Dentsu Survey Estimates the Economic Impact on Consumption Resulting from the Retirement of Baby Boomers
-Total Economic Impact Estimated at 15,323.3 Billion Yen
In March of this year, Dentsu Inc., Japan's largest advertising agency, announced the findings of a survey on the economic impact on consumption resulting from the retirement of Japan's baby boomer generation. According to the announcement, the scale of the direct boost in spending prior to and after baby boomers' retirement will reach 7,776.2 billion yen. Additionally it is anticipated that, over the medium term, the impact of this upswing in consumption will ultimately stimulate production output totaling approximately 15,323.3 billion yen due to stimulated economic activities on multiple fronts, such as parts sourcing, distribution, and construction.
The reason why so much attention is focused on the baby boomers' spending behavior is that, given the sheer size of this group, its many members have exerted a substantial impact on Japan's economic structure in terms of both production and consumption. Spending trends as these baby boomers reach retirement age en masse will have major ramifications for the future of Japanese businesses. In the United States baby boomers are individuals born from 1946 through 1964. In Japan, on the other hand, this term refers to the 6.8 million people born over a three-year span running from 1947 through 1949. This group comprises more than 5% of Japan's total population. The birthrate during this three-year period (calculated as the number of live births in a given year divided by the population of the previous year) was at an exceptionally high level that ranged from 3.3% to 3.5%. (The birthrates for the American baby boomers were somewhere between 2.0% and 2.5%.) As the corporate warriors of Japan Inc., Japan's baby boomers supported the country's rapid economic growth, and they have been at the forefront of the age of mass consumption. Moreover, compared to the previous generations, in their value systems, baby boomers place more emphasis on the individual than the group, and on one's personal life. This segment of the population also has a high level of digital skills as well as a strong global orientation.
Of the 7,776.2 billion yen in direct spending
that Dentsu has announced will occur in conjunction with the retirement of the
baby boomer generation, the largest amount in a single category will be 4,092.4
billion yen in consumption related to real estate. This figure includes the acquisition
of vacation homes, moving to different dwellings, and home remodeling. Additionally,
the estimated tally for travel prompted by retirement will be 1,116.0 billion
yen: 980.4 billion yen for trips overseas, a highly popular option, and 135.7
billion yen for trips within Japan.
Another notable area of spending relates to
hobbies and learning. The amount spent on learning in preparation for retirement
will be 269.9 billion yen, while the figure for post-retirement learning will
be 244.0 billion yen, for a total of 513.9 billion yen. Altogether, this expenditure
for learning plus 682.6 billion yen in hobby-related spending will total a figure
of 1,196.5 billion yen. The fact that studying abroad will account for 103.7
billion yen of that amount highlights a distinctive characteristic of this generation.
Purchases
of big-ticket items will total 404.0 billion yen. The bulk of this amount will
be 323.0 billion yen in spending due to replacement demand for automobiles and
motorcycles. The spending for the purchase of financial products will total 675.5
billion yen, of which 596.3 billion yen will be spent on stocks, mutual funds,
and other investment activities.
When the 7,776.2 billion yen in spending by retiring baby boomers is combined with the amount for parts sourcing, distribution, and other activities ancillary to their direct spending, the total adds up to approximately 15,323.3 billion yen. The scale of this amount, Dentsu explains, is such that, with baby boomers continuing to move into retirement over a five-year period, their retirement-related consumption will have the effect of increasing Japan's gross domestic product, which is about 500 trillion yen, by approximately 0.6% each year during this period. Incidentally, domestic consumer spending in Japan is about 300 trillion yen annually.
The estimates announced by Dentsu are based on an Internet survey targeted to baby boomers living in the Tokyo metropolitan area. Consequently, the target group may be unavoidably weighted toward baby boomers who have an urban lifestyle and are leading relatively stable lives. Additionally, declining sales of business attire and other reductions in consumer spending which are anticipated in conjunction with the retirement of the baby boomers had not been factored into the picture.
While the aforementioned estimates apply only to the baby boomer generation and are also limited to a few years, Dentsu released an earlier report in 2000 entitled "Estimated Future Size of the Senior Market," a comprehensive analysis of the consumer spending by people age 50 and older. This analysis was not premised simply upon using household expenditures as the basic value. Rather, the spending of individual household members was added up, and the overall scale was estimated from that total. The following table shows that the elderly will increasingly become major spenders.
Estimated/Projected Total Size of the Age 50+ Market
| Age | 2000 | 2015 |
|---|---|---|
| Estimate | Projection | |
| 50 and older | 85.8 trillion yen | 127.2 trillion yen |
| 50 to 64 | 51.2 trillion yen | 67.1 trillion yen |
| 65 and older | 34.6 trillion yen | 60.1 trillion yen |
The following table lists the areas for which a particularly high spending growth is projected among the elderly age 65 and older. The factors underlying these gains, it is explained, include the widespread use of the Internet and e-mail, increased repair costs for household equipment, increased leisure time, expanded nursing care services, the active utilization of free time, and expanded livelihood support services.
Estimated Spending by Age 65+ by Category
| 2000 Estimate | 2015 Projection | |
|---|---|---|
| Information and telecommunications | 1.1 trillion yen | 2.4 trillion yen |
| Real estate and household equipment | 2.2 trillion yen | 4.9 trillion yen |
| Publications | 0.7 trillion yen | 1.4 trillion yen |
| Education and health care services | 2.5 trillion yen | 5.3 trillion yen |
| Vehicles and related goods | 0.9 trillion yen | 1.9 trillion yen |
| Hobby and sporting goods | 0.5 trillion yen | 1.0 trillion yen |
| Dining out and miscellaneous services | 2.1 trillion yen | 4.0 trillion yen |
The limited random sampling of the base survey is the problematic aspect of the findings announced by Dentsu. The economic trends will be a variable factor. Consequently, the actual figures are likely to vary from the estimates. But the existence per se of a large senior market is a fact beyond doubt. With a large number of businesses also stepping into this arena, though, this will not necessarily be a market characterized by limited competition.
As a market prospect related to the retirement of the boomers, various consulting firms in Japan recommend companies to develop business ideas that are an extension of their core business. It is also important to be mindful that those newly entering the elderly age bracket possess extraordinarily diverse values and they are by no means a uniform group. The companies should be aware that seniors value dependability in their spending behaviors. Companies are also advised that presenting a product as something aimed at seniors is not always an effective strategy.
Source:
News Release, March 30, 2006 ;"Dentsu Survey Estimates the Economic Impact on Consumption Resulting from the Retirement of Baby Boomers"
http://www.dentsu.com/news/2006/20060210330.html
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