The Millennial Generation Shift Will Create Opportunity for Equipment Finance

by Scott Nelson, PhD Vol. 48 No. 3 2021
In an interview with demographer Kenneth Gronbach, Scott Nelson of Tamarack Technology examined the impact of Gen Y on the equipment finance industry.

Scott Nelson, PhD,
Chief Digital Officer,
Tamarack Technology

I was a mathematician before I became a physicist. My love of all things calculated is why Kenneth Gronbach’s message about the importance of population sizes and generational design immediately resonated with me when I first heard him speak in 2017.

Gronbach is a demographer — he counts people and uses “simple math” to predict the future of everything from culture to market economics. Gronbach, the founder and principal of KGCDirect, is the author of two bestselling books on the impact generations have on economics and is a sought-after speaker. He focuses on helping business groups understand what’s coming their way and whether they should be afraid or excited. I sat down with him, virtually, of course, to discuss how generational math and, specifically, how millennials are going to impact the world of equipment finance.

Populations Dictate Everything

The first time I heard Gronbach say this, I thought, “But there are so many segments!” However, I then thought about the numbers. Five professional athletes from any competitive sport would have no chance against 100 weekend warriors, for example. Larger numbers always win in human endeavors. Large numbers dictate outcomes, both social and economic.

Scott Nelson: Ken, your books “The Age Curve: How to Profit from the Coming Demographic Storm” and “Upside: Profiting from the Profound Demographic Shifts Ahead” both tell us Gen Y, commonly referred to as the “millennial” generation, is 88 million strong — 10 million larger than the huge baby boomer generation and 20 million larger than Gen X. Why is this significant?

Ken Gronbach: The heavy lifters — those paying the most taxes — run the country. Right now, that’s the 69 million 40-60 year-old Gen Xers and some hangers-on from the boomers. But 20 million more Gen Ys are going to bring huge changes by virtue of the size of their generation as they continue consuming and producing. We learn from the people in front of us, but the smaller Gen X and boomer parents make it harder, both visually and emotionally, for Gen Y to see and emulate. As a result, they are not likely to maintain conventions and the weight of their numbers will overwhelm those trying to hold onto “the norms.” Gen Y will define our economy for the next 30 years.

Nelson: You are very optimistic about what the numbers predict for the economic future of the United States. Why do these demographics bode so much better for the U.S. than for the European Union and China?

Gronbach: Fertility has been below replacement level for 20 years in the indigenous EU, so they have had to depend upon both immigration and technology automation. Culture clashes, already a part of the traditional EU powers, will be expanding. Cultural instability from population change will instill more economic instability in Europe.

China’s economy is going to implode. China prevented a half billion people from being born. They do not have the consumer or labor populations necessary to maintain their trajectory. Technology leaders like Elon Musk have picked up on this. The U.S. has benefited from immigration primarily from Mexico, Central and South America during the population downturn of Gen X. China’s problem is that they “would need seven Indonesias” to immigrate to fill their population hole. Tech leaders are watching because they are worried about China moving to the forefront of automation technologies like robotics and [artificial intelligence] out of desperation.

Demographics Precipitate Economics

Gronbach’s idea makes sense when you think about economics by the numbers. Larger populations create more consumption, more labor and more wealth — eventually.

Nelson: Millennials are often maligned as the “me” generation and create angst for many industry leaders as a labor force. Why do you offer up so much hope for their success in your books and speaking?

Gronbach: My view is based on history. I grew up in the hippie era, making me a boomer. Hippies were the extreme liberals of their time. They wanted and drove revolutions. They didn’t want to work. But then they grew up and amassed wealth. They moved to Florida. They became conservative. They grew out of their non-sequitur attitudes. Gen Y will do the same. Their approach to life will change as they amass wealth — they will begin to protect it. They too will become very productive and there are 10 million more of them than any other generation. This is good for the market.

Nelson: Tell us about Gen Y’s work ethic, technology needs and views of entrepreneurship. How will millennials behave as leaders of a business?

Gronbach: Gen X had 10 million fewer workers than the boomers. They got hired easily because of supply and demand. Gen X had a smaller talent pool that is visible today in the generational “skip” happening in many business transitions. There are not enough Gen X leaders to replace the boomer leaders. The problem is even worse when the boomers hang on to their positions because by the time they are ready to hand the baton, Gen X is ready to retire as well.

The good news is there are plenty of millennials. Population creates talent. Think about the 1980 U.S. Olympic hockey team. That talent pool was created by population size, created by the boomer boom. Gen Y will have more “exceptional” workers than ever before and with [20 million] more people, they will have to fight for jobs. They will work hard to keep their jobs. The trick will be finding them and training them in time. You will see a work ethic and entrepreneurial spirit like you have not seen since the GI generation after [World War II].

Nelson: You have said millennials don’t need ownership because they embrace what is known as the “experience economy.” But as such, they only want to pay for what they use. As consumers, will they create a big opportunity for financing companies?

Gronbach: Millennials both want technology and know that it changes fast. They live temporary, they like financing things. Gen Y is smart. If you can make a case for what makes sense, they will buy. They will not be unreasonable — they are a very reasonable generation. If the numbers work on a deal or purchase, they will buy it. They are naturally “win-win,” fair, honest and reasonable. When you combine fairness with a desire to experience versus own, financing will be the dominant form of consumption for Gen Y.

Nelson: Equipment finance appears to be very well positioned for the largest generation in the history of the country. We are aligned as an experience provider, we have the ability to scale with increased demand and with digital transformation and we have the ability provide the transparency and fairness they demand. Big tech and fintech have the same advantages and are more aligned with Gen Y from a technology use perspective. What is your advice for today’s equipment finance leaders? How can we realize this opportunity?

Gronbach: Millennials expect to be rewarded for good performance and salaries must match cost of living to keep the best talent. States losing their population are losing their millennials. If you are in location with a high cost of living, increase salaries to get and keep the best people or move to [a] place that is more affordable because that’s where the millennials are going.

If you are going to sell to Gen Y, and you better be, pay attention to where the population moves. Remember, for them, there are no secrets. They will not tolerate unknowns in their business transactions. They will demand complete transparency but will reward those who provide a fair deal.

If you are dealing with Gen Y at any level, hire a millennial to deal with your millennials. Remember, A-players hire A-players, B-players hire C-players. By virtue of their numbers, Gen Y will provide more good leaders than ever before. Hire an A-player millennial to get started.

The Power of Predictability

Gronbach says to embrace predictability. Predictability is cherished in equipment finance but rarely engaged beyond credit scores. Demographics provide predictability. Populations are known and their psychographics are visible, and those two known factors dictate everything. Populations make markets predictable. Embrace demographics and you will benefit from the power of that predictability.

My conversation with Gronbach left me with three predictions for equipment finance:

1. Markets are not going to be uniform across geographies. The U.S. market economics will be much better than those of either Europe or China due to its Gen Y numbers.

2. Millennials will embrace the experience economy and drive a tremendous growth opportunity for equipment finance as a channel and digital equipment services as products.

3. Transparency and integrity will be the keystones for success. Everyone wants Gen Y as customers, needs them for labor and fears them as policy makers. The key to success with all three will be honesty, fairness and transparency in everything we do as a business.

In business we are constantly confronted with uncertainty and often hesitate or stop all together because we don’t know what is going to happen. Gronbach and his peers are teaching us how to predict with simple math, as he says, “The people who will define our next 50 years are already born.”

Scott Nelson is the chief digital officer of Tamarack Technology. He has more than 30 years of strategic technology development, deployment and design-thinking experience working with both entrepreneurs and Fortune 500 companies. Nelson is a sought-after speaker and contributor on topics related to IoT and digital health. His involvement in technology within the local and national technology communities reflects an ongoing and outstanding commitment to technology development and innovation.

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