One-Person Households - The New Norm: Financial Advisors' Daily Digest

by: SA For FAs

Canada’s Globe and Mail details the new demographic norm – single-person households.

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A young person completes his degree, gets an entry-level position and moves into his own apartment. Bye-bye roommates! Uncheerful is the death of one spouse in a couple who built a life together, begat children and lived to enjoy grandchildren.

In either of these two scenarios, a one-person household is formed. Both scenarios are deeply familiar to us, which is why an article appearing last week in Canada’s Globe and Mail by Alexandra Macqueen came as something of a revelation to me, and should be noted by all investors and economy watchers: One-person households are a thing now, and are no longer confined to the familiar scenarios above but now occur across ages. Let me clarify why this is important: It’s not really because it’s a thing; it’s because it’s the thing.

When Macqueen noted one-person households are now the most common household type in Canada, representing 28.2% of households there, my mind raced to figure out why this demographic fact might be more pronounced there than in the U.S. My first thought was that Canada is more urbanized, with a higher proportion of the population concentrated in its major metropolitan areas.

But before I could go googling the U.S. rate, she provided it: 27.5% - almost the same! Indeed, the trend has spread worldwide and the rate of one-person households is actually quite a bit higher in countries such as Denmark, Finland, Germany and Norway, where such households reach 40% or higher.

To grasp the extent of this demographic shift, consider the shift Macqueen reports in Canada:

…in 1981 just 10.5 per cent of women aged 30 to 40 said they'd never been married, jumping up to 43.4 per cent (an increase of more than 300 per cent) by 2011, with men in the same age category moving from 15 per cent to 54 per cent over the same period.”

I was certainly aware, and have commented in this forum, that millennials are forming households more cautiously, delaying marriage and so forth. I’m sure that every reader has noted this. But more than a fourth of the population in the U.S. - with demographic trend-setting Western nations reaching above 4 out of 10 people - represents a seismic economic change that must have significant investment implications. For example, I have often expressed the value of including real estate in a broadly diversified investment portfolio – an idea to which a good number of readers have objected.

I still see the advantages of owning an asset whose income and capital appreciation characteristics are different from equities, but I can better appreciate the need to slice and dice the property market. These trends suggest that the large, suburban homes that Americans have long favored may have seen their heyday.

Macqueen discusses other financial implications, such as the fact that one-person households tend to be poorer – for example, Canada’s low income sector totals 8.8% of the population, yet a whopping 27.7% of this socioeconomic group live in one-person households. Challenges to the U.S. and world economy – such as high debt, deficits, poorly funded entitlements, stagnant incomes, weak GDP growth, rising healthcare costs and low savings – generate their share of headlines.

We also see coverage of demographics, such as a declining fertility rate. But the prevalence of one-person households is little noted, and it seems to me that its effect on the trend toward economic contraction must be rather significant. Indeed, I wrote about this once before in what I recall as one of the most disliked articles I have written. I quote:

I’m prepared for hurled tomatoes and snickering, but to my mind, the way to turn the economic ship around is for people to have larger families. Immigration will also help accomplish this end. The former cannot be legislated and the latter will not be legislated in the current environment. So what is needed here is a cultural revolution – though not of the Chairman Mao variety.”

If deflation is essentially the economic expression of narrowing horizons, then the solution needs to involve expanded horizons. What’s more, parenting inherently shifts a naturally selfish perspective to one of responsibility and empathy – precisely the qualities upon which successful businesses are built.”

I cannot prove my point in an empirical sense, but will suggest anecdotally that more than the two most obvious answers a person might give for how they got financially ahead in life – educational and career choices – what did the most to move me forward financially were marriage and children. I didn’t know a thing about the stock market until after my wedding when, for the first time in my life, I found I had a surplus of money (from wedding gifts) and was intrigued by the possibility of doing something with it.

Similarly, topics that never had crossed my mind when I was single – such as buying a home – came up in discussion with my wife. I think having children did even more to move me forward financially, albeit more intangibly. It was not until I became a father that I learned how to get up early in the morning. Fatherhood imparted a strong sense of responsibility for others and impelled me, instinctually, to expand my economic and career horizons.

None of this is to deride singles - of course. It is rather to foster recognition of the reality of a changing economy. While it’s possible someone reading this may be persuaded that larger households are a good idea, I see no reason whatsoever to expect this trend to reverse but rather to strengthen. Indeed, Macqueen signals this in her final sentence, with which I agree:

As society reorganizes around the new demographics, the demands of the shrinking household will need to be accommodated.”

I’m not exactly sure how society will accommodate this trend, but as a result of this demographic shift, I have downgraded my own expectations for a turnaround. In my view, we can tinker with economic policies and be all but assured of some degree of economic improvement. For example, we can change tax policy in a way that is likely to boost jobs and growth.

But precisely because we don’t use Maoist means, we can’t easily influence household size and that necessarily downshifts our economy from a mode where people think expansively about the needs of a household to the narrower horizons of a single person – from prosperity to parsimony.

What do you think is the financial significance of today’s new norm of single-person households?

Please share your thoughts on this in our comments section. Meanwhile, below please find links to other advisor-related content on today’s Seeking Alpha.

  • Jeff Miller: Trying to guess the top from improving (or worsening) indicators is a fool’s errand.
  • Jim Sloan tells us what he really thinks about how to invest at this juncture of the market.
  • Roger Nusbaum offers ideas on managing, rather than replacing, equity volatility.
  • Ronald Surz: Can “zero fee” ever be real?
  • Yuval Taylor: How long should you own a microcap?
  • Vanguard: How required returns can ease an investor’s mind.
  • David Jackson charts interest rates at an 800-year low (HT: James Picerno).

For more content geared to FAs, visit the Financial Advisor Center.