Economics and Ageing: The effects of demographic change Part 1: Why this change is important

If you live in what is considered a western country, economically speaking, you may occasionally hear news stories that affect the elder members of the counties population. What may not always be included in these stories, is information on the great changes that are taking place demographically in these counties. These changes can be seen in the day to day activity we all take part in, have you seen these changes? possibly in your country?

Here is an explanation of the demographic change; the greatest generation, the baby boomers, are ageing. Now, not only are they ageing, they are living longer than their predecessors. This part of the population is living to the ripe age of 80, on average. Economics help, reported this demographic change in 2016, they breakdown the demographic shift with the following quote "life expectancy in the US has increased from 45 in 1902 to 75.7 in 2004 (link). Even in the past 50 years, life expectancy has risen in most western economies.” The example used is from 2004, and the graphic representation of the change (can be seen here), clearly shows a steady rise in the demographic transition in three of the wealthiest nations, the US, UK, and Japan.

Lets consider why this change important, one, and two, what this means for us and the ageing people in our lives.

This change is important because as our family members live longer, which we are all grateful for, means that there is a decline in national birth rates. You may think, Ok, so theres less people being born, aren’t we overpopulating the earth? The issue here is that the countries with the demographic shift, the more ageing, and less people being born, are the countries that will need young people to join the economy, to support the needs of the ageing population. Simply put, we as a people in western countries, are having less children, if we have them at all, and a low birth rate translates to an increase in the dependency ratio for a city, state, and country. Econ 101 definition for dependency ratio is, the measure of the % of people whom are not working and depend on those that are working, meaning that 1 person ( not working ) depends on 3,4, or 5 people ( working or of working age) for support in their needs. all this leads to is, less people supporting more people. it would be like a full horse drawn wagon being pulled uphill by a donkey.

In the past this was not an item of concern because the ratio was healthy, more people supporting less people. In the US, for example, an individuals social security was relatively safe and guaranteed. The same for other countries, where the persons state provided pension would cover many expenses in later life. Quick note; state pensions are supported by our taxes. This state pension was the norm in the not to recent past. As time went on, it was to the state and private employers who would provide pensions which worked together to cover the persons expenses as they aged. Then not to long a go, less than 20 yrs, both state and corporate pensions were no longer enough, there was a need to establish an additional personal financial safety net, to have a level of security in the later days in life. Keep in mind that we did not live as long as we do now as you take this information in.

We are starting to see the first signs of the effects this demographic change is having on the economy. As we briefly touched on the dependency ratio, the world bank said the following “ the size of the labor force will tend to decrease, … limiting its economic capacity to cover the needs of those who have already retired.” This statement paints a the clear picture, that mom, dad, granddad, or grandma may not have all of their needs met, even though they have made their contribution to the economy, even if you add the private and personal financial arrangements that may have made. The financial implications make this change important, and a necessary one for us to comprehend, because it will require a conversation to prepare the amazing person in your life for the challenges ahead. Taking this first step can ensure they will have a quality of life they have deserve and have earned, and that their wellbeing is supported by us and those around them.

In part 2 we will examine what this change means for the person in our lives.