In Step with the Millennium:

Investor Canada speaks with David Foot (April 1999)

This is a transcript of a radio interview.

Interviewer: Layth Matthews

Welcome to Today it is my great pleasure to speak with Dr. David Foot, who is an award-winning professor of economics at the University of Toronto, and the principal author of the best-selling book, 'Boom, Bust and Echo,' which was published in the spring of 1996. And more recently, 'Boom, Bust and Echo 2000: Profiting from the Demographic Shift in the New Millennium,' which came out in December 1998. Welcome Dr. Foot.

FOOT: Thank you very much. It's a pleasure to be with you Layth.

MATTHEWS: Dr. Foot, to begin with, could you explain just exactly what is the science of demographics and how is it useful?

FOOT: Demographics is the scientific study of human populations. I, as an economist, of course, am interested in what they do, how they spend their time, how they spend their money. So I use demographics to draw out the economic and policy implications, both explaining the past and looking into the future.

MATTHEWS: In your book, you divide up the Canadian population into, I believe, eight cohort groups. What are cohorts, and why do they span different lengths of time?

FOOT: Well, a cohort is a group of people born at roughly the same time that have roughly a similar experience. That is a loose definition of a cohort, but I think everyone gets the idea. The three most important cohorts in Canada, of course, is what the book title is all about; boom, bust and echo. The baby boom was born in Canada after the Second World War between 1947 and 1966. So, in Canada today, they are 33 to 52 years old. Dabbling in 30s and 40s, and just entering their early 50s.

I do separate out the back quarter of the baby boom because they have had somewhat different experience. The back quarter of the boom are the true Generation Xs. This follows on Douglas Copeland's very successful book. And they were born in the early '60s. 1960-66. Sometimes '67, '68 maybe added in there.

Being at the back end of a big generation like the baby boom means that life has been pretty tough because most of the boomers ahead of them took all the jobs, drove up house prices, interest rates all the rest of it. And that is the biggest cohort in Canada. The baby boom generation.

MATTHEWS: Why is the baby boom generation a cohort that spans almost 20 years, whereas there are other cohorts that may be only 10 years or 5 years long?

FOOT: Well, the baby boomers span 20 years because these were the years of very, very high births. Over 400,000 people born in Canada in the years of the baby boom. And that means that whenever you applied for a job, there were lots of other people applying at the same time. So they have had a lot of similar experiences when it comes to looking for work and all the rest of it.

Obviously those at the front end of the baby boom have had a much better time than those at the back end of the baby boom, but nonetheless, they are all characterized by lots of births in their birth year. And therefore, there were lots of kids to compete with in their schools, and lots of people to compete with when they came on the job market. That's why the baby boom is defined to be the length it is.

MATTHEWS: Well, I have to tell you Dr. Foot, that when I read your description of the experience of the Generation Xers I finally found someone who understands me, being born in January 1962.

FOOT: Well, it's not the first time I've heard that comment Layth. Many, many, many a Gen Xer has come out and said, "Look we are not twenty-somethings anymore." So much of our media is wrapped up with Douglas Copeland's book. I think the book, Generation X came out in 1991, and the three main characters in that book were 29-year olds.

And what the media seems to have forgotten is that every year we get a year older, and by 1999, those 29-year olds have aged 8 years and are now 37-year olds. And so most of the Gen Xers are now in their 30s. I think, on a daily basis, I still see our media getting this wrong. The twenty-somethings are my baby bust generation. They were born after the introduction of the Pill when fertility started to really start to plummet in the late '60s and '70s. There is not very many people out there now in their 20s.

In fact, the young twenty- somethings are having no difficulty getting work because they have hardly any competition. And I don't think youth unemployment is a problem in this country at all. I think the unemployment problem is actually an unemployment problem for those in their mid-30s. And we still, in government policy. continue to worry about the twenty- somethings, whereas the unemployment rate for twenty-somethings today is way below what it was in the early eighties when the baby boomers were youth.

MATTHEWS: Is a population boom a problematic occurrence for the economy or is it more just problematic for the people who happen to be born in the boom and thus are faced with increased competition for work and school entrance etc?

FOOT: Layth, that is a very perceptive question. I don't think I've ever been asked that question quite in that form before. It's probably a good thing for the economy because it leads to lots of demands in the economy, and that means lots of spending and lots of growth.

It's probably not such a good thing if you are at the tail end of it because, in fact, that leads to lots of competition for jobs. So, a short answer to your question would be it's probably good for an economy, and not so great for the individual, particularly those at the tail end of a big group like the baby boom.

MATTHEWS: I just want to ask for myself and for the rest of the Generation Xers, is there going to be a silver lining at some point when the baby boom generation starts to retire?

FOOT: Layth, I'm sorry I would love to say yes to that, but I don't think so. Unfortunately, I never cease to be amazed at how many of my students today think the boomers are just about to start to croak. And by that I mean that most people don't realize the first boomers born in 1947, they are only 52-years old. There's at least another decade before they start retiring, and maybe longer because we are living longer.

So you better get used to the boomers being around for at least another decade, and maybe longer before they start to retire and open up opportunities for other people. Meanwhile the Gen Xers will then be in their 40s, and I'm afraid that work place skills will have depreciated and the new, young workers in their 20s will be the ones that will be getting all the jobs.

I am not trying to be a downer on this one, I'm just trying to be realistic. I'm trying to say that, in fact, there are some very innovative Gen Xers today. I think the silver lining is out there because many of you have had to have been very resilient. You have had to bounce back from many, many different contracts, short-term contracts, and get back out there. I think the other thing is you have been very entrepreneurial.

And so I think the silver lining isn't in boomers retiring, the silver lining is that the Gen Xers in their 30s are incredibly resilient and incredibly entrepreneurial. You have not had a choice. And I think a lot of your work patterns fit the new workplace reality. Considerable flexibility, the ability to move around, different sectors of the economy, different occupations. This has been your lifestyle for at least a decade, and for many of you a decade and a half. I think that is where the silver lining is for the Gen Xers.

I probably should continue down the cohorts. We did boomer, we did bust. We should probably talk quickly about echo. Echo are the children of the boomers. They started to be born about 1980. Births started up '78, '79 by 1980 they were rising dramatically again. And so all over the '80s the boomers had their kids. Peak numbers of births were in 1990, and then the boomers started to get a little too old to have their kids and the numbers of births have been going down in the 1990s.

So, again, using numbers of births and a demographic cut-off, I have defined the echo as being born 1980 to 1995. So now the youngest is 4, the eldest is 19. And the peak of the echo is now age 9. And all of these teenagers, of course, are what have been driving movie attendance up. I often joke that there's a gazillion 13-year old girls to go and see Titanic for the 30th time.

And it's also having its impact on transit ridership. It is not because the economy is booming that ridership is turning around, it's because there are lots of teenagers out there. And you tend to ride transit when you are young because it is a cheap transportation mechanism.

MATTHEWS: We are already talking a little bit about he economic implications of the different cohorts that you have mentioned. The echo group are now looking for leisure activities in movie attendance, and then you have the 13-year old girls, which a number of the people we have interviewed have spoken about the boom in retail sales to that group. What are some of the other broad economic implications of the different cohorts?

FOOT: Well let's go back into the earlier cohorts because I think most people don't realize that, in fact, there were lots of people born in the Roaring Twenties, in the 1920s. Someone who was born in 1920 is now 79. They are the people who are really making the demands on the health care. And these are the parents of the boomers who were born in the 1950s. And so a lot of the pressure on health care spending today is not coming from the boomers as often is talked about.

But it's coming from the boomer parents who were born in the roaring 20s. And then hardly anyone was born in the depression years of the '30s. And this means that someone who is 65 in 1999 was born in 1934 and not many people were born in 1934. So we actually have a rapidly aging population, but a slower-growing group of seniors. Hardly anyone was born in the '30s so there is not many people in their 60s today.

And these people had a really tough beginning to life. I mean, it was no great joy being born in the depression years of the '30s, and they were teenagers in the Second World War, so they certainly paid their dues up front. But after that, it has been all plain sailing for them. In the '50s, they had no difficulty getting jobs. In the '60s, they did better than they ever expected to do, being promoted. They went out and bought more of everything, including kids.

And of course in the 80s, as kids grew they drove up the value of their real estate investments. And now the boomers, their kids in the '90s have been hitting the stock market and driving the value of all their stock market investments. So the richest people in Canada today are in their 60s, and these are the people who were giving seniors discounts to. Most Gen Xers just don't understand why we should be doing that. In fact most twenty-somethings don't understand why we should be giving discounts to the richest people in Canada.

And then, of course, there was the group born just prior to the Second World War, in the early 1940s and they are most of our senior executives in Canada today. Once again, they didn't have a lot of competition and it was relatively easy for them to get to the top.

MATTHEWS: Dr. Foot, does the reduction in the number of seniors, and therefore, demand on the health care system represent an opportunity for Canada to catch up a bit on its outstanding debt?

FOOT: Oh, big question. But let's get it right. We are not having a reduced number of seniors, we are having a slower-growing group of seniors. But really, the most rapidly growing group are the group over 75, and they make the most demands on the health care system. These are the people, as I said, born in the Roaring Twenties. So what we have got is a slower-growing seniors group, relatively wealthy young seniors, and a rapidly growing group of senior seniors, over 75 or over 80, who are making a tremendous demands on the health care system today.

And, of course, the children of the boomers are in their 40s and 50s who are running 99 lives, and so this is where the pressure for tremendous home care is coming from. And since governments are delaying on providing home care in the regular medical system, this is where, of course, the chinks in the two-tier system are beginning to emerge. Increasingly the boomers seek the private sector to provide home care to their aging parents in their late 70s and early 80s.

So I'm not sure whether we have got that window of opportunity. We certainly do not have the huge boom in health care pressure that is going to be coming when the boomers get up there. But that is 20 to 25 years away. So in the sense that the boomers are still 20 or 25 years away from major demands on the health care sector, we have a window of opportunity.

But right now, in the late '90s and the beginning of the first decade of the new millennium, we are going to have to deal with those born in the Roaring Twenties. There were lots of them born then, and as I said, that is where the pressure for a two-tier system is beginning to emerge.

MATTHEWS: Dr. Foot, from an investor's point of view, let's focus on the important trends for the next 10 years or so. First of all, can you say what influence the baby boom, and perhaps the bust generation, is having on the real estate market?

FOOT: Well, the boomers are pretty much finished buying their houses. It was on average the first house, at age 34. So the first boomers born in 1947, they reached 34 in 1981. We had a depressed economy then, so they didn't go out and buy their houses immediately.

But not surprisingly, over the '80s, they exploded onto the real estate market, and we know what happened to real estate prices. And then in the '90s, they finished buying their houses. And so, we know again, what happened to real estate prices in most jurisdictions in this country, they came back down.

The boomers now are pretty much finished buying their houses in the suburbs. The Gen Xers, those in their 30s, you identified yourself in that group Layth, you and your friends, many of you had to postpone buying your first house. And you have been buying your first houses in the late '90s. Quite often with the down payment coming from your grandmother. Remember women live six years longer than men.

So I always tell my students to be awfully nice to their grandmothers. An average grandpa will die before grandmothers and grandma will inherit the family fortune. She is the one that will give you the down payment on the house. By the way, it will be a loan, but what she really doesn't understand, it's actually an early bequest.

So that is what is giving a little stimulus right now. But, of course, in your 30s you have a pre-teen family, in your 40s, you have a teenage family. And a lot of the boomers now, with their teenage families are having to find more space for their teenagers because they all need their own rooms with a gazillion electrical outlets. And so the renovation business has been doing extremely well in the '90s, even though the housing market has been quite depressed. Similarly the trade-up business.

Most people prefer to renovate because they have chosen their location for schools and other reasons like that. But if you are not renovating, then you might, in fact, be trading a smaller house for a bigger house to handle your teenage family. So that is where the action in the housing market has been in the '90s. It is not new house purchases, except from that smaller group of Gen Xers. It is more the boomers trying to accommodate their teenage families.

MATTHEWS: So do you think that there is going to be a softening in the small house real estate market?

FOOT: No, not at all. The bust generation are beginning to enter their house buying ages. There are a few of them. Ten million boomers, five and a half million busters. And so starter homes are not going to be in huge demand. On the other hand, these busters, because they are from a smaller cohort, generally, are going to be better off, wealthier. And so they will be able to purchase slightly bigger and better starter homes than the Gen Xers, who are now buying them way out in the suburbs.

MATTHEWS: What would be your expectation for the commercial real estate properties?

FOOT: Well, I'm actually quite optimistic because the first echo kids born in 1980, they are now 19, Layth. And that means that the first echo kids are about to start leaving home. They're about to start leaving home to go to college and university, 15% to 20% of them will be headed in that direction. And that means, of course, that college and university enrollments will start skyrocketing in the first decade in the new millennium.

And that tells you, of course, that with increased demand, you can probably continue to expect to see increasing fees at colleges and universities. But more importantly, in your 20s, you want to be where the noise and action is. You don't want to be with your parents. They are heading into their 50s. They are birdwatching years and you go, 'Yuck, I don't want to be part of that.' Or they are into their gardening. I mean, they are things that you are not interested in, in your early 20s. You want to be in the downtown city where the noise and action is. And so I think the commercial market has quite bright spot prospects in the first decade of the new millennium.

As the echo kids leave the suburbs, come into the downtown cores, they go into the rental housing market so all of a sudden the rental market starts to rebound. And of course, they are entering the work place, and therefore, we need more offices. So I think the office market will also rebound. In the 1990s it has been the baby bust generation in those age groups, and that is why, in fact, the rental housing market has been a bust and that is why the office market has been a bust.

MATTHEWS: Beyond real estate, what industries do you think have the brightest and perhaps the dimmest demographic prospects in the next 10 years?

FOOT: Well the boomers, unfortunately, or fortunately, depending on what cohort you are in, tend to drive our economy. There are 10 million boomers in our population of 30 million, and whatever they are doing tends to drive the most rapidly growing trends. And as I have said, the first boomers born in 1947, they are now 52.

So all you have to do is ask what people in their 50s need. And we have already seen a bunch of this emerging. You are much more likely to play golf in your 50s. So that is why golf courses and golf course developments have been doing extremely well. You are more likely to need pharmaceuticals. If you need health care, it's not going to be a hospital. It's likely to be pharmaceuticals. Little niggling health care problems start to appear and the pharmaceutical business starts to look like a booming business of the future.

If you go to buy any real estate it is going to be a vacation property. And so, in the first decade new millennium, certainly vacation properties. Often it will be a second property, levering off the first one, which you've now largely paid off. And so the 15% of Canadians that can afford two homes, a small group of those boomers will be heading out and buying vacation properties, and that is probably another very good place.

Beyond that, we can think of a whole lot of other activities. They are now worrying about, and worrying is not the right thing, probably cherishing the empty nest. The kids leaving home. A cruise is likely to be a good idea. Certainly eco-tourism in smaller groups that have an educational component, they are likely to boom down the road.

I have already mentioned gardening, and, of course, they are now saving for their retirement. So financial planning services are absolutely paramount as we have seen. And, of course, they are beginning to put their money in the stock market and driving up the price of stocks.

MATTHEWS: What industries do you think will be losers at this stage?

FOOT: Well, you have got to look at where the bust generation is heading because there's 10 million boomers and only 5 and a half million busters. And so the busters are heading to their 20s, into their 30s. As I have suggested, that is when you buy your first house. So everything that goes along with that, all the manufactured goods to do with appliances and furniture sales are going to be in increasing trouble from the bust generation. There are fewer numbers that are entering the age groups where these things will be in demand.

The other thing is too, that unfortunately our marketers tend to always look for this 18-34 demographic male. That is a real bust area to be looking at, and so I think professional sports attendance will continue to decline. I wouldn't want to be investing in professional sports. You are less likely to go to sports as you get older, and I think that is not an area that is going to have a substantial growth.

MATTHEWS: Dr. Foot, how would you characterize the Canadian labour market at the beginning of the new millennium?

FOOT: Well, over the '90s, it was the bust generation that entered the labour market, so unemployment rates should have come down. And, in fact, they did come down quite dramatically. Even though we had a prolonged recession that kept, in fact, labour under control. I don't know whether you have noticed, but certainly there are now 'Help Wanted' signs up in the shop windows here in Canada, and that is always an indication of an ever increasingly tighter labour market.

And so in the next two or three years I think we are going to see quite a tight labour market, unemployment rates down. There's not very many people in their early 20s to enter the labour market. In fact, we know that young people with up-to-date computer skills could demand very high salaries right now. And it's not unusual for some of the big accounting firms to be paying signing bonuses to the new graduates in the 21, 22, 23-year-old age groups.

So the labour market is heading into tightness. I can expect to see more and more of the sorts of strikes that we have seen amongst Saskatchewan nurses and here at TTC because as the power moves more to labour, then they want their share of the gains. The gains that they perceive, and rightly so, that the CEOs have been taking for the last five or six years.

On the other hand, the echo kids are now 19. In about 3 or 4 years they are going to start to enter the labour market. So, as we head into the new millennium around 2003, 2004, 2005, there is going to be ever new entrance into the labour market coming from the children of the boomers and that will soften the labour market once again. Unemployment rates will go up and there will be more and more competition. So, a small window of opportunity to get your jobs, Layth, in the next two or three years.

MATTHEWS: Thank you. One of the charts in your books showed the employment experience of different levels of education and one of the trends that I noticed was people with post secondary diplomas, presumably technical diplomas are now starting to bump up against the success rate of university graduates. I know this is not exactly your area, but I was wondering if you had any thoughts on the implications of more and more of the workforce having a strictly technical education versus the liberal arts type of background?

FOOT: You are right. It is not completely my area of expertise but let's make the first general point, Layth, that more education is certainly better in this work place. I think the chart that you are referring to in the book shows you that, in fact, if you haven't completed high school, the job growth since 1990 has been almost minus 40%, and if you have a post secondary education degree, the job growth has been plus 40% over the '90s.

So the key ingredient, and I'm not saying this because I'm a university professor, I'm just saying these are the facts, the key ingredient to successful career is, in fact, increasing levels of education. The Ph.D. driving the taxicab is largely a myth.

Now, what we do see when you start to look at post secondary education, the differences between colleges and universities, is that, in fact, the two of them are quite complementary. More and more people actually have both degrees and, in fact, we have great need in our work place for both types of individuals.

People who can think is what matters today, and it doesn't matter whether that thinking is developed through the liberal arts education, as you referred to it, or whether it is developed through the more technical skills. The ability to think, resolve problems and work through issues is what is crucial in the work place today. So I think the real issue is more education, not less. And really, it doesn't matter what sort of education you get, as long as you have learned to think through problems, analytically solve problems.

And in fact, one area that we probably haven't put enough people into are the trades. Many of our carpenters, many of our plumbers, many of our bricklayers now are in their late 50s and early 60s. We are going to probably find a real shortage of these tradespeople as we enter the new millennium. But let's not kid ourselves. Today you have to be very, very competent on the computer to be a good tradesperson. That is not a low skill occupation, if it ever was.

MATTHEWS: Dr. Foot, how significant are the demographic trends in other countries. Obviously the demographic trends in the U.S. are important, but how significantly do they impact our economy and what are we looking at in the next few years from that?

FOOT: Well, the U.S. also has a boom, bust, echo profile, and not surprisingly. The post war baby boom occurred in the U.S. The introduction to birth control pill in the early '60s occurred in the U.S., much like Canada. And the boomers have had their kids over the '80s and '90s, much like Canada. The boom in the U.S. actually isn't quite as big as it is in Canada. We have 10 million of our population of 30 million who are boomers.

In the U.S., 79 million of its population of 270 million are boomers which is a slightly smaller percentage. On the other hand, over the '80s the fertility in the U.S. has been above that of Canada, so the echo generation is bigger. So, Hollywood does think there are a lot more teenagers out there to market to, and to some degree, if you are in California, you are certainly right.

So the boomers are a slightly smaller percentage of the market, and the echoes are a slightly bigger percentage of the market in the U.S. But because the profile is so similar, this is why it is so easy to market in the U.S. and vice versa. Almost no other country in the world has a similar demographic profile.

The only other country with a baby boom is Australia. They too have lots of immigration in their '50s and '60s, and immigrants tend to be in their 20s, in their prime child bearing ages. So they have a boom in Australia, but fertility didn't come down in Australia. The Pill didn't get to Australia until the late '60s and women kept working into the '70s. So, there is not the same boom, bust, echo profile in Australia as there is in North America. Although Australia does have a boom, and many of the trends associated with the boomers are applicable to Australia as well.

Europe is completely different. Europe and Japan are much older countries in the world. Mexico, on the other hand, is a much younger country of the world. And understanding these demographics, I think, is absolutely crucial as we go into a globalization process. Whether we are looking at it from the private sector's point of view, an individual company expanding to, say Mexico or Australia, or whether we are looking at it from a public sector point of view, in the sense of sending trade commissions to these different countries.

I think we can actually use demographics to know what countries of the world are going to be doing very well, having a take-off, and which countries are not. And I think we can also certainly use demographics to understand what the needs of the populations of those countries are. Whether or not we are providing them through the private sector or the public sector, through aid, or grants and aid.

MATTHEWS: Over the years, there have been many doom and gloom-sayers that suggest that the world population is growing at an unsustainable rate and that we're facing an impending food shortage. Actually, by many forecasts, we should be starving by now. I was just wondering, what's your sense of the world population issue?

FOOT: Well, I am a little schizophrenic on this. In some sense, I teach a course in economics and sustainable development, and it is very, very, very clear that, in fact, population growth is probably the most important determinant of poverty. So, having too many people and too many mouths to feed almost guarantees that those people are destined to a life of poverty. I don't think any of us would wish that on anyone. And so, in that sense, population growth is very negative, particularly for countries of the world that do not have the capacity to feed their people.

On the other had, what population growth has done has led to tremendous technological advances. The reason that we are not starving today, as you suggested, is that, of course, we've had tremendous growth in agriculture productivity. And there are those who believe, and they are mainly economists I might add, that in fact, population growth does lead to demands and pressures in the economy, and then ultimately technology can bail us out.

I'm not sure I share that point of view. Even though I'm an economist and I remain quite worried about the growth of the population. Even though that growth is subsiding. The growth of course is not in Europe. It is not in Japan. These are the older countries of the world. The growth is slowing down dramatically in North America. It is the countries of South America and Africa, and, of course, the Indian subcontinent that are still having lots of children. And that is why these countries are being really challenged to raise the standards of living.

MATTHEWS: What suggestion would you make to Canadian investors if you had to make one? Would there be a particular company or a particular insight that you would share with them?

FOOT: Oh Layth, it almost sounds like we have set this question up ahead of time. I would tell them to read my book, of course. And then you would understand what demographics is all about. And while I'm very careful to point out that demographics is only 2/3rds of everything, that there's lots of other things going on around us that are important, I think it is the one thing that we have got a handle on.

We know that every year people get a year older and we can use this to look into the future. It's a great way to start to form a solid foundation for an investing strategy, and it has two elements to it. The boomers are about to start buying stocks and bonds, and this is what is driving stock market prices to record high levels in both Canada and the U.S. And, of course, it leads to certain ticks in that stock market. I've already mentioned pharmaceuticals.

The boomers, of course, are now having to get their progressive lenses, so the eye glass industry is booming. And so it goes down the list. I've mentioned diverse things like gardening, and, of course, they all want their luxurious vehicles now. That is why Lexus and the 4 X 4s are all over the place.

So you can use demographics as an incredible road map. It won't always be right, but certainly, most of the time it will. I often use the term, 2/3rds of everything as being determined by demographics around us. I think this is the sort of thing that is easy to understand and that people can use for their own personal enjoyment and investment.

MATTHEWS: Thank you very, very much for that great exposition on Canadian and world demographics and for your words of encouragement for us Generation Xers, Dr. Foot. It's been fascinating, and I really appreciate having your time.

FOOT: Well Layth, thank you so much for inviting me to be on the show. I'll look forward to looking at the web site, and I hope it's been useful.

MATTHEWS: I'm sure it has. I have been speaking with Dr. David Foot, an award-winning professor of economics at the University of Toronto, and the principal author of "Boom, Bust and Echo 2000: Profiting from the Demographic Shift in the New Millennium". I'm Layth Matthews. You've been listening to Thanks for listening.

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