Comments on: Boomers Change MO from Consuming to Saving

By: Ted Mininni

Ted Mininni — Wed, 18 Feb 2009 13:55:09 +0000

Interesting conversation, Adam and Neil. I’d just like to add something to it if I may. Adam, in the past when we’ve been on the down side of economic cycles, consumers have tightened their belts for a while and when finances have improved, they’ve gone back to spending. I’m not so sure this is going to happen again soon; this recession may be here for a while. When things do turn around, I don’t think consumers are going to go back to spending the way they did before the meltdown of September 2008. Here’s why: consumers were encouraged by the government to overspend. How? Money was cheap to borrow due to low interest rates and many consumers got in over their heads making large ticket purchases they really could not afford. When the housing bubble burst and home values plummeted, people did not have the cushion of all the equity they thought they had. Add to that, the average consumer is carrying over $10,000 worth of credit card debt, two car payments, etc, and it’s safe to say overconsumption is over. It is going to take years, if not decades, for many people to fix their finances. This perfect storm has forced consumers to begin to pay down debt now, and to begin saving again. Human nature or not, these circumstances are going to change the behavior of many–permanently.
Neil, you’ve summed it all up perfectly:
“All people of all generations are going to have to be more cautious with credit and save more. The consumer spending part of the economy probably will be muted for some time to come but it will bounce back. It won’t be driven to the same lofty heights driven by credit. That is over. It will bounce back slowly but it will grow again.”
Thanks to both of you for adding substance to this conversation. I appreciate it.

By: Neil Anuskiewicz

Neil Anuskiewicz — Wed, 18 Feb 2009 04:27:40 +0000

Adam, good points all.
I think spending will be more cautious by everyone even when we come out of this recession. This is a severe recession and we will come out of it.
It is strange how people think. When times were good people make proclamations. I remember in the 1990s there were those predicting that this was the end of the business cycle and that only good times ahead.
When gas prices were at rock bottom, people bought vehicles as though that could never change even though we had experienced oil shocks in the past. The U.S. auto industry also had a short memory.
Now, we are in a severe recession and financial crisis and I hear all sorts of predictions. This is a recession and a very painful one but the business cycle will keep moving and we will go on the upswing again. It may not be a vigorous recovery but slow one.
The one thing that will change is the easy availability of credit. Things are going to be permanently tighter and more regulated, too. This sort of meltdown is a lesson learned and nobody wants this to happen again. It is too bad we could not have learned this lesson the easier way but it had to be the hard way.
All people of all generations are going to have to be more cautious with credit and save more. The consumer spending part of the economy probably will be muted for some time to come but it will bounce back. It won’t be driven to the same lofty heights driven by credit. That is over. It will bounce back slowly but it will grow again.
As time goes by we will insist on fairer trade conditions with countries like China. We cannot continue this imbalance created by their tight control of their currency. It is not fair to us and our exporting businesses (and the untapped potential there) and it is not fair to the Chinese people, either.
The Chinese should consume more and we have to save more. I do hope that this recession does not cause people of the world to close their markets as that could well bring on a depression. We need free trade but it also must be a fair game not rigged.

By: Adam Schorr

Adam Schorr — Wed, 18 Feb 2009 03:22:10 +0000

I am very suspicious of any claim about how X will fundamentally change people’s behavior. I don’t believe it. I think people will spend a lot less because the economy sucks, there portfolio is worth a lot less, they are worried about losing their job…
But the economy will get better. Portfolios will rise on value and people will start reading articles about how wonderful things are.
And then they will spend again.
Now if this recession lasts a long time (at least 10 years) then I think it might rewire behavior. But most people don’t think it will last nearly this long.
All this talk of fundamental change to human behavior really flies in the face of history. In the end, people are people and they do the things that people do.

By: Ted Mininni

Ted Mininni — Tue, 27 Jan 2009 15:52:29 +0000

Lewis,
Thank you for summing up the thoughts of most boomers, so concisely and articulately. I believe you’re right: even with things return to normal (and as Paul Barsch says “whatever that means now”), I doubt we’ll see the over-consumption from the 1990’s until the meltdown this past fall.
A large number of consumers who have been shocked by huge drops in their net worth are saying the same thing: “If I don’t need it, I’m not buying it.”

By: Lewis Green

Lewis Green — Tue, 27 Jan 2009 15:35:38 +0000

Ted,
As a 62-year-old Boomer, I am not spending a dime on anything except the necessities in my life, one or two nights out a month, and business development for my consultancy. I believe I am typical in my generation of those who thought they were nearing retirement, and have since since a 60% decline in the value of our investments.
Will I return to being a consumer again? Probably in travel and entertainment, nowhere else except necessities. If I don’t need it or it isn’t fun, I’m not buying it.

By: Ted Mininni

Ted Mininni — Tue, 27 Jan 2009 15:06:44 +0000

Exactly, Zach. Real value is important now. And how about real customer service? How about being transparent? How about being trustworthy? How many large businesses have broken trust with consumers just in the past few months? Those brands that offer authenticity, transparency, real value and consistent customer service will win with consumers for the long haul.
You’d be surprised to see how CMOs really don’t get it when it comes to customer service. I urge DF readers to take a look at this Media Post article: “CMOs Don’t Get Customer Service, (CMO)Council Finds”
http://www.mediapost.com/publications/?fa=Articles.san&s=99019&Nid=51541&p=306786
This will be an eye opener. Thanks for weighing in, Zach.

By: Zach Heller

Zach Heller — Tue, 27 Jan 2009 14:48:30 +0000

Great post. It is important now more than ever for businesses to differentiate. Being different means that you can stand out, even in the roughest of economies.
One way to stand out in a bad economy is to show real value. Cater to your customers. Show them you care. Offer them added benefits, more personalization, discounts, etc.
If the customer sees that you care about their well-being, you have a better chance of holding on to them in the long run.

By: Ted Mininni

Ted Mininni — Tue, 27 Jan 2009 14:42:54 +0000

Good point, Paul, and thank you for adding your thoughts to my post. I think you’re right. It’s probably time for companies to deliver real vs perceived (manufactured) value to their products and services. As customers get back to basics, demand more for their hard-earned money and purchase more discriminately, the “value strategy” will likely be here to stay.

By: Paul

Paul — Tue, 27 Jan 2009 14:36:38 +0000

Ted, it’s a great time for highlighting more value as you pointed out, and a “more for less” message could be the right approach for many companies.
A customer considering two types of laundry detergent will probably go with the “now 10% more” size vs. a competitior who cannot quickly respond to a product packaging/fulfillment/distribution shift.
A “more for less” strategy could work while innovation is humming in the background on the next generation of products/services.