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What defines happiness?

Several factors have consistently contributed to human happiness throughout the ages, but on the individual level, it remains a lifelong pursuit. Looking ahead, we expect demographic developments and rapid technological change to influence the path to happiness in the decade ahead.

The millennials and Generation Z will move into their peak earnings years and likely benefit from wealth transfer. These cohorts are broadly more conscious of their social and environmental impact. They often value experiences more than material ownership. Companies that produce goods and services that cater to these generations’ social and environmental values are likely to benefit. Furthermore, companies that provide new consumer experiences through technologies like augmented and virtual reality can offer attractive investment opportunities.

Technological progress has raised living standards. But at the same time, more hours spent in front of screens carries risks to well-being. Mental and physical health applications and platforms could benefit both consumers and investors.

Explore below what the demographic change and technological progress mean for investors seeking short- and long-term opportunities. We focus here on the opportunities resulting from more socially conscious and digitally savvy consumers—sustainable brands and digital entertainment like augmented and virtual reality (AR and VR) and esports.

Demographics and technology

Demographics and technology will shape our future happiness

Demographics and technology will influence our future happiness. Digital experiences will become increasingly popular, but screen time could weigh on mental health.

Companies with strong employee well-being initiatives should see longer-term benefits including better productivity and lower healthcare costs.

Technology can expand access to mental health and fitness tools, benefiting companies with exposure to data-driven wellness or fitness applications.

The art of happiness: the past and present

Over the past few decades, we have seen many factors related to happiness trend in the right direction. Economic prosperity is rising; access to critical resources and services has broadened; and people are more connected than ever, at least in the digital sense. Despite these trends, mental health concerns are mounting. In the US, teen depression rose 63% from 2007 to 2017, according to a Department of Health study. And the World Health Organization’s report on mental health and COVID-19 estimates the global economy loses USD 1 trillion every year to depression and anxiety.

How will our pursuit of happiness change in the next 10 years?

We believe demographic and technological developments will change our pursuit of happiness over the coming decade. In the following years, millennials will begin to reach midlife, and greater numbers of Generation Z will reach adulthood. These rising cohorts are “digital natives,” and as this tech-obsessed demographic becomes a larger proportion of the population, we can expect to see hours spent on digital devices rise further.

How will technology impact our health?

Unfortunately, more screen time could have consequences for well-being. But the relationship between technology and mental health is not straightforward. For instance, time spent learning online would likely have a different impact than time spent on social media. A study from the University of Pennsylvania found that spending less time on social media—which about 88% of 18- to 29-year-olds use some form of, according to Pew Research Center—could decrease feelings of loneliness and depression.

On the positive side, technology is broadening access to experiences at a cheaper cost and expanding the options available for maintaining well-being. For example, virtual reality technologies will increasingly enable remote entertainment—more of us will likely enjoy a concert or experience another country without leaving our homes.

In the healthcare space, health and wellness mobile apps are gaining traction and expanding access to mental health services. Similarly, we could see technology enable new possibilities for improving physical fitness. Since the pandemic, for example, we have seen former gym-goers transition to internet-based fitness experiences. While it’s too early to tell whether some of these self-directed, preventive care habits will stick, we have argued that will continue to influence how we manage our health going forward.

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Future trends

Trends that will impact our future experiences

Millennials and Generation Z will see their spending power increase as they enter peak earnings years and inherit wealth.

These cohorts will generally favor sustainable brands that reflect their social and environmental values. Companies offering sustainable products are set to benefit.

Technologies like augmented reality and virtual reality are expanding digital entertainment options.

Understanding the shift in consumer preferences

Consumer preferences will change alongside demographic and technological developments. Given their population and rising spending power as they enter peak earnings years, millennials and Generation Z will increasingly influence consumption patterns. Companies will therefore need to consider these groups’ social and environmental values and their preferences for sustainable brands, as well as their affinity for digital experiences. Consumers are increasingly seeking greater transparency about the goods and services they buy. Technology has played a role in making this data available, and, at the same time, demographics have tipped the balance in favor of sustainable products. We believe that companies that offer sustainably-made products should be well positioned to capture future demand.

Technology in the driver's seat of consumer experience

While demographics will influence preferences for physical goods, technology will enable consumers to pursue a wider range of experiences. In the next decade, we believe that augmented and virtual reality-based entertainment will take digital experiences to the next level. AR and VR can be thought of as "technology cousins." Augmented reality adds digital elements to a scene that is typically displayed on a smartphone or tablet. It enhances reality rather than replaces it and typically requires little up-front investment as most modern smartphones can provide AR experiences. Virtual reality is more immersive as it often replaces a user's entire field of vision and leads the brain to sense the virtual experience as fully real.

Will augmented and virtual reality help us find happiness?

There are a number of future uses for AR and VR technology, spanning from education to healthcare, but currently we are seeing traction within the entertainment sector. The gaming industry, in particular, could be one of the fastest to adopt AR and VR due to their use of motion technologies. Even prior to COVID-19, AR had already seen early uptake in gaming, with the AR-based smartphone game Pokémon Go being a nearly overnight success. The retail industry has also been an early adopter—Ikea uses AR to enable customers to see a digital version of how new furniture would look in their home. Turning to VR, video gamers were early adopters of the technology and may draw more upon it in the future. The entertainment world is also exploring the use of VR to enable new movie and music experiences. For example, a movie watcher may be able to venture virtually through a scene or a set, leading to varied interactions and plot outcomes.

Looking ahead, we believe significant advances in sensor and graphics technologies should accelerate innovation and promote the use of AR and VR in significantly more areas. Based on various market sources, we estimate that the combined revenues of the AR and VR industries could grow from USD 8.6 billion in 2019 to USD 107 billion in 2025. While most of today’s sales are hardware, the mix of both AR and VR software should rise substantially as devices become cheaper, the availability of software content increases, and enabling technologies like 5G make it easier to deliver digital entertainment.

Esports gaining global interest

In addition, we expect esports to continue to gain popularity and become a larger part of the overall gaming market. Today, according to Newzoo, Asia Pacific accounts for 51% of the estimated 395 million esports fans globally, but we’re also seeing signs of increasing interest in other regions. Live events will remain essential to the industry’s growth. We expect to see further expansion of live venues such as the HyperX eSports arena in Las Vegas, and more leagues surrounding popular games. Gaming companies are looking to improve esports monetization by capitalizing on advertising, ticket sales, and merchandise. Epic Games earned more than USD 100 million a month through Fortnite in-game purchases, despite the game being free to download. We are still in the beginning stages of this esports trend, but growth should accelerate as the tech-savvy millennial and Generation Z cohorts increase their spending and as the technologies develop and scale.

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Related insights

E-commerce and fintech

We expect the trends toward e-commerce and fintech, driven by digital technologies and the demand for convenience, to continue.

The shift to more efficient payment mechanisms is underway, and we believe the COVID-19 crisis will accelerate structural trends that were already in place.

Speedier adoption of these trends should benefit payment service providers and their volumes.

E-commerce on the rise

Digital technologies have allowed for greater convenience in transactions, and as a result we expect to see increased adoption of e-commerce. During the COVID-19 lockdowns, the use of e-commerce surged. According to Mastercard SpendingPulse data, e-commerce's share of US retail sales roughly doubled during the pandemic, from about 12% to nearly a quarter in April and May. While shopping patterns will likely normalize as economies reopen, we expect the trend toward e-commerce to continue, growing by about 15% a year.

Another interesting trend we observed during the pandemic is the broadening of categories of goods being purchased online. Groceries are a good example; while e-commerce makes up a relatively low share of grocery shopping, it saw a significant pickup following the lockdowns and social distancing orders. UBS estimates that online grocery purchases will grow from roughly 3% before the pandemic to 15% by 2025.

The food delivery market is one of the fastest growing segments in e-commerce and should be further supported by demographic shifts: Consumers aged 18 to 34 order meals online more frequently than older generations. Further out, innovative delivery technologies such as autonomous drones or robotic delivery could become more commonplace as companies look for ways to lower the cost of the last mile in delivery. While the food delivery market is still in its early stages, we expect it to grow by about 16% a year, and to be worth about USD 365bn by 2030.

Transacting in the digital world: Fintech

The combined forces of digital technology and demographically driven demand for convenience have altered the financial services landscape as well. In particular, we expect to see continued growth in online and mobile payments as part of the larger trend toward fintech. We see a strong preference for mobile payments among millennials, but older generations are catching on as well. A 2016 McKinsey survey found that 69% of UK millennials—and a lesser but still substantial 40% of baby boomers—would like to use their mobile phone as a replacement for a physical card in point-of-sale transactions.

Looking ahead, we expect to see more types of payments move to digital channels. Today, more than half of consumer purchases are made with credit or debit cards (in plastic or digital form); yet, we typically pay for several other expenses such as rent, utilities, and medical services with older means. Business and government payments still widely rely on invoices and check remittances as legacy processes have proven slow to evolve. The shift to more efficient payment mechanisms is underway, and we believe the COVID-19 crisis will accelerate structural trends that were already in place.

Overall, the speedier adoption of these trends should benefit payment service providers and their volumes. Moreover, significant investment by these types of companies in expanded digital provision, as well as mobile capabilities powered by 5G technologies, should position them well for the broadening of the market for plastic, online, or mobile payments. Such new horizons should include increasing personto- person (P2P), business-to-business (B2B), government-to-consumer (G2C), and other, nontraditional transactions representing a total addressable market of more than USD 200 trillion.

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Investment recommendations

Consider public and private market opportunities resulting from more socially conscious and digitally savvy consumers—sustainable brands and digital entertainment such as augmented reality (AR), esports, and virtual reality (VR).

We recommend investing in a diversified portfolio of companies benefiting from e-commerce trends, including large internet retail platforms, omnichannel retailers, logistics companies, and select real estate opportunities.

As consumers increasingly shop online and more types of payments shift to digital channels, we also see an opportunity for payment service providers as well. These trends support our broader fintech theme, which encompasses a wide range of markets undergoing technological transformation, including payments, insurance, wealth management, and banking.

For more, see our “Enabling technologies” Longer-Term Investments theme and our Shifting Asia report “Ahead of the game.”

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