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How global ageing populations will affect any client you have that is younger than 71.

by Alicia Hager on 20·03·2023

In July 2022, the United Nations announced that the world’s population is due to reach 8 billion by the end of the year and that, for the first time, India will surpass China as the world’s most populous country by 2023.

This does not sound surprising given that it was only a few decades ago that our world population grew from 6 billion to 7 billion. However, the UN added that despite the global increase, the world population is growing at its slowest rate since 1950, with its growth rate falling to less than one per cent in 2020.

Further reports and studies added to this claim, with the European Union commenting that their population had fallen for a second year in a row in 2022. Though this may partly be due to the issues surrounding the Coronavirus, they noted that the number of deaths had outstripped the number of births in the EU from a decade ago. Eurostat explained that given the pandemic, an ageing population and lower levels of fertility rates, the EU will expect deaths to outstrip births for the coming years.

The UN noted that the world should expect to see a large ageing population by 2050. With the number of people aged 65 years or over, worldwide, being more than twice the number of children under the age of 5. With this ageing population, the UN recommended for nations to take steps to adapt public programmes to account for this ageing population, by establishing broader healthcare systems and improving the sustainability of pension systems.

Despite the projections of the global population to increase overall, it is difficult to ignore the multiple sources commenting on the current decline in birth rates. Interestingly, there have been several studies in previous years which have looked at the issues surrounding a decline in birth rates. The Financial Times issued an article in January 2020 which commentated on John Maynard Keynes’ work. Keynes highlighted that a fall in population does come with complicated economic side effects. Whilst some side effects of a declining population are obvious, for example, fewer people will make less things, leading to slower economic growth, there are also more complicated issues. His main concern was that a weak demand for investments will lead to companies struggling to attract new investments entirely, which will potentially lead to a vicious cycle of unemployment and under-consumption. Economics professor Charles Jones added to Keynes’ work and stated that a declining birth rate could lead to a lack of people within research, meaning that there would be slower progress in innovative technologies and science. So, although, there may be more resources per head with a declining population, the growth of living standards will decline.

So why is there suddenly a decline in birth rates, particularly in Western societies? The Guardian newspaper and the Metro both published a report in January 2022 that commented on the new data provided by the UK Office for National Statistics (ONS).

ONS released data that showed that 50.1% of women born in 1990 did not have any children by the time they turned 30.

By comparison, 57% of women born in 1970 had become a mother by 30, and in 1950, around 76% of women had had children by age 30.

Though there was no definitive answer as to why women are likely to have children later in life, there were certainly many economic and social factors involved. With house prices increasing in the UK by almost 10% alone this year, and increasing costs of living and additional childcare costs, many people may delay parenthood due to these economic factors.

For many women, their advancement in their careers happens in their 20s and 30s, which also coincides with when a woman’s fertility is at its peak. With the rising costs of living and the uncertainty of house prices, many women are likely to prioritise their careers over motherhood to ensure their own financial security. ONS also reported that marriage rates are at their lowest since records began in 1862. Although many couples cohabit before marriage, it does also highlight that the drop in birth rates may be due to the simple fact that for many people, they are yet to find a ‘suitable’ partner to have children with. We also can’t ignore the fact that the accessibility of contraception when compared to the previous generations has led to a decline in fertility rate. Accessible contraception for women has given freedom and flexibility to those who either wish to remain child free or would prefer to plan for children once their careers are established. In previous generations where female contraception such as the contraceptive pill was not readily available, more women were having children. In fact, the fertility rate in 1950 was averaged at 4.7 births per woman, whereas in 2022, the fertility rate now stands at 1.75 births per women. Either way, with the cost of living rising, many people, particularly women are having to consider their own financial security, which may not have been as large of a consideration as with previous generations.

Although not every nation is facing a decline in birth rates, it is important to monitor those which are. Japan for example is expecting their population to drop from £126.5million in 2020 to £105.8 million in 2050. Although many would argue that population decline is positive, as overpopulation leads to strains on natural resources, water shortages and can also lead to further conflicts, there are also worrying risks with population decline. Lower birth rates lead to a smaller pool of young people entering the workforce, which may slow down productivity and innovation. This coupled with an ageing population will place an economic strain on resources.

Overall, before governments implement any policies, it will be paramount for individual countries to carefully examine the causes of their population growth and declines, and the relevant impact that the rates of the population may have on their economy.

This might seem an abstract or distant concern, but at a financial planning level it is very real.  Any forecasts you are producing for clients that are 71 today will see them reach age 99 in 2050.

As such, any clients aged 71 or under are likely to have their future impacted by the economic effects of an ageing population.  This is particularly relevant as they will be in a delicate income producing phase of their lifetime.



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