Small Business Labs

Pew's Demographic Trends That Are Shaping the World

Not everyone agrees that demographics are destiny. But demographic trends are key drivers of change and also one of the few things we can project into the future with decent accuracy.

Pew Research's 7 demographic trends shaping the U.S. and the world in 2018 looks at the demographic trends Pew considers to be the most important. 

Our favorites are:

Millennials are projected to outnumber Baby Boomers next year: Numbering 71 million in 2016, Millennials in the United States are approaching Baby Boomers (74 million) in population and are projected to surpass them as the nation’s largest living adult generation in 2019. 

A record number of Americans live in multigenerational households, part of a broader trend toward more shared living. In 2016, a record 64 million people, or 20% of the U.S. population, lived with multiple generations under one roof …

The institution of marriage continues to change. Half of U.S. adults today are married, a share that has remained relatively stable in recent years but is down significantly over previous decades. Cohabitation among unmarried partners is rising, including among a growing share of unmarried parents.

After decades of decline, motherhood and family size are ticking up in the U.S. Among women at the end of their childbearing years (ages 40 to 44), 86% had ever given birth by 2016, an increase from 80% in 2006 and about the same share as in the early 1990s. Women also are having more children: On average, women in 2016 had 2.07 children during their lives – up from 1.86 in 2006, the lowest average on record.

These are our favorites because they impact a wide range of social and business activities. 

See the Pew article for more details.

Also, The Atlantic's The Age of 'Shotgun Cohabitation' nicely covers the growing trend of unmarried parents living together with their children.

By 2020 Less Than Half the Children in the U.S. Will Be White

According to the U.S. Census, by "2020 less than half of children in the United States are projected to be non-Hispanic white alone (49.8 percent of the projected 73.9 million children under age 18)."

They say "white alone" because the U.S. Census defines Hispanic as "a person of Cuban, Mexican, Puerto Rican, South or Central American, or other Spanish culture or origin regardless of race".

While Hispanics can be of any race, ancestry or ethnicity, most are white.

So in 2020 white children in total will comprise about 72 percent of all children. This, by the way, means in 2020 about 23% of all U.S. children will be Hispanic.

In addition to becoming more ethnically and racially diverse, the U.S. is also getting a lot older.

As the U.S. Census chart below shows, in 2035 there will be more Americans 65 and older than are 18 and under. 

Key quote from the U.S. Census on what this means:

As the population ages, the ratio of older adults to working-age adults, also known as the old-age dependency ratio, is projected to rise. By 2020, there will be about three-and-a-half working-age adults for every retirement-age person. By 2060, that ratio will fall to just two-and-a-half working-age adults for every retirement-age person.

Demographic trends don't tend to get as much attention as other trends. This is because they happen relatively slowly.

But these are seismic shifts that will have major impact on society and business in the coming decades.

The Post Millennial Generation

A fun demography fact is there aren't official definitions of generational cohorts*. 

Making this even more fun, different people and groups often use different definitions and even different names for the various cohorts.

For example, the generation born between roughly 1980 and 2000 used to be called "Gen Y" (and still is by many).

But that name fell out of favor a few years ago. Instead, "Millennials" is now the commonly used term for this generation.

We also don't yet have a consensus around the name for the generation that follows the Millennials.

Gen Z is used by many, but it seems to make less sense now that we aren't using Gen Y.

The highly respected Pew Research Center has decided to put a stake in the ground and give this generation a name.

Proving they're researchers and not marketers, they've decided on the catchy name "Post-Millennials" for the newest generation. 

Their chart on the right shows how they fit relative to the other generations.

In addition to coining a name, they've also picked dates for end the of Millennial generation (1996) and the beginning of the Post-Millennials (1997). 

We - and most others - have used 2000 as the last year of the Millennial generation. 

But as Pew points out in their article Defining generations: Where Millennials end and post-Millennials begin:

"... we believe 1996 is a meaningful cutoff between Millennials and post-Millennials for a number of reasons, including key political, economic and social factors that define the Millennial generation’s formative years."

These include the 9/11 terrorist attack, the Middle Eastern wars and the Great Recession. 

They also point out the "always-on" nature of technology that more or less started with the release of the iPhone in 2007. Key quote:

"The iPhone launched in 2007, when the oldest post-Millennials were 10. By the time they were in their teens, the primary means by which young Americans connected with the web was through mobile devices, WiFi and high-bandwidth cellular service. Social media, constant connectivity and on-demand entertainment and communication are innovations Millennials adapted to as they came of age. For those born after 1996, these are largely assumed."

In other words, while Millennials are digital natives, they aren't "always-on" natives in the same way those born after 1996 are.

We agree with Pew's reasons for this shift and being consistent with them has a number of advantages.

So we're going to switch to their generation definitions.

We've done some preliminary work and we don't think this shift will have a major impact on our study findings. 

So Post-Millennials it is. 

* The U.S. Census Bureau has sort of officially defined the Baby Boomers, but not other cohorts.

Ford's 2018 Consumer Trends

Ford (yes, that Ford) recently released their 2018 Trends Report.

Ford has been doing an annual trends report since 2013. Like prior years most of the reported trends are not new or surprising.

But Ford does a great job presenting and explaining the trends. And that, we think, makes the report well worth reading for anyone interested in trends.

We particularly liked the trend they call The End of Reason, which they describe this way:

Global upheaval is evident in everything from politics to pop culture, and people are responding to these changes in polarized fashion. As divisiveness grows, a sense of being overwhelmed intensifies. Consumers are hungry for inventive ways to cope and adapt.

As the report chart below shows (click to enlarge), one result of the end of reason is that most people are feeling overwhelmed. 

Ford also nicely covers the shift away from marriage and children in the trend they call Singled Out.  They describe this as:

Couples today – with more choices and longer life spans to consider – are rethinking commitment and fulfillment. 

Ford used to include ads for their cars and trucks in their trend report and talk about how they linked back to the trends. This got a fair amount of criticism, with many claiming it was too commercial.

But we liked seeing the cars and how they linked back to the trends. And besides, does anyone not know Ford is in the business of selling cars?

Asia's Surging Middle Class Driving Global Growth

While it's hardly new news that Asia's middle class and economies are growing, it's still worth looking at the amazing numbers behind this.

According to Asia: Leaning In, a report from the giant global investment management firm KKR, Asia's middle class will increase from 1.4 billion in 2015 to 3.5 billion by 2030.

This data means Asia's share of the global middle class will grow from 45% in 2015 to 63% in 2030.

In other words, in 2030 almost 2 out of 3 of those in the middle class will live in Asia.

As KKR's chart below shows, this is already resulting in Asia being the driver of global economic growth. 

As is often said, demographics is destiny. And demographics make it clear Asia is going to continue to rise.

The Rise of Intermarriage and Cultural Fusion

In 2015 one-in-six U.S. newlyweds (17%) were married to someone of a different race or ethnicity. 

This is up from just 3% in 1967. The reason 1967 is the comparison date is that's the year the U.S. Supreme Court ruled that interracial marriages were legal. 

These stats comes from Pew Research's In U.S. metro areas, huge variation in intermarriage rates. 

Not surprising given the sharp increase in intermarriage, the U.S. Census is projecting that the "two or more races" population will grow the fastest of any demographic cohort over the next 40 years. 

And while we are on the topic of the changing racial and ethnic make-up of the U.S., here are several more interesting stats from the U.S. Census:

• Babies of color already outnumber non-Hispanic white babies (1 year or younger)
• By 2020, more than half of the nation's children are expected to be part of a minority race or ethnic group
• Sometime around 2040 America will be a minority majority nation
• By 2060 the minority population is projected to rise to 56 percent of the total, compared with 38 percent in 2014.
• By 2060, the nation's foreign-born population will reach nearly 19 percent of the total population, up from 13 percent in 2014.

The shifting racial and ethnic make-up of the U.S. is driving the trend towards cultural fusion. This is the blending and mixing of different cultures and their practices. 

A simple example of cultural fusion is the nationwide popularity of Korean Tacos, which were introduced in 2008 by LA's Kogi BBQ food truck. 

The numbers presented above make it clear the racial,ethnic and cultural blending of America will continue - as will cultural fusion. 

Yes, there will be friction and push-back from those who feel threatened by these shifts. But the reality is the blurring of cultural, ethnic, social and racial lines is too far along and powerful to stop. 

Small businesses who embrace cultural fusion will find a variety of market opportunities. 

Most American consumers are embracing innovative products and services that are inspired by the mesh of cultures. Small businesses who can create these products and services will - like the Kogi Barbecue truck - benefit. 

Declining Investment Returns Means More Independent Workers

While not initially obvious, investment returns have an impact on the number of independent workers.

The reason is retirement, or more precisely the financial ability people have to retire. If future investment returns are low, fewer people will have the financial resources to retire or they will have to work longer before they retire.

One of the reasons we are forecasting increasing numbers of independent workers is a growing number of people are working past the traditional retirement age.

Some are doing this by choice, others out of financial necessity. But either way, older workers tend to want higher levels of work/life flexibility and control than younger workers. This makes independent work attractive.

Age discrimination also makes finding a traditional job harder, making independent work often the best, or even only, option.

Because of these reasons, working Americans aged 60+ have the highest self-employment rate of any age cohort, with about 25% reporting being self-employed. This is substantially higher than the overall self-employment rate of 10%.

So anything that results in more older Americans staying in the workforce also results in more independent workers.

Declining investment returns is an example.

According to McKinsey's New talent tensions in an era of lower investment returns, we're entering "an era of overall investment returns that are substantially lower than those of the past 30 years."

As the article chart below shows, McKinsey is forecasting that the average annual equity returns over the next 20 years will be between 1.5 and 4.0 percentage points lower than they were in the past 30 years.

Fixed-income returns are forecast to be lower by 3% to 5%. 

This has huge implications on retirement savings. Key quote from the article:

A two-percentage-point difference in average returns over an extended period means that in order to live as well in retirement as would have been possible with higher returns, a 30-year-old today would have to either work seven years longer or almost double her savings rate.

Based on the current financial condition and savings of most Americans, I think it's safe to say relatively few will be doubling their retirement savings rate.

Instead, they're going to have to work longer and this means more independent workers. 

BTW, McKinsey's not the only one suggesting future returns will be lower.

In recent weeks Blackrock (the world's largest money management firm), Singapore's sovereign wealth fund and others have also said they expect lower investment returns going forward. 

Many Americans having already figured this out, which is one reason why more are planning on working longer. 

See our Baby Boomer and Demographic sections for more on this topic.

The Surprising Demographics of Small Business Owners

Because of the extensive media coverage of young tech entrepreneurs, most people think the average small business owner is a 20 something techie who needs a shower. 

But as the chart below shows, the median American small business owner is a bit over 50 years old. 

The chart is from Babson College's State of Small Business in 2016 study. It's a comprehensive, 40 page report covering a variety of small business issues.

The report - which is well worth reading - focuses entirely on employer small business, which are those with traditional employees. It does not cover independent workers (solopreneurs, freelancers, etc.). 

While people are surprised about the average age of SMB owners, they are less surprised to hear small business owners are, on average, white and male.

But this data is quite different when you segment it by firm size.

The chart below shows that the smaller the firm in terms of employment, the more likely the owner or owners are female. The same is true for minority ownership. Smaller firms also have, on average, younger owners.

The independent workforce (solopreneurs, freelancers, independent contractors, etc.) is similar in terms of ethnic/racial make-up as small business owners, but the meidan independent worker is much younger.

According to data from the MBO Partners State of Independence studies, the median independent worker is is in their mid 30s. And as is shown in the chart above, roughly half of independent workers are women.

Dating Apps, The Decline of Marriage and the Paradox of Choice

The Washington Post article Why are millennials putting off marriage? Let me count the ways covers the decline in marriage rates. 

This is not a new trend and the article lists the reasons often listed in the past - student debt, shakey overall finances, lack of jobs, etc.

But it adds another interesting reason.

According to the article, dating apps are causing people to delay or not get marriage.

Key quote:

“People who are on the fence are probably being swayed to delay marriage or settling down due to dating apps,” says Fay, who has recently downloaded Tinder and Bumble to get back in the game. “Dating apps are the thing that single people have been waiting for since the dawn of time.”

There are two psychological traits that make this quite possible. 

Researchers have found that social media and access to online information is increasing FOMO - the fear of missing out.

We see the impact of FOMO in our work quite often, especially in the growing use of social media to share experiences such as eating at food trucks. It makes sense that dating app driven FOMO would impact relationships. 

The second, related issue is the paradox of choice. This is while more choice is good, too much choice can lead to paralyzed decision making and greater dissatisfaction when choices are finally made.

Because of this, when presented with too many choices people often choose not to choose. 

There's an excellent TED talk on the paradox choice by the author of the book The Paradox of Choice. I highly recommend both. 

People often make fun of us (OK, me) here at Small Business Labs because we think demographic trends are interesting and even fun.

This is a good example of why we're right.

Consulteering - A New Approach to Retirement

Work a Little, Play a Little: A New Retirement Strategy from the New York Times covers the  growing trend towards people working part-time in retirement.

As we reported last week, record numbers of Americans are working past 65. They are doing so for a variety of reasons, including financial need, wanting to stay engaged and simply enjoying work. 

The article focuses on a retired educator who has put together a portfolio of activities to meet his goal of “balancing a life of leisure with a life of purpose ...”. He calls this approach consulteering, which he describes as: 

"... my trifecta,” he said. “Paid work, giving back and relaxation."

Volunteering and spending time with family covers most of the giving back and relaxation. He also works part-time. The key is time management. Key quote:

The biggest challenge is time management. The management comes in how many gigs I will take on and how much volunteering we can realistically do.”

The article suggests more people will choose this path. We agree.

One reason is more people will need to do so. Simply put, many older Americans are not financially prepared for retirement and will need to work.

Additionally, many older Americans are pushed out of their jobs before they are ready to retire. Key quote from the article:

"A sizable 60 percent of retirees surveyed last year by the nonprofit Transamerica Center for Retirement Studies said they were pushed out of their jobs before age 65, largely for reasons out of their control, according to Catherine Collinson, president of T.C.R.S."

Others will choose to work part-time in retirement to stay and engaged. And, of course, many older Americans will continue working simply because they like it.

As we mentioned last week, older Americans have the highest rate of self-employment of all age cohorts. Age discrimination plays a part in this, but many older workers also prefer the flexibility and control independent work provides.

With 85 million baby boomers moving into their retirement years, you can see why we think the number of independent workers will continue to grow.