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Maxwell Gold

Director - Investment Strategy

ETF Securities Outlook September 2017

Make Way for Millennials


Summary
Concentration of Millennials in developing world may refocus approximately 84 million Millennials compared to the 75 million
global growth to these economies. Baby Boomers.
Headwinds for US Millennials sparked a shift in consumer and Lower Starting Point for US Millennials
financial behaviors.
US Millennials have faced significant economic headwinds including
Millennials and Baby Boomers may create barbell growth two recessions and increased labor competition stemming from
engine impacting different sectors. globalization and technology. This has delayed their entry into the
workforce as evidenced by a structurally lower labor participation rate
The Millennial Majority in the US.
Millennials, those born between the years of 1982-2000, are a This delay has also coincided with Baby Boomers qualifying for pension
difficult group to define with very different starting points, benefits (with Baby Boomers reaching age 65 in 2011) and rotating
spending habits, and financial goals than previous generations. Yet towards retirement. These trends aided in lower productivity and a
one generality about this generation is clear: their size. drag on growth for the overall US economy, a trend indicative of other
With global population estimates ranging from 1.7 to 2.0 billion or developed economies as well.
more, Millennials are a core factor for future global economic Millennials enter labor market as Boomers exit
trends. The vast majority of this population, however, is located 68
outside of the developed world.
66 Baby Boomers
Top 15 Largest Millennial Populations enter workforce
Participation Rate (%)

64
Egypt
Generation X
Philippines enter workforce
Iran 62
Vietnam Millennials
Mexico enter workforce
60
Russia
Nigeria
Bangladesh 58
Pakistan US Labor Force Participation Rate
Brazil
56
Indonesia
1948 1953 1958 1964 1969 1975 1980 1985 1991 1996 2002 2007 2013
US
Europe Source: Bloomberg, ETF Securities. Data from 01 /01/48 to 08/31/17. Generation X = born 1 965 to 1 981.

China
India Fewer labor opportunities have also been met with lower starting
0.0% 5.0% 10.0% 15.0% 20.0% incomes for Millennials in recent years. In fact, workers aged 25-34
Source: United Nations, ETF Securities. Data as of 1 2/31/15. years old in 2013 who financed an advanced degree with debt earned
According to 2015 United Nations data, approximately 86% of approximately the same median income as their peers in 1989 without
Millennials live in the developing world, with China and India alone any such degree (see Table 1).
accounting for over a 1/3 of this demographic. Young populations Table 1: Median income for Millennials lower than prior
coupled with a higher consumption utility may create a growth generations along with levered educations
conducive backdrop for frontier and emerging markets as Percent
1989 2013
Ages 25 to 34 change
Millennials continue to age.
Within developed economies, the Millennial population has also Degree without debt $75,422 $61,886 -18%
expanded and now exceeds the Baby Boomer generation (those
Degree with debt $67,880 $50,727 -25%
born between 1946 and 1964). This generation shift is particularly
dominant in the United States (US), which is home to No degree $49,024 $36,523 -25%
Source: Measuring Generational Declines between Baby Boomers & Millennials,
Young Invincibles, January 2017. Adjusted to 2013 dollars.

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Past performance is no guarantee of future results.
Another critical headwind reducing discretionary spending from A Generation of Savers
Millennials is student loan debt. Millennials educations are highly
Millennials are characterised as focused on financial freedom and
levered with total US student loans hitting a record $1.4 trillion as
less concerned with retirement. This is reflected by a higher savings
of March 2017, despite overall debt service ratio dropping for US
rate compared to previous generations. Yet this above average rate
households following the 2007 credit crisis.
of savings comes at a period of record low personal savings among
Burden from Student Loans Continues to Grow US households. Additionally, Millennials are disadvantaged by
14
US Student Loan Debt (rhs)
1.5 having to deal with record low and falling yields.
US Household Debt Service Ratio (lhs) 1.3
13 Low rates spark generational gap in savings
1.1 18 18

Median Personal Sav ings Rate (% of Disposable Income)


12
0.9 16 16

Trillions (US$)
US 10 Year Treasury Yield (lhs)
Percent (%)

11 0.7 14 14
Baby Boomers
12 12
0.5
10
10 10

Y ield (%)
0.3
Generation X
9 8 8
0.1
6 Millennials 6
8 -0.1
2003 2004 2005 2007 2008 2009 2011 2012 2013 2015 2016 4 4
Source: Bloomberg, ETF Securities. Data from 03/31/03 to 06/30/17. 2 2

According to a 2015 PricewaterhouseCoopers survey, 80% of 0 0


1964 1968 1973 1977 1982 1986 1991 1995 2000 2004 2009 2013
college-educated Millennials deal with at least one form of long-
Source: Bloomberg, ETF Securities. Data from 03/31/64 to 06/30/17.
term debt, while more than half of Millennials worried about their
ability to repay student loan debt.
Millennials & Boomers: the barbell economy
Dealing Through Disruption The magnitude of the Millennial demographic has brought them
into the limelight, but they come with very different starting points,
In response to these short-term financial headwinds, Millennials
spending habits, and financial goals than previous generations.
have shifted their spending habits and consumption preferences.
We believe the prospects for Millennials are only delayed, not
The evolution of sharing based economies and other disruptive
deterred. Economic gains from Millennials are likely since they
businesses (primarily rooted in technology) can be viewed as a
have yet to enter their peak earning ages. They are currently more
response to these new budgets.
focused on saving and less focused on debt fuelled spending
Millennials generally put more emphasis on asset sharing
characterized by other generations.
compared to asset ownership. This trend is affecting travel and
automotive industries, and greatly reshaped the US housing Millennials & Baby Boomers Driving Growth
90
market. Since 2000, the increase of renter occupied housing has far
80 Millenials (1982 - 2000)
exceeded owner occupied housing as Millennials have hit
Baby Boomers (1946-1964)
adulthood. 70
Population (millions)

60
Homeownership slows in favor of renting
80000 45000 50
Renter Occupied Housing (rhs)
75000 40
Owner Occupied Housing (lhs)
70000 40000 30

65000 20
Units (thousands)

Units (thousands)

60000 35000 10
55000 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
50000 30000
Ordinal Y ear
45000 Source: US Census Bureau, ETF Securities. Data from 1 2/31/46 to 1 2/31/00.

40000 25000 Additionally, other demographics, particularly the Baby Boomers


35000 should not be discounted in terms of their on-going economic
30000 20000 impact. Rising longevity, increased health care services, and
1965 1970 1974 1979 1984 1989 1994 1999 2003 2008 2013
demand for travel and leisure spending as they continue to seek
Source: Bloomberg, ETF Securities. Data from 03/31/65 to 06/30/17.
retirement are likely to be economically beneficial.
Financial security had been synonymous with home ownership, yet
Millennial preferences driven by financial delays have adapted and
shifted housing market demand dynamics.

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Past performance is no guarantee of future results.
Important Risks
The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of
future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would
be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.
Maxwell Gold is a registered representative of ALPS Distributors, Inc.
ETF001216 09/30/18

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