Silver Economy – Investing for Population Aging

Based on demographic change, we are headed toward a silver economy in which the 50+ generation will have much more influence on the financial markets than before. Investors can benefit from this as there are many investment opportunities due to the increasing number of seniors.

Population aging poses many social and financial challenges. It can also result in opportunities for investors, though. For instance, healthcare spending increases for a population that is increasingly older. One thing this does is to create a growing market for modern technology that can reduce the treatment costs while also improving patient outcomes. Read more in the article "Digital Health: How Health Technologies Are Changing Care".

Additional markets are also expanding or opening up outside of the healthcare sector. For instance, it will be increasingly important in a silver economy to cater to the particular consumer patterns of seniors and to create suitable housing for them. 

Silver Economy Already Trending up in Consumer Spending

Seniors are the fastest-growing consumer age group around the world. They have a rising share of income compared with other demographics and an increasingly high spending power, especially in the developed world.

For example, in the USA, of those with annual earnings of above USD 200,000, 60% are seniors (aged 50+), and their average household wealth is over three times that of people in the age group of 25–50. Further, seniors already represent around 50–60% of developed market consumer spending.  

Population Aging Makes Local Merchants More Important

Since older people have different needs, priorities, and spending patterns compared to younger groups, the implications for manufacturers and retailers could be substantial. The inability of senior citizens to navigate large stores along with the difficulty in accessing products on shelves (either too high or too low) could mean that convenience in shopping holds more relevance.

Although online shopping is gaining momentum, this cohort is slower in adopting technology and prefers shopping in the next-door smaller outlets. This could benefit food and drug retailers.

Seniors consume more than younger generations

Consumption by seniors is significantly higher than for the active population

Per capita consumption of the 65+ age relative to the age group of 25–64. Source: National Transfer Accounts, August 2016 Data Sheet, Credit Suisse.

Cruises Matter More than New Clothing in the Silver Economy

For seniors, spending on apparel and restaurants slows down over time and a bigger share moves toward leisure and tourism. Particularly, cruise liners will benefit as over 66% of demand comes from older people.

Gaming and casino companies also generate around 65% of their revenues from the 55+ cohort in the USA. Increasing emphasis on healthy living means stronger sales growth in vitamins and dietary supplements: As of today, Amazon's category "50 plus" leads primarily this product segment.

Further, the desire to look younger should drive higher spending on personal care and beauty products (especially anti-aging). Lastly, vision impairment is common as people grow old, providing a huge opportunity for prescription glasses and contact lens manufacturers.

The 50+ Generation Has Different Housing Demands

Population aging and higher demand for appropriate housing for seniors remain ambiguous. Although the elderly remain independent and healthier for longer, demand for customized senior housing is likely to increase significantly.

During active adult life, housing preferences are defined by choice and usually by a low level of care. Thus, households stay within their housing situation often for many years. With age, the needs and level of care can change rapidly, along with demand for housing.

Senior housing typically starts with barrier-free apartments that are easily accessible by public transport and are close to medical care, dining, shopping, and recreation facilities.

Supply of assisted living services (e.g. ambulatory care, household assistance, emergency service) supports a household’s independence and delays relocation to care facilities or nursing homes. Senior housing which is close to care homes, hospitals, or medical centers can also generate considerable synergies. Furthermore, senior living operators increasingly run facilities that consist of multiple units and allow residents to “age in place.”

Seniors need more senior living and care facilities

Structure of senior living and care facilities

Source: Credit Suisse

Real Estate for Seniors Presents Attractive Investment Opportunities

The higher life expectancy not only increases demand for suitable homes, it also shifts the disease pattern from physical weaknesses to dementia cases as the lifespan of the human brain is more frequently the limiting factor. Thus, it is likely that demand for dementia facilities in the 50+ generation will multiply in the future.

While governments will find it challenging to design innovative policies that guarantee housing for the elderly, it could present an attractive opportunity for investors. The private sector could play a vital role as rapid growth is likely to overstrain public sector finances in many countries.

Economies of scale and optimization of processes in care, nursing, and dementia homes could open up promising investment opportunities. With increasing regulation and specific laws that are often highly heterogeneous across regions, non-experts in the field should prefer indirect investment vehicles. These are generally managed by specialized real estate investors or operators.

Another area with momentous growth potential covers service providers for assisted living. Such companies benefit from the desire of an increasing number of households to stay independent as long as possible as well as from rapidly increasing care costs that demand more efficient care systems.

Services such as ambulatory care, physiotherapy, household assistance, and entertainment, as well as provision of automated safety equipment are likely to face increasing demand along with this demographic change. With many opportunities, product selection will be crucial for successful investments.

Key Insight on Population Aging for Investors

Credit Suisse believes the key beneficiaries of this supertrend are:

  • Online shopping facilities, food and drug retailers, and other retailers with smaller next-door outlets, smart home device producers, e-bikes, leisure and tourism companies, gaming and casino companies, vitamins and dietary supplement producers, personal care and beauty product providers, prescription glasses and contact lens manufacturers
  • Producers of lipid-lowering statins, heart valve replacement providers, oncology pharmaceuticals and biotechnology specialists
  • Assisted living services, senior housing operators, dementia facilities, ambulatory care and physiotherapy providers, household assistance and entertainment providers, automated safety equipment manufacturers
  • Insurance companies offering life insurance products and life annuities