Businesses Betting Big On Boomers Companies Are Basing Plans On Demographic Expectations

Business forecasting is, at best, an imprecise exercise, subject to the vagaries of everything from the weather to fashion. But there is at least one constant that investors and executives like to rely on when making their forecasts - the fact that most of us will get a year older each year.

This turns out to be quite valuable information in industries where spending correlates highly with age. And with the giant baby-boom generation now beginning to move through middle age toward retirement, billions of dollars have been invested to take advantage of what looks to be a sure bet.

The most obvious example of a boom waiting to happen involves health care. Expenditures for a typical young adult average $2,000 a year, while keeping Grandma in good health costs five times that amount. And similar rules of thumb have been used to shape strategies in industries ranging from golf to gardening.

But despite the breathless tone of some of the baby-boom projections, the reality may be different.

In health care, for example, total spending on those 18 and older, which ran about $825 billion last year, according to the Washingtonbased benefits consulting firm Watson Wyatt Worldwide, could be expected to top $1 trillion by the year 2010 even under the highly unlikely scenario that there was no inflation or new technology to drive it up.

But of that sizable $215 billion increase, $135 billion is the result of population increase due to births and immigration, while only $80 billion results from the “graying” of the population.

In other industries, the “sure bet” is even more ambiguous.

It’s certainly true that as golfers get older, they tee off more often - about once a month on average for young golfers rising to nearly once a week for the retirement set, according to the latest survey by the National Golf Foundation. And with more disposable income, older golfers are more likely to splurge on that new titanium driver everyone is talking about in the pro shop. Conclusion: Older golfers spend more.

There’s only one problem with this bonanza scenario. It turns out the occasional duffers who take up the game in their salad days - and who today account for half of all golfers - have a tendency to give it up as time goes by. As a result, participation rates actually decline with age, falling to 7.8 percent among Americans 65 and older.

Taking all this into account, a little arithmetic yields the less than startling conclusion that the aging of the boomers will add only $575 million to annual golf industry sales. By contrast, sheer population growth can be expected to push up industry revenue by more than $2 billion.

A similar dynamic can be expected in the home renovation industry. Data from the Joint Center for Housing Studies at Harvard University shows that the average cost of kitchen and bath renovation rises rather sharply until retirement. But it also shows that the frequency of remodeling declines with age. Over the next 15 years, the two trends will pretty much cancel each other out.

Moving outdoors, it’s pretty clear that as people get older, they spend more time tending to their begonias and peonies. The National Gardening Association’s latest survey found that just under one-third of the nation’s twentysomethings get their hands in the dirt compared with half of Americans in middle age.

But unfortunately for the lawn and garden centers that are now springing up all over the place, the old-timers spend less money even as they spend more time in the yard.

Of course, marketing departments and trade associations have been known to get even fancier in their demographic projections.

It’s well known, for example, that people with college educations tend to spend more time and money rooting around in the garden, making renovations and playing golf, so it may be reasonable to assume that all of these activities will benefit as a result of the steady rise in college attendance rates.

But then again, college graduates also are significantly more likely to read books and newspapers, attend plays, concerts and movies, take vacations, surf the Internet, invest in mutual funds and yak away on cellular telephones.

And at some point, all this demographic destiny stuff tends to run smack into another of those constants that is likely to be as true in 2010 as it is today:

There are only 24 hours in a day and 100 cents in a dollar.