For years NH had been the fastest growing state in the Northeast, fueled by high rates of domestic in-migration, largely from Massachusetts. With the arrival of these newcomers, the average educational attainment and income levels in NH increased, in turn, fueling the state’s strong economic growth in recent decades.
But migration into NH has slowed considerably over the past decade, a process that accelerated during the Great Recession, and the state is not expected to return to the past pattern of high growth for the foreseeable future. As a result of these demographic forces, year-by-year, NH grows older, with an increasing number of individuals over the age of 65. The most recent Census data from 2014 puts NH’s median age at 41.8. Only two states—Vermont and Maine—had a higher median age.
What effects will this have on the NH economy? The answer is many, both positive and problematic. We take a look at what might happen to consumer spending if current population predictions hold true.
Consumer Spending
According to surveys of household spending and income from the U.S. Bureau of Labor Statistics, household spending by category also varies by age of the household. People under the age of 25 tend to spend equal portions of their income on education, and saving for retirement and insurance. People over the age of 25 spend much more on insurance and pensions, and much less on education. The data also documents (not surprisingly) that health care spending gradually increases with age. As consumers attain their senior years (age 65 and over), spending on health care dwarfs the other expenditures.
As an example, take expenditures on transportation. As people age, they tend to spend less on transportation, according to the consumer expenditure survey. In 2010, households headed up by someone between the ages of 45 and 55 had, on average, 2.1 vehicles. Households headed up by someone over the age of 75 had only 1.3 vehicles. What happens to the number of vehicles in NH due to the effect of aging only? According to our simulations, demand for automobiles between 2020 and 2030 will decline by 2.7 percent.
And how does this translate into expenditures on transportation in general? Our simulations suggest that transportation expenditures, which include vehicles, maintenance and transportation for vacations, decline even more quickly. Households headed up by a 45- to 54-year-old individual spend almost $11,000 annually on transportation, compared to less than $5,000 for a household headed up by a 75 year old. As the population ages, our simulations indicate that absent other changes, expenditures on transportation will decline by approximately 3.8 percent between 2020 and 2030.
We have used this consumer survey data to simulate the impact of an aging population across a wide set of income measures and industry sectors. Health care demand for both acute care and long term care will increase markedly. Across the 2020 to 2030 period, our analysis indicates that consumer spending will increase by almost 4 percent on health care. In fact, health care is the only broad consumer spending category that is expected to see increases.
Spending on transportation, housing and education, among others, are all expected to see net declines as a result of the aging of NH’s population. From a financial services perspective, income will generally fall, and aging seniors will move from investing their savings in the financial markets to pulling those savings out of the market to support retirement.
What To Do?
The aging of the population is an inescapable fact, due to the progressive lengthening in life expectancy and the fall in fertility rates to below the levels required for generational renewal. By the year 2035 every county in NH will experience more deaths than births, according to recent projections from the NH Office of Energy and Planning.
As a start, NH businesses need to be aware of the changing nature of (and growth in) consumer demand in a world in which the population is aging. Japan and many other industrialized countries have led the way, as they are a step or two ahead of us in experiencing an aging demographic.
Business leaders should also help policy makers understand that economic development policies can have an impact. Behavioral responses (including greater female labor force participation) and policy reforms (including an increase in the legal age of retirement and encouraging foreign immigration) can mitigate the economic consequences of an older population.
Policy makers and leaders need to embrace this aging demographic. And NH needs to promote age-friendly policies beneficial to NH’s economy as today’s over-50 generation has enormous work experience and significant financial and social capital.
Steve Norton is executive director of the NH Center for Public Policy Studies, a nonprofit, non-partisan organization in Concord. Norton can be reached at snorton@nhpolicy.org.
Current Issue - May 2024