Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Funeral Industry
Transcript
- Lucas: We talk a lot on this show about how falling birth rates ripple through industries that rely on young customers — toys, weddings, housing. But there's one industry that sits at the exact opposite end of the demographic chain, and it's facing a really strange paradox. Luna: Let me guess — funeral homes? Lucas: Exactly. The funeral industry. And the paradox is this: in the short term, deaths are going to rise sharply as the baby boomer generation ages. But in the long term, because there are fewer people being born, the number of deaths will eventually drop. So funeral directors are looking at a boom followed by a permanent bust. Luna: I've seen projections that US deaths will peak around 2043 — something like 3.6 million annually. Then they decline by maybe 20 percent by 2070. That's a wild swing for a business that's built on stability. Lucas: Right. And the funeral industry is notoriously slow to change. Most funeral homes are still family-run, many have been in the same location for generations. They're not used to thinking about long-term demographic trends. But this isn't just about the number of deaths — it's also about what people are choosing to do with their remains. Luna: Cremation rates have been climbing for years. In 2000, it was about 25 percent of dispositions. Now it's over 60 percent. And that trend is accelerating, especially among younger generations. Lucas: And cremation is far less profitable for funeral homes than a traditional burial. You don't need a casket, a burial vault, a cemetery plot — all the high-margin items. A direct cremation can cost under $1,000, while a full-service burial averages $7,000 to $10,000. So even if the number of deaths stays flat, revenues per death are shrinking. Luna: That's squeezing the small independents hard. There are about 19,000 funeral homes in the US, and roughly 85 percent are independently owned. Many are run by owners over 60 with no succession plan. Lucas: So you have a demographic double hit: fewer deaths eventually, and lower revenue per death now. That's forcing consolidation. The big publicly traded player is Service Corporation International, or SCI — they own about 2,000 funeral homes and 500 cemeteries. They've been buying up independents at a steady clip. Luna: SCI's strategy is interesting. They don't just buy the real estate; they buy the pre-need contracts. Pre-need — where someone pays for their funeral in advance — is a huge part of their business model. It locks in revenue years or decades ahead. Lucas: That pre-need business is actually a financial product as much as a funeral service. You're essentially giving the funeral home an interest-free loan until you die. And the money is supposed to be held in trust, but state regulations vary a lot. Some states allow the funeral home to keep the investment gains. Luna: Which creates an incentive to sell pre-need aggressively. And as birth rates fall, that incentive grows because the total addressable market of future deaths is shrinking. You want to lock in customers now before the pool gets smaller. Lucas: There's another angle here too. With fewer children, more people are dying without close family to handle arrangements. That's pushing growth in so-called 'direct disposition' — where a government agency or hospital handles the body, often through a low-cost cremation service. That's a segment that barely existed twenty years ago. Luna: And it's pushing innovation. We're seeing things like water cremation, or alkaline hydrolysis, which uses water and lye instead of flame. It's more eco-friendly and cheaper. Also human composting, which is now legal in a handful of states. Lucas: Those alternatives are still tiny, but they signal a shift in consumer preference. And they put more pressure on the traditional funeral home model. If you're a small operator in a rural town, you might see three or four funerals a week. If one of those becomes a direct cremation, that's a big revenue hit. Luna: It's also a cultural shift. Baby boomers were raised with the idea of a formal funeral, often religious. Gen X and millennials are much more comfortable with informal memorials, or no service at all. The funeral industry has to sell to people who don't want what they're selling. Lucas: And that's where the conversation gets really interesting for us, because it ties back to something we talk about a lot on this show: how demographic change reshapes entire industries in ways that are slow but irreversible. If this kind of analysis helps you think about the economy differently, we actually rely on listener support to keep making these episodes ad-free. Luna: Yeah, like if walking through the economy with us has made something click — a lot of listeners have mentioned that. It's completely optional, but it's what allows us to stay independent. Lucas: So if you'd like to support the show, you can do that at buy me a coffee dot com slash fexingo. And we mean it — no pressure. Just wanted to mention it. Luna: Alright, back to death and dollars. Lucas, you mentioned the rural issue. Are rural funeral homes particularly vulnerable? Lucas: Very much so. Rural areas are aging faster and losing young people to cities. That means the death rate might be higher now, but the long-term decline will be steeper. And rural funeral homes often have less capital to invest in cremation equipment or marketing for pre-need. Some are already closing. Luna: I read that in parts of the Midwest, there are counties where the only funeral home has closed, and families have to drive 50 miles for services. That's a real access problem. Lucas: And it creates a vacuum that chain operators fill. SCI and a few other large players can afford to operate in low-density areas because they cross-subsidize with urban homes. But for a single-location operator, it's tough. Luna: There's also the question of funeral home staffing. Embalmers are a shrinking profession. The average age of a licensed embalmer is over 50. Fewer young people are entering the field, partly because it's not seen as a growth industry. Lucas: And the training requirements are significant — a degree in mortuary science, an apprenticeship, state licensing. If you're a young person choosing a career, you look at the demographics and think, 'This industry is going to shrink over my lifetime.' That's not a great recruitment pitch. Luna: So we have a wave of retirements among funeral directors, a decline in demand for their core service, and rising competition from low-cost alternatives. It feels like the industry is at an inflection point. Lucas: It is. And the winners will be the ones who adapt — offering cremation as a primary service, investing in pre-need sales, diversifying into pet cremation or memorial products. The ones who stick with the old model will likely be bought out or close. Luna: And that's not necessarily bad for consumers. More competition and innovation could bring down costs and increase options. But it's a painful transition for the families that have run these businesses for three or four generations. Lucas: It's a reminder that no industry is immune to demographics. Even death, the most certain thing in life, has a business cycle shaped by birth rates decades earlier. Luna: And that's the kind of long view we try to bring every week. Thanks for listening.