Monday, May 7, 2012

The real generational time-bomb isn't in pensions

There is a definite concern world-wide about whether the younger generations can shoulder existing pension fund obligations for retiring baby-boomers and then for themselves. Every other month there are articles on "how much you should save for retirement", usually with under-estimated numbers as people often misjudge the 'exponential' in exponential growth. However, there is a larger concern of the same nature which I believe is being seriously under-estimated and that is the generational gap in consumer spending.

A great article came out today comparing some simple costs between 1984 and 2012. In the context of my post I will sum up the contents. Youth today have more to buy, at significantly higher prices, with more fees, at inflation insufficient interest-rates. They are making less, are at an obvious disadvantage in terms of investing and barely have the money to make investments with anyway. Most live month to month as we can not save. I can't stress this part enough youth today can not save. It's not a "lack of will", its that money sitting in a bank does nothing other than degrade. If it's not spent now, it's simply just worth less tomorrow. There is no incentive to save at all.

I must stress that a person does not have to be aware of all the facts to be angry about it. This comes back to the Quebec student protests, and the protests soon to come. Maybe the issue there is "tuitions", it's visible, it's obvious. Tuitions are something to focus the anger on, but the conditions leading to the anger go much deeper. Better loans? more debt? cheaper interest-rates? Thats the answer? No, the problem will fester, tempers will boil, and when that mix blows look-out. They'll be out for blood. Don't think so?

"Off with their heads", shout the students. "The more things change, the more things stay the same" (You couldn't be more right Mr. Waltz :) ).

So let me ask you baby-boomers, how well do you think your portfolio will be performing while an entire generation riots in the streets? That's the real timebomb, that's the real economic concern you all should have. It can not be anticipated, the risk is a variable. Maybe a car goes up, maybe a few buildings right? Traffic gets blocked, seaways get shutdown, product doesn't move. You see it happening already all over Europe, how long do you think it can possibly last before those interruptions to the supply chain reach store shelves?

The market, the retirement portfolios depend on consumer spending, and the youth have been priced out of most of the markets. Oh most have an iphone you say? Most also have a 3 year contract. Phone comes free. It's all debt, just like tuitions. Debt is the only way this generation gets to afford anything and if you think that will show up in a retirement portfolio, better bet it will be showing up in other economic indicators as well.

It's coming, ready or not.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for CenturyLink

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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