Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Baby Boomer Age Wave Theory

What it is:

The baby boomer age wave theory, developed by economist Harry S. Dent, Jr., theorizes that the age of the baby boom generation can predict major changes in economic trends.

How it works (Example):

A "baby boomer" is a member of the generation born between 1946 and 1964. The term baby boom refers to the increase in births after the end of World War II. Today, America's 75 million baby boomers represent about 30% of the population.

The baby boomer population will enter retirement age over the next two decades. According to the baby boomer age wave theory, this will lead to a decrease in overall consumption and increase in demand for aging care, products for the elderly, estate and retirement planning, and similar goods and services. In turn, this will affect stock prices, inflation, interest rates, innovation trends, real estate markets and a variety of other economic factors.

The patterns follow those in the Dent Method, which finds that by age 50, people usually reach the peak of their consumption. After age 50, the boomers will largely become empty nesters with smaller households and less to purchase. By 60, many will begin to retire and will pare back spending even more. These predictable stages of life are used to forecast the years during which economic changes will occur.

Why it Matters:

According to the baby boomer age wave theory, the baby boomer generation is a major force not only for its sheer size but for its habits. Generally speaking, this population segment is responsible for more than half of all consumer spending in the United States. Because the segment reached its peak spending at age 50, the economy should be considerably slower (and stocks less valuable) until the next generation (Generation X) reaches its spending peak sometime around 2022.