The other day I found myself talking to a few other parents about washing machines.
The notion that a washing machine now costs nearly $1,000 seems ridiculous to me. And the idea that someone would pay $200 for the stand to put the washing machine on is just icing on the cake. A stand doesn’t make the washing capacity bigger. It doesn’t make the unit more efficient or reduce energy or water consumption. The capability to handle different types of fabrics also has nothing to do with the pedestal.
Then it hit me: “I’m having a lucid, multi-point conversation about washing machines.”
Self-loathing almost describes how I felt at that moment. No matter how you spin it (no pun intended), there’s nothing cool about gabbing up the latest and greatest in clothing care. I’m old. Or more to the point, I’m at the stage of life where this sort of thing matters. It’s natural, no matter how uncool it is.
And that is what makes our economic world go round (again, no pun intended).
When Being Average Matters
As a guy in his mid-40s with a lovely wife and three teens, I am smack in the middle of the averages as far as Americans go. I got married in my mid 20s, started having children a few years later, and all along the way I pushed my spending higher… doing what I can to maintain and then increase our standard of living.
While not everyone follows this path, the overwhelming number of Americans (and members of other developed populations) do this exact thing – get married, have children and match their spending to their current stage of life.
There’s nothing magical about this. When you add more people to the household, you spend more money.
These are people you presumably care about, so you’d be willing to go the extra mile for them. The older they get, typically the more expensive they are to maintain. Just think about how much food a 17-year old puts away or, I shudder to consider it, the cost of car insurance for a teenager.
I have two teenage drivers. My annual car insurance is enough to buy a modest used car every year!
There is no question the expense of raising children goes up as they get older. As parents, we foot the bill.
Then we get the mother of all bills – college. This is kind of the grand finale of spending. But even without this blowout expense, children are the most expensive to their parents in their last years at home.
Now, today’s issue is not a rant against, or even about, the cost of children. Instead, it is to illustrate that people go through different stages of life in waves.
Over the past thirty years we saw Baby Boomers, the largest group in our population, go from pot-smoking, smelly hippies to BMW-driving yuppies and then to sometimes indulgent, overbearing parents. The transition brought with it waves of spending that drove our economy higher.
Even though wages remained flat, this spending pattern occurred through the use of massive amounts of debt, from credit cards to Home Equity Lines of Credit (HELOCS).
But this wave of Boomers’ spending more has crested. We reached the top when the highest number of Boomers, those born in 1961, reached their peak spending year in 2009.
The trend lower, that we are in now, is just as obvious and apparent as the trend higher was during the ’80s, ’90s and even part of the 2000s.
Today, the bulk of Baby Boomers are not focused on raising children. Their kids are out of the house. Instead, today, the talk is all about paying down debt and saving for retirement.
These are not activities that drive our economy higher. They’re activities that will lead our economy to shrink, which is why we have forecast a long, difficult economy ahead.
The Power of the Spending Wave
To put this information in graphic form, we developed the Spending Wave. It tracks people in the U.S. by their peak spending years. Notice the peak in 2009 is followed by a sharp drop and, after a few twists and turns, it takes until the early 2020s before we see a significant rise.
Notice what’s missing here: there is NO reference to the Fed… or a politician… or any outside force. That’s because consumers don’t consult politicians before they spend money on their families or save money for retirement.
With that being the case, don’t expect any policy out of the Fed or Washington to “fix” our situation. It takes time. Time (in fact almost a decade) for the next group in our economy to have kids and start spending with abandon.