the next 20 years, the businesses that achieve massive scale will need to understand us very well, because these answers may determine the fate of the next decade of our economy more than who wins in November.

The big 20th century brands on which our parents grew up – Coca-Cola, McDonalds, Ritz Carlton, Chevrolet, et cetera don’t hold natural sway over us the way they did over our parents. We like intimate, authentic, local, organic, natural. We like stories that tug at our heartstrings, paint a picture of the kind of cool that internet natives recognize. We instinctively recognize that the planet is in peril at our hands, and want to put our money where our mouth is. Sustainable brands are aspirational brands. Strong social-mission resonates with consumers in this generation. We value meaning and purpose above all. 

At Collaborative Fund, when we say that we are looking for brands that are focused on values, a strong social mission, being aspirational about culture, pushing the world in a positive direction, we are speaking directly to the largest demographic in American history, who are about to become the largest prime spending group in American history. And call me crazy, but this sounds like good business, indeed.

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