Aging Population Will Put the Brakes on Spending

Bob Johnson: This week's chart of the week focuses on the aging population and what are the fastest-growing components of the economy--which, in turn, have a lot of implications for the broader economy. We've spent many videos in the past talking about the overall shifts in population growth and the effects those have on lowering overall growth potential; but there's also another effect, and that is the aging of that population.

Looking at the chart, you can see that the growth rate for the age-65-and-over category is, by far, the fastest-growing part of the economy with 16% or 17% growth rates. Meanwhile, everybody under that age group is growing somewhere in the 1% to 2% rate. So, it's a pretty dramatic shift that's going on. And as you can see from the graph, it extends over several decades. This is not a one-month, one-quarter, or one-year deal; it's a three-decade deal. But why is it a big deal?

Well, the age that you are determines how much you spend. It has to do with incomes; it has to do with how much you feel you have to save. And the best part of the economy is when people are 50 years or so old. That's when their incomes are the highest; that's when they tend to borrow the most money; that's when they tend to have children to educate. And so, that tends to be the highest-spending category.

If you look at the table, you can see that the 50-year-olds tend to make $60,000 a year or over, per household. That number drops radically to $35,000 or less for those 75 and older, which is among the fastest-growing parts of the economy. That will tend to limit overall economic growth. As we look forward, this combination of an aging population combined with smaller population growth is one of the reasons the GDP growth will be slower over the next 15 to 20 years than it has been for the prior 20 years.