Looking backwards we can readily see the impacts of large demographic cohorts on economy, fashion, trends, and yes – banking.
- housing value growth
- stock market growth
- cruise ship growth
- fast food growth
- music and radio genre rise and fall
Lately I have been sensing we are in the midst of another big shift from the Baby Boomer cohort. That cohort is age 51 – 69. That would place them in the stock market/ cruise ship group. Despite being the largest cohort, their income is flat, savings flat having already largely inherited from parents, and they are not going to significantly create new trends, rather will continue what they have been doing.
The cohorts that will move things and shape new trends are the Millenials (Age 18 – 34) and the Gen X (Age 35 – 50). They are in their income growth years, bring their cohort beliefs, expectations and fears, and they will shape the next 20 years.
Some examples I have observed recently:
- Q107 Classic Rock this week advertsiing that all rock is classic rock. Signs that the Led Zeppelin generation is not listening anymore.
- McDonalds in trouble: Millenials have higher expectations, and are not attracted to Ronald McDonald. This could come back as the large cohort Millenials get married and have kids but thats 10 years off.
- Apple and Samsung growth: the conversion to smart phones has been immense and relativley instant. Its hard to imagine that smart phones only arrived in 2007, and didnt get past effectivley beta until 2010. It should not be a surprise that Apple iPhone growth is growing exponentially given the growth of the Millenial cohort, supported by the sceptical Gen X, but it won’t be forever as the Millenials appetite for smart phones flattens out.
- Resurgent interest in guys fashion, from striped socks to the Bieber bob. This is a stark contrast from Boomers with Levi’s and army jackets.
Relevance to Bankwatch:
The examples are incidental. The point is that a large cohort has signifcant economic and beahvioural impact that reflects in everything from purchase patterns to banking. Its essential we understand not just the design of a mobile website, but the thoughts, beliefs and needs, which may not be what we expect.
I have been taking in a fiew WEF disucssions and one I did enjoy was the Posen/ Martin Wolf interview, and can recommend this for anyone interested in nations and the worlds financial systems. Wolf speaks of three key risks within the financial system which intestingly are precisely those same risks from 2008.
- D/E (Debt to Equity) of banks which on average sits in real terms (disregarding risk weighted) in the range of 20 : 1 or 25: 1. Wolf makes the point that at that ratio consider how much loss needs to occur in asset value before the bank is work less than nothing.
- Derivatives: These sit still at $600 trillion + or 9 to 10 times the value of the world economy.
- Stablity breeds instability (Minsky: Minsky’s Financial Instability Hypothesis (FIH)) or as stated by Lawrence H. Meyer :
“a period of stability induces behavioral responses that erode margins of safety, reduce liquidity, raise cash flow commitments relative to income and profits, and raise the price of risky relative to safe assets–all combining to weaken the ability of the economy to withstand even modest adverse shocks.”
Relevance to Bankwatch:
Back in those heady days of 2007/2009 I blogged at length on bank equity levels, derivatives and yet we are still here. Wolf spoke of the Minsky point above which we admits regretting only having read recently, and how this could be the real risk underlying where we are today.
Rather than repeat all those arguments, here is the story of Wachovia and the speed with which it disappeared in hours and days back in 2008. This is a stunning sotry bearing in mind Wachovia was the fourth largest bank in the US. Wachovia had assets of $802 billion and liabilities of $720 billion (approx). Equity base $72 billion Form 10K Feb 2008.
Its been a while since I looked at demographics and the shifts between the demographic groups. This analysis is important because it spells out the banking audience and demographics don’t lie. Booms in housing and in cottage prices are all tied to demographics and the size and income of generational shifts.
Demographics also spell out the nature of the banking audience and we can imply certain high level behaviours relative to technology.
This from Pew notes that in 2015 Millenials are officialy the largest demographic, overtaking Baby Boomers.
This is significant because at ages 18 – 34 at least half of them are entering reasonable income age, and say 10% are entering strong earning period. With the oldest born in 1981, they have never not known technology, and the youngest born in the mid/late 90’s were immersed in games and web. By teen years smart phones (iphone – 2007) were part of the lifestyle.
This combined with the strong showing of Gen X suggests a demographic of US 130 million or 30ish % of the population for most westrn countries.
This from an IBM report on security threats to Financial Services companies. It was just released yet dated Nov 2014, but based on 2013 data. Its more of an IBM sales tool, but this graph caught my attention.
17% of attacks on Banks involve insiders. Thats almost 1 in 5. If correct this is a staggering statistic, and imortantly not one that encryption or password strategies will necessarily solve.