- Asymmetry, or increasing wealth disparity, has existed for some time, but the pandemic has greatly widened that gap, threatening the health and well-being of people worldwide.
- Disruption, through both technology acceleration and climate change, will drive many global challenges and some opportunities in the years ahead.
- Age, specifically the decline in birth rates in most advanced economies, combined with a growing aging population will put pressure on business, social institutions, and economies.
- Polarization, or our growing inability to find middle ground, is resulting in increased nationalism and populism, which may have major consequences such as growing conflicts, lack of efficiencies, and the neglect of major world problems.
- Trust erosion in institutions that underpin society can lead to a breakdown in systems that we all need for a civil society to operate well.
Birth Rate Decreases as Millennial Economic Woes Increase
The birth rate in the United States has been in decline or relatively flat since 2008, and economic crises, like this pandemic, have long been known to accelerate these declines. According to a Brookings report, “the decline in births could be on the order of 300,000 to 500,000 fewer births next year.”Overall, millennials—ranging from ages 24 to 39 and now the largest generation—are exhibiting different household formation patterns than previous generations. “Millennials trail previous generations at the same age across three typical measures of family life: living in a family unit, marriage rates, and birth rates,” according to Pew Research Center. “Millennials are much less likely to be living with a family of their own than previous generations when they were the same age. In 2019, 55% of millennials lived in this type of family unit. This compares with 66% of Gen Xers in 2003, 69% of boomers in 1987, and 85% of members of the silent generation in 1968.”
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Source: “As Millennials Near 40, They’re Approaching Family Life Differently Than Previous Generations,” Pew Research Center, May 27, 2020
Although there are many factors contributing to millennials making different family choices than earlier generations, economics has played a major role, with many dubbing them the unluckiest generation. According to a June 2020 article in The Washington Post, “The average millennial has experienced slower economic growth since entering the workforce than any other generation in U.S. history. Millennials will bear these economic scars the rest of their lives, in the form of lower earnings, lower wealth, and delayed milestones, such as homeownership.” A 2018 Federal Reserve Bank of St. Louis report, “The Demographics of Wealth: How Education, Race, and Birth Year Shape Financial Outcomes,” highlighted that, although all generations were affected by the Great Recession, “the 1980s cohort is at greatest risk of becoming a ‘lost generation’ for wealth accumulation,” with a family headed by someone born in that period remaining “34% below the level predicted based on the experience of earlier generations at the same age.”
On a more optimistic note, the Federal Reserve report noted that millennials are the most educated generation yet, so that alone could help them get back on track financially. But that report was released before millennials took yet another financial blow from COVID-19. According to a recent Pew Research study, 31% of millennials, compared with 12% of baby boomers and 23% of Gen Xers, lost jobs or were furloughed because of COVID-19. The U.S. Bureau of Labor Statistics further reported that among all of those left unemployed because of COVID-19, millennials are most likely to face longer stretches of joblessness.
Looking at their financial position through another lens, although millennials now make up the largest portion of the U.S. workforce, they control just 4.6% of the wealth, compared with baby boomers, who controlled 21% of the nation’s wealth at the same age. They also are not building the same foundations of wealth as previous generations. For example, millennials own just 2% of total equity in corporations and mutual fund shares, compared with more than 55% for baby boomers, according to data from the U.S. Federal Reserve. And according to “Homeownership and the American Dream,” an article from the Journal of Economic Perspectives , “Becoming a homeowner as a young adult is often a foundational step in the process of future wealth accumulation. Yet, compared to the prior generations, fewer millennials are buying a place of their own.”
Independent Schools Face New Market Realities
As millennials will soon be the predominant generation with school-aged children, there is cause for concern. They may have the willingness to consider independent schools, but perhaps not the ability to pay, with the declining number of children also signaling increased competition. Many schools are already preparing for different market realities by executing tuition resets or other market approaches such as indexed tuition or merit aid.In considering the role tuition plays in a school’s overall business model, school leaders must first be clear on how their current tuition aligns with the vision and mission of the school. If a school is not reaching the families it seeks nor bringing in the needed tuition revenue, leaders must investigate what combination of willingness and ability are at play in their market. In a recent webinar on this topic, NAIS Vice President Mark J. Mitchell outlined possible options schools could consider in four different market scenarios
- Unwilling but able: If, after careful analysis, your market appears to be able to pay your tuition, but is not choosing your school, then consider the following:
- Hold on tuition increases while improving outcomes.
- Reframe affordability around stability of price.
- Consider tuition guarantees/freezes, incentive-based discounts.
- While maintaining need-based aid, consider merit aid to increase demand and pool quality.
- Willing but unable: If you have high interest in your school, but also high demand for financial aid to accommodate the price, consider the following:
- Reset tuition price or reset aid investment.
- Reframe affordability in new terms.
- Consider deeper need-based aid discounting.
- Invigorate affordability-focused communications.
- Willing and able: If you have both high demand and a market with the ability to pay current tuition rates, consider the following:
- Reaffirm current pricing approach/strategy.
- Consider potential for price growth.
- Use high-price, high-subsidy model to fund other goals.
- Incentivize pre-payment to lock in/leverage high demand.
- Unwilling and unable: If families have limited interest in your school and a limited ability to pay current tuition price, you need to take more drastic measures:
- Focus on better outcomes or reduced price.
- Invest in strengthening your value proposition.
- Reset tuition to market expectation of competitive value.
- While maintaining need-based aid, consider merit aid to increase demand and pool quality.
