Rise of the Digital Natives

Estimated reading time: 2 minutes

The way we consume today is very different to even five years ago. Technology is transforming businesses such as online shopping, music, transport and travel. The world’s demographic make-up and further developments in digital technology will accelerate this transformation.

There are 430 million ‘digital natives’ – people who have spent their entire secondary education in a country with an internet adoption rate above 50% – but that will rise to 2.3 billion by 2030, up from 9% of the world’s population to 30%, then reaching 50% by 2050.

Digital natives consume differently to older generations. They are more likely to adopt disruptive technologies but less likely to own cars or watch television, with two-thirds having no landline phone.

If these trends become national norms, the impact on consumption patterns will be noticeable. But greater use of technology will have other economic impacts.

Smartphones and comparison sites have helped create a market with near-perfect information, producing a highly competitive environment that puts downward pressure on prices. Consumers benefit from cheaper goods, but that hampers firms’ profitability and presents problems for borrowers, especially governments, that rely on inflation to erode the real value of debt.

Rising technology adoption also has consequences for labour markets. Automation replaces manual employment, dividing those who lose work from people in jobs that cannot be replicated by machines. An oversupply of labour for low-skilled jobs would limit wage growth, further depressing prices, but real wage growth is still possible if prices fall faster than pay.

However, an alternative scenario could see wages rise as technology allows improved efficiency. But without pricing power, it becomes difficult for firms to generate profits to fund investment. 

Yet technology is also empowering a sharing economy that permits better use of existing capital stock. Instead of an empty home or an unused car, we now have ways to utilise these investments. 

Technology permits consumers to share the surplus previously enjoyed by taxi cabs, hotel chains and music labels, forcing incumbent firms to adapt to survive. And innovation creates new markets as well as new products.

A consumer group that is more willing to adopt technology may lead to new industries arriving. The potential rise of virtual reality and other new technologies – be it driverless cars, new medical practices or robotics – may allow the birth of new industries, bringing with it jobs, investment and growth.

Two things are certain: digital natives will become an ever bigger part of the population and digital technologies will play a huge role in the way we consume.

In this world, both central banks and governments may have to look at things differently. Is GDP still a fair measure of growth? Should central banks cut rates because of low inflation if the cause is supply-side improvement rather than demand deficiency? Will lower pricing power for firms lead to weak investment? Could income inequality actually rise, and how will fiscal policy respond?

The challenges will be huge. The sea-change in consumption trends in the past few years is only just the start.