1. foreseechange1 Finding the big spenders Charlie Nelson February 2012

2. foreseechange2 Overview Over recent years there has been a vast transformation in the age distribution of Australia’s biggest spending demographic. This document charts this transformation in terms of population size, discretionary income, and spending power. The major conclusion is that people aged over 45 are now the power spenders –and that the spending power of people aged 45 to 64 in particular has increased substantially and this demographic now constitutes the big spenders. The data used in this document have been sourced from the Australian Bureau of Statistics (ABS) and foreseechange pty ltd as described in the appendix.

3. foreseechange3 The key facts Population by age –More than 50% of adults are now over 45 and the biggest population growth over the past 15 years has been in the 45 to 64 age bracket (charts 1 and 2). –58.8% of households are headed by people aged over 45, while there has been no growth in households headed by people aged under 45 since 1998/99 (Chart 3). Financial situation by age –The peak age of discretionary income per household is at age 45 to 54 (Chart 6). The peak of discretionary income per person occurs in the 45 to 64 age bracket and the lowest discretionary income per person is in the 35 to 44 age group. –This distribution is because the number of persons per household peaks at ages 35 to 44 and 45 to 54 (Chart 4), and because the cost of housing peaks at age 25 to 34 and remains high at age 35 to 44 before declining (Chart 5). –net wealth per adult peaks at age 55 to 64 (Chart 7). Discretionary spending by age –The peak age for discretionary spending per household is 45 to 54 and the peak age for discretionary spending per person is 55 to 64 (Chart 8). –For most categories of spending, households headed by people aged over 45 contribute well over 50% of total spending (Chart 9 and 10). –Most economic power resides in households headed by people aged over 45 - on the basis of the number of households, discretionary income, discretionary spending, and wealth (Chart 11). Reasons for high income growth in the 55 to 64 age group –In addition to strong population growth, there has been a huge increase in the proportion of people aged 55 to 64 who are in the workforce. This is mostly amongst females, representing a major demographic change and a dramatic increase in spending power (Charts 12 and 13). Interest rate exposure by age group –By age 50 to 54 more people own their home outright than are paying it off (Chart 14). –By age 60 more people prefer higher interest rates than prefer lower interest rates (Chart 15). Ability and willingness to spend by age group –The age band who least feel that they have money left after meeting their commitments is those aged 30 to 54 (Chart 16). –The age band most willing to spend any discretionary income is 65+ and willingness to spend varies little between the ages of 25 to 64 (Charts 17 and 18).

4. foreseechange4 1. The median age of the adult population passed 45 in 2009 and it will continue to increase. More than 50% of adults are over 45

5. foreseechange5 2. Population growth by age group: 1995 to 2010. 45 to 64 provided the greatest population growth.

6. foreseechange6 3. Number of households by age of reference person (highest income earner) – biggest growth in the 55 to 64 and 65+ age groups. 58.8% of all households headed by people 45+.

7. foreseechange7 4. There are more mouths to feed in households headed by people aged 35 to 44 and adults incomes have to be spread across more people.

8. foreseechange8 5. A higher proportion of income is available for discretionary purposes after the age of 45 as the cost of housing falls

9. foreseechange9 6. The age group with the highest discretionary income per person is 55 to 64, followed by 45 to 54 Discretionary income defined as income minus tax, rent, and mortgage payments

10. foreseechange10 7. The age group with the highest net wealth is 55 to 64

11. foreseechange11 8. The age group with the highest discretionary spending per person is 55 to 64, followed by 45 to 54 Discretionary spending defined as all spending minus housing rent and mortgage interest

12. foreseechange12 9. Households headed by persons 45+ spend well over 50% (a growing proportion) of total spending on food staples

13. foreseechange13 10. Households headed by persons 45+ spend well over 50% (a growing proportion) of total spending on a wide range of goods and services

14. foreseechange14 11. The economic power resides in households headed by people aged 45+

15. foreseechange15 12. Income for 55 to 64 year-olds has been significantly boosted over the past 10 years by higher workforce participation rates amongst females

16. foreseechange16 13. High growth in employed people aged 45 to 64 over the past 11 years has boosted the income of that age group

17. foreseechange17 14. By age 50 to 54, more people own their home outright than are paying it off

18. foreseechange18 15. By age 60 to 64, more prefer higher interest rates than prefer lower interest rates

19. foreseechange19 16. By age 50 there is a big increase in the proportion of people who feel that they have few financial worries.

20. foreseechange20 17. People aged 30 to 54 attach a high priority to repayment of debt

21. foreseechange21 18. Willingness to spend peaks at age 65+ and varies little between the ages of 25 to 64.

22. foreseechange22 Conclusions Over recent years there has been a vast transformation in the age distribution of Australia’s biggest spending demographic. The 45 to 64 age band has taken over as the biggest spenders –by a combination of the population being swelled by the large Baby Boomer generation; –and a big increase in the proportion of this age group in the workforce (mostly driven by Baby Boomer females who are more likely to be employed at this age than were previous generations. Thus the highest discretionary income and spending now occurs in the 45 to 64 age group. And well over 50% of spending on most goods and services comes from households headed by people aged over 45.

23. foreseechange23 Appendix: data sources The ABS Household Expenditure Surveys –The Household Expenditure Survey (HES) is conducted every five or six years or so by the Australian Bureau of Statistics (ABS) –The most recent survey for which data is available was conducted during the period July 2009 to June 2010 The sample size is 9,774 households (6,957 for the previous HES in 2003/04) Income, wealth, expenditure, and demographic data were collected Expenditure data covered several hundred categories. The foreseechange Consumer Pulse surveys –These surveys are conducted by telephone with a sample size of 500 per wave until 2010 when the sample size was increased to 1,200 per wave –A range of topics are canvassed including –Ability to spend is measured by perceived financial wellbeing. Survey respondents are asked to self-classify into four segments: I never seem to have enough money these days (labeled as “Broke”); I manage to meet all my expenses but there’s not really anything left over (“Struggling”); I can afford to spend on those extras that make life worthwhile (“Comfortable”); I have few financial concerns, being both able to save and buy the things I want (“No Worries”) –Willingness to spend which is measured by asking survey respondents how a (hypothetical) discretionary $1,000 would be allocated across saving, spending, and loan repayment. The $1,000 could be from savings or a tax return. –The data presented here covers the period June 2010 to November 2011 and is based on four survey waves with a total sample of 4,800.