FDIC Outlook Regional Demographic and Banking Trends
The aging of the baby boomers is becoming an increasingly important public policy issue for this country.1 Demographers, health care professionals, and policymakers, among others, are concerned that as the ratio of elderly persons (those ages 65 and older) to the working-age population increases during the next two decades, expenditures for health care and other support of the elderly will fall on a proportionately smaller labor force. However, the potential impacts of the aging baby boomer generation as well as other key demographic trends are not evenly distributed across the country (see Map 1). For example, baby boomer populations are heavily concentrated in New England, the Northwest, the Rocky Mountain states, and metropolitan areas in the Midwest. The growing elderly segment of our nation's population, however, is concentrated in the Great Plains, the Southwest, and Florida.2
This uneven distribution of baby boomers and elderly highlights several regional demographic trends. For example, domestic migration, or population shifts occurring within the United States, has been significant. During the past few decades, baby boomers and younger working-age people have moved from rural to urban areas in search of employment, leaving behind a disproportionate number of elderly residents. In addition, retirees have flocked to states such as Florida, Arizona, and Nevada because of the warm climates and amenities. Domestic migration may become more important as the number of baby boomers moving to retirement locations continues to increase. Improved communication technologies, including the Internet, have greatly improved the availability of information about employment opportunities, enabling workers to search for jobs across the country.3
Another key regional demographic trend is international migration, the impact of which also is not felt equally across the country.4 Immigrants from Latin America and Asia, who represented 78 percent of legal immigrants to the United States during the 1990s, settled in California, Arizona, New
Mexico, and Texas. In addition, an estimated 7 million unauthorized immigrants lived in this country in 2000; more than two-thirds immigrated from Mexico, and these individuals tend to be concentrated in the southern states.5 These and other key demographic trends are examined in this article as analysts from the FDIC's eight geographic areas offer insights about the implications of these trends for local economies and the banking industry.
Relatively large and growing elderly populations, as well as strong international immigration, have spurred increased banking activity.
The elderly represent an important demographic in many areas of the Atlanta Region (see Map 2), particularly in Florida and West
Virginia, where this group ranks among the highest in the nation. The relatively large number of elderly residents in Florida is due to high levels of retiree in-migration. However, in West Virginia, as well as the Region's other rural areas, this situation may be the result of younger individuals leaving to pursue economic opportunities. Notable exceptions to significant concentrations of the elderly in the Region are the Atlanta metropolitan area, North
Carolina's Research Triangle, and Northern Virginia.
Although Florida is expected to continue as a magnet for retirees, its deteriorating housing affordability may become problematic for some retirees. This may spur greater numbers of residents to relocate from the coast to areas of the Region where home prices are lower, such as the South
Carolina Low Country and Myrtle Beach areas.
The level and pace of international migration has ratcheted upward in the Southeast. Although widespread across the area, immigrants from outside the United States choose to reside in a few specific areas, such as South and Central Florida, metropolitan Atlanta, and Northern Virginia (see Table 1). Combined, these areas represented more than half the Region's international migration between 2000 and 2005.
of Florida and Metro Atlanta Have Been Top Destinations for International
Dade County (FL)
City + Falls Church (VA)
Palm Beach County
Cobb County (GA)
U.S. Census Bureau, Economy.com.
The immigration of unauthorized residents to the Atlanta Region has increased as well; between the 1990 and 2000 Censuses, the number rose from 354,000 to 910,000, a 157 percent jump.6 Florida was home to the most undocumented immigrants in the Region in 2000, but that number actually represented a decline from six years earlier. In contrast, a significant jump in the number of undocumented residents occurred during the same period in Georgia, North Carolina, and Virginia.
Rapid growth in key segments of the population is expected to significantly affect
local economies and the banking industry in the coming years. For example,
international migration already has prompted growth in the number of insured
institution branch offices. Between 2000 and 2005, according to FDIC Summary
of Deposits data, banks and thrifts operating in the counties in the Southeast
with a relatively high volume of international migration also reported some
of the greatest increases in bank branching activity. Similarly, demand by
the elderly for financial products and services differs from other demographic
groups and is expected to influence bank product development and marketing
decisions. (See "How
Aging Baby Boomers Are Changing the Financial Marketplace" for
an overview of how the financial needs and preferences of the baby boom cohort
are expected to change as they near retirement and the opportunities this presents
for the nation's insured institutions.)
Relatively low population growth, a result of domestic out-migration, has contributed to heightened competition among banks.
The Chicago Region is characterized by a below-average rate of population growth because of domestic out-migration. In several states, domestic out-migration exceeded total population growth, while other states experienced relatively low rates of in-migration (see Chart 1). Two factors are responsible: a decline in the number of jobs, particularly in the manufacturing sector, and the out-migration of retirees to warmer climates. Except for Kentucky, every state in the Region experienced net domestic out-migration in the 2029 age cohort, apparently because individuals in this group sought job opportunities elsewhere. Illinois and Ohio also experienced out-migration of baby boomers, and out-migration of elderly occurred in all states in the Region. Despite these shifts in population, however, the percent of the elderly population is expected to grow due to an aging baby boomer population.
International in-migration offset some or all of each state's domestic out-migration. However, this in-migration occurred unevenly as most individuals settled in larger metro areas, such as Chicago or Detroit. In general, the population in suburban counties near larger metro areas grew most significantly.
The Region's relatively weak population growth could dampen overall household wealth, which, in turn, could constrain sources of insured institution deposits, particularly for those banks and thrifts operating in affected areas. In addition, a smaller potential customer base likely will heighten competition among institutions. Generally, during the past five years, community institutions in counties with relatively slow rates of population growth have reported lower levels of growth in assets (7.0 percent), loans (6.5 percent) and deposits (7.1 percent) than those operating in areas with relatively high rates of population growth (asset growth of 12.9 percent, loan growth of 14.3 percent, and deposit growth of 12.9 percent).7
To extend their geographic reach, more banks in the Region have branched into other states or are offering electronic banking products. Insured institutions also are reporting upticks in investment sales and trust activity, product areas of interest to an aging population. In addition, some institutions, particularly in the larger metro areas, have expanded outreach and marketing efforts to target the growing immigrant population.
Concentrations of aging baby boomers and elderly with significant wealth present opportunities for local banking institutions.
Three key demographic trends are emerging in the Southwest United States: a slowing in domestic migration from other areas of the country, rapid growth in the number of baby boomer retirees and preretirees,
and continued rapid growth in the Hispanic population. Between 2000 and 2004, Hispanics represented nearly two-thirds of the Region's population growth, increasing at a rate two-and-a-half times that of non-Hispanics. In addition, robust economic and job growth during the 1990s, particularly in Colorado and Texas, contributed to a substantial net domestic migration from California, the Midwest, and the Northeast. During the past five years, this relocation of population slowed and, in somestates, turned negative largely as a result of the economic downturn in the Southwest. Looking forward, however, because of a strong economic outlook, each of the Region's states is projected to rankamong the top third among the 50 states in employment growth through 2009, which should result in a resumption of domestic in-migration.8 And finally, U.S. Census Bureau data project that between 2000 and 2030 the Region's elderly population will grow 136 percent, compared with 48 percent for the Region's overall population.9
Banks and thrifts are expected to target aging baby boomers and the elderly with significant wealth accumulation. Environmental
System Research Institute (ESRI), an information management firm that has developed a methodology for segmenting population groups, has identified two such affluent groups.10Prosperous
Empty Nesters typically are married couples with no children living at home, often age 55 years or older, well educated, and with a median income of more than $64,000. Silver
and Gold persons are among the nation's wealthiest seniors, having a median age of 58 years, retired from professional occupations, and owning a home with a median value of $276,000. Although almost every county in the nation is home to individuals in these groups, the Dallas Region has many counties with concentrations that are more than double the U.S. average (see Map 3).11
These two elderly segments of the population increasingly will influence labor and housing markets, expenditures for health care and travel, and demand for financial services. Financial institutions are expected to develop and market products for these individuals because of their significant assets. Current product offerings include reverse mortgages and annuities, investment management, and trust and estate planning services.
Affluent Mid-South suburbs have attracted baby boomers, and insured financial institutions have followed.
The Mid-South continues to be characterized by modest population growth, depopulation of the Mississippi Delta area, and a growing concentration of baby boomers in metropolitan areas. Overall population growth in the area has trailed the nation during the past 40 years. Since 1962, when the first baby boomers entered the workforce, the total population of the Mid-South grew 46 percent, compared with 60 percent for the nation. During the same period, nearly all counties in the Mississippi Delta declined in population as residents, including baby boomers, left the area in search of jobs and amenities in metropolitan areas, such as Memphis, Little
Rock, and Jackson.12 Approximately 66 percent of the area's 4.2 million baby boomers now live in the Mid-South's metropolitan areas.
A few smaller Mid-South communities also are drawing these individuals as they retire. The baby boomer population of these "retirement havens," including Hot
Springs, Arkansas, and Crossville,
Tennessee, has grown in recent decades. A few other areas are now beginning to attract aging baby boomers, including communities near the Smokey Mountains, the Mississippi Gulf Coast, and college towns, such as Oxford,
Mississippi. These communities share a number of desirable factors: a relatively low cost of living, affordable housing, favorable climate, cultural opportunities, and other amenities.13
Interesting distinctions among populations are now emerging in the Mid-South's metropolitan areas. Drilling down to the county level, our analysts found the demographic characteristics of suburban county households generally include higher income and rates of home ownership, more years of education, and a higher ratio of married couples to single individuals.14 Our analysis identifies 20 "affluent" counties that are home to significant numbers of residents who share these traits (see Table 2); these affluent counties are primarily suburban counties that have attracted an influx of relatively high-earning baby boomers from the urban core. As a result, these counties have experienced strong population growth. The Mid-South's median county population growth between 1995 and 2003 fell below 5 percent; however, median growth for affluent counties was 18 percent, including a disproportionate number of baby boomers.15
Numbers of Baby Boomers Now Live in Relatively Affluent Mid-South
Share of Total1
Areas in the Mid-South region with at least 10,000 baby boomers, at
least 30 percent of total population consisting of baby boomers, per
capita income greater than $25,700, and less than 14 percent of population
below the poverty line.
U.S. Census Bureau, Based on 2000 Census data. 2 U.S. Census Bureau Small Area Income & Poverty Estimates,
2002 data. 3 Bureau of Economic Analysis, 2003 data.
Insured financial institutions have followed baby boomers into these affluent counties. Although the number of banking institutions fell 28 percent across the country between 1995 and 2005, and Mid-South totals dropped 24 percent, the number of banks and thrifts in these affluent counties increased 42 percent.16 Branching activity also has been very strong in these counties; the number of branches increased 36 percent between 1995 and 2005, more than double the average of the entire Mid-South area.
Kansas City Region
Large concentrations of elderly in depopulating, rural counties will increase as baby boomers retire, placing additional stress on financial institutions' sources of funding.
Since 1970, a majority of the Region's 618 counties have lost population. As farm technology has continued to improve, fewer farmers are required to work on farms. As a result, displaced farmers and residents of small towns that support farms have migrated to less agriculturally intensive areas in search of better employment and educational opportunities.17
Because rural-to-urban migrants tend to be younger people, declining countiesthose that lost population between the 1970 and 2000 Censusestypically have fewer young people and large elderly populations (see Chart 2, next page). Note the relatively small proportion of the population ages 20 to 34 and the large number of elderly people. In this example, almost 20 percent of the population is older than 65, compared with 12.4 percent for the nation as a whole.
The population of a majority of the Region's counties is characterized by a high
share of elderly individuals. Our analysis ranked the nation's counties by
the proportion of the elderly population and divided the counties into quartiles.
The data show a majority of the Region's counties fall in the oldest quartile
(see Map 4).
Of the Region's 342 counties in this quartile, 285 are rural counties with declining populations. This phenomenon likely will worsen as baby boomers in these areas begin to join the ranks of the elderly in coming years.
Counties with declining populations and large elderly populations face significant challenges related to the composition of the labor force. Declining counties in general already have smaller-than-average labor forces, making it difficult to attract the significant employers needed to reverse population outflows. This unfavorable situation is exacerbated when a small community has a high proportion of elderly who typically lack the education and skills needed to attract employers.
The concentration of elderly people in declining counties is also a concern for insured financial institutions. Banks in these areas find it difficult to maintain and grow deposits. Between 1994 and 2004, deposits in declining county bank and thrift branches grew 24.4 percent; the figures were 74.5 percent and 58.7 percent for deposits in branches in metropolitan counties and growing rural counties, respectively.18 This situation is more serious in those cases where banks rely on the elderly for funding. Many rural bankers have a similar story to tell: an elderly depositor with significant deposits passes away, and that person's funds are withdrawn within days by heirs who have moved to metropolitan areas. These deposits, used to make loans or other investments, are difficult to replace.19 The large elderly population in much of the Region suggests this problem will intensify in coming years.
New York RegionMid-Atlantic
Housing affordability has shifted population in the Mid-Atlantic to the suburbs and exurbs.
Growth in total population and baby boomer cohorts in the Mid-Atlantic region has trailed the U.S. average since 1990 and, for the most part, reflects out-migration to lower-cost areas of the country.20 Affordability also has contributed to migration patterns within the Mid-Atlantic from larger cities to suburbs and newly formed exurbs.
Overall population growth in the Mid-Atlantic states has been about 8 percent since 1990, but growth has been much stronger in rings of suburban and exurban counties surrounding major cities along the New
YorkWashington, D.C., corridor (see Map 5). Around the New
York City metropolitan area, particularly in Orange and Putnam counties and in neighboring Pike and Monroe counties in Pennsylvania, population has expanded more than 55 percent since 1990. In addition, population growth along the Baltimore-Washington corridor ranged between 20 and 60 percent. The extension of suburban boundaries also has occurred around the Philadelphia metropolitan area, including suburbs in New
Affordability and lifestyle are key factors driving Mid-Atlantic population trends, as homes are generally less expensive further from major cities. However, growing demand for housing has pushed home appreciation rates in many Mid-Atlantic suburbs and exurbs to approximate those of major cities. During 2005, home appreciation reached cyclical highs that exceeded 20 percent in some Maryland and New Jersey suburbs, a consequence of spillover demand from the neighboring larger metropolitan areas.21 However, because the recent increase in home prices started from much lower levels, homes remain relatively affordable in most Mid-Atlantic suburbs, which should continue to encourage out-migration from urban areas.
Mid-Atlantic counties with higher rates of population growth also generally have experienced increases in job growth and bank branching activity. A majority of the counties that ranked in the top quartile for population growth between 1990 and 2003 also ranked in the top quartile for job growth. Stronger population growth has spurred demand for construction of local infrastructuresuch as roads, sewers, and schools-and has supported new business formation, which collectively fosters an expanding economic base and demand for banking services. The number of bank branches has increased almost 9 percent in counties in the top quartile of population growth, compared with a 2 percent decline in counties in the bottom quartile. Loan growth also has been stronger among insured institutions in fast-growing counties.
While the percentage increase in the baby boomer population in the Mid-Atlantic has slightly lagged the nation, demand for vacation and retirement homes by this cohort has driven population growth along the New Jersey, Delaware, and Maryland shorelines. Baby boomers in these areas represented one-fourth of the population gain since 1990an average increase of 34 percent, four times the national average. Demand for second homes also has contributed to significant growth in the baby boomer population in Pennsylvania's Pocono resort area and the Delaware Valley.
Recent studies also suggest a reversal of migration trends for some of the area's aging baby boomers. Traditionally, baby boomers have migrated away from the big cities; however, data show that some "empty nesters"those whose children are grown and out of the house-are returning to the larger cities to take advantage of amenities, such as restaurants, entertainment, and cultural events.22 The return of empty nesters and foreign immigration has offset, at least in part, domestic out-migration in some of the larger urban cities along the East Coast.
New York Region-New England
Net out-migration and aging baby boomers challenge future economic growth.
In all six New England states, baby boomers make up a larger share of the total population than the national average. This is due in part to out-migration of younger individuals and some in-migration of baby boomers and retirees to the Region's vacation areas. These shifts in population, in addition to the fact that a significant share of elderly already live in the area, have contributed to a relatively high median age, making New England the oldest of the Census Bureau's nine divisions. Census Bureau projections show New England will remain at the forefront of this country's "age wave" as the Region will be characterized by the highest median age from 2004 through 2030.23 As a result, economic and banking implications associated with aging baby boomers could be magnified in New England.
While the aging of the baby boomer generation is a long-term concern, out-migration and slow natural population growth in New England are key demographic trends expected to affect businesses and governments in the near term. As expected from the population's age distribution, New England has the slowest rate of natural increase. More troubling is the net out-migration attributable, at least in part, to lagging rates of job creation since the 2001 recession in the two most populous states, Massachusetts and Connecticut.
Shifts in population exhibit a sharp north/south divide. From 2002 through 2005, domestic population outflows occurred in the three southernmost states: Connecticut, Massachusetts, and Rhode
Island. Moreover, Massachusetts and Rhode Island lost total population between 2004 and 2005, and Massachusetts is the only state in the nation to lose population for two consecutive years. However, New
Hampshire and Maine to the north enjoyed net inflows rivaling the best in the nation during that time.24 All
three southern states are considered "mature" economies with significant
concentrations of traditional industries, such as finance and insurance
and production of consumer goods. Although Massachusetts boasts a
vibrant technology economy, the state has not created enough jobs
to offset attrition in the more traditional sectors. Conversely,
the New Hampshire economy, consistent with the state's strong population
growth, continues to expand.
The most significant demographic challenge for New England stems from the slow expansion of the working-age population, the age group most important for the economy's health. Domestic migration by age shows clear patterns of working-age cohorts leaving New England and relocating south and west because of milder weather, less expensive housing, and shorter commutes. Census data suggest these trends will continue (see Chart 3), and estimates of slow growth in the 22-to-65-year-old cohort suggest a considerable headwind facing the New England economy. This age segment represents a significant share of an area's workforce and encompasses most entrepreneurs. When these individuals relocate, an economy's vitality often moves with them.
San Francisco Region
Strong population growth is expected to continue in much of the Region.
States in the San Francisco Region added about 9 million new residents during the 1990s and generally reported more rapid population growth than the rest of the nation. Census data indicate this growth will continue, albeit at a somewhat slower rate, through 2010 (see Chart 4), and that gains in population should occur among baby boomers and foreign immigrants.
and quality of life attract many baby boomers to states in the Westboth
those groups of individuals who choose to "age in place" during retirement
and those moving from other parts of the country. Cost of living affects
relocation decisions at any age, but may be particularly important
to baby boomers transitioning from their prime earning years to fixed
incomes. Four Western states rank favorably for housing affordability: Wyoming,
Idaho, Montana, and Utah. Also, relatively affordable housing in Oregon and Arizona has attracted baby boomers from California, where home prices are higher. Several states in the Region also are attractive because of retiree-friendly tax structures. While many retiree benefits and pension income is exempt from state taxes, residents enjoy another advantage in Alaska,
Nevada, Washington, and Wyoming, where they do not pay income tax.
The availability of health care, transportation, and recreation are also key considerations for individuals considering moving to a new area. In particular, nearly one-third of the nation's nonmetropolitan, recreation-based counties are located in the West (see Map 6). Many recreational counties in the West, including Prescott, Arizona; St. George, Utah; Bend, Oregon; and Coeur d'Alene, Idaho, already have become retirement hubs and experienced significant in-migration.
Immigration of younger job-seeking individuals also played a key role in the West's robust population growth. During 2004, California ranked first in the number of immigrants in the nation, with 27 percent of its residents born outside the United States. Furthermore, the California foreign-born population expanded 37 percent during the 1990s, far outpacing the growth of domestic-born residents (7 percent). Prospectively, immigration may increase in importance as California continues to lose baby boomers to other states. In addition, the number of foreign-born residents at least doubled in Nevada, Utah, Arizona, Idaho, and Oregon between 1990 and 2000.
Drilling down to the regional level adds insight into how national demographic trends may manifest themselves in local communities. The demographic trends highlighted in this article present challenges and opportunities for regional economies and the local banking sector. Understanding the factors driving these trends will help insured institutions anticipate their customers' changing financial needs and develop financial products and services that will meet those needs.
1 The "baby boom generation" and "baby boomers" refer to persons born between 1946 and 1964.
2 Easterlin, Richard A. 2000. Growth and Composition of the American Population in the Twentieth Century. In A
Population History of North America. Cambridge University Press, pp. 564655.
3 Cairncross, Frances. 2001. The
Death of Distance: How the Communication Revolution is Changing Our Lives. Cambridge, MA: Harvard Business School Press, p. 209.
4 According to the U.S. Census Bureau, net international migration is defined as "(1) net migration of the foreign born, (2) net movement from Puerto Rico, (3) net movement of the U.S. Armed Forces, and
(4) emigration of the native born. The largest component, net migration of the foreign born, includes lawful permanent residents (immigrants), temporary migrants (such as students), humanitarian migrants (such as refugees), and people illegally present in the United States." www.census.gov/popest/topics/terms/national.html.
5 Economics and Statistics Administration, U.S. Census Bureau. 2006. Statistical
Abstract of the United States 2006. Table 7Estimated Unauthorized Immigrants by Selected States and Countries of Origin: 2000.
6 Source: Immigration and Naturalization Service (historical). Figures do not include West Virginia, for which Census figures were not available.
7 Low population growth counties consist of counties that experienced population growth rates below the 25th percentile between 1990 and 2004. High population growth counties consist of those that experienced growth above the 75th percentile. Community institutions include insured banks and thrifts with assets less than $1 billion excluding credit card and other specialty banks as of September 30, 2005.
8 Source: Moody's Economy.Com State Précis reports dated November and December 2005.
9 Source: U.S. Census Bureau, Population Division, Interim Population Projections, 2005.
10 Source: Community Tapestry Segments as defined by ESRI Business Information Solutions.
11 Location quotients were used to establish county concentrations.
12 Walser, Jeffrey, and John Anderlik. 2004. Rural Depopulation: What Does It Mean for the Future Economic Health of Rural Areas and the Community Banks That Support Them? FDIC
Banking Review, vol. 16, no. 3.
13 As of first quarter 2005, Arkansas had the lowest cost of living in the nation. Mississippi ranked 3rd, Tennessee 5th, and Louisiana 20th. Missouri Economic Research and Information Center, available at www.ded.mo.gov/researchandplanning.
14 Kasarda, John, et. al. 1997. Central-City and Suburban Migration Patterns: Is a Turnaround on the Horizon? Fannie
Mae Foundation Housing Policy Debate, vol. 8, issue 2.
15 Most recent county-level data available.
16 FDIC's Summary of Deposits database.
17 Walser and Anderlik, p. 70.
18 Bank and Thrift Call Reports, all insured institutions. Rates shown are median rates for each group of institutions. Growth rates are merger-adjusted.
19 Walser and Anderlik, p. 84.
20 Source: U.S. Census Bureau. This analysis tracks population growth between 1990 and 2003.
21 Office of Federal Housing Enterprise Oversight. Quarterly data through third quarter 2005.
22 Slobodzian, Joseph A. December 27, 2005. Center City Renaissance: A Residential Population Boom and Retail Growth Power a Comeback. Philly.com. Empty Nesters Flock to Cities. September 7, 2004. www.cbsnews.com.
23 U.S. Census Bureau, Interim State Population Projections, 2005. Internet release date: April 21, 2005.
24 U.S Census Bureau. Estimates
of Average Annual Rates of the Components of Population Change for the United
States and States: April 1, 2000, to July 1, 2005.