The "Old" World is Coming

We are in the midst of an unprecedented period of demographic change, one that will transform the world as we know it. In fact, some of these changes are already taking place and have had a major impact on our economy, our politics, our culture and much more.

Why is our population changing? Well, it comes down to the fact that birth rates around the world have fallen dramatically in recent decades. For example, if a country has a birth rate of 2.1 (the number of babies born per woman), and no immigration or emigration, its population will remain at current levels. However, birth rates have fallen well below the 2.1 level in most major countries. Some of the world’s lowest birth rates can be found in South Korea (0.75), China (1.02), Italy (1.20) and Japan (1.23). However, the birth rate in the United States has also fallen sharply in recent years, falling to just 1.62, well below the replacement rate of 2.1.

Because birth rates have been falling for so long, the number of young people is dropping dramatically in many regions. In the United States, the number of people under the age of 18 is forecast to fall slightly over the next 25 years (-1.2%), but in Europe it is forecast to fall by 16%, while in China it will fall by a hard-to-believe 45%. At the same time, the working-age population, the key to our economic health, is forecast to grow by just 5% in the United States by the year 2050, while it will shrink by 14% in Europe and 22% in China.

However, there is one segment of the population that will grow at a rapid pace in the coming years, the over-65 population. Today, there are 830 million people around the world over the age of 65. By the year 2050, this figure will nearly double to 1.6 billion. In the United States, the number of people over the age of 65 will increase by 38%, while in Europe (which is already home to one of the world’s oldest populations), it will increase by 29%. In China, which does not have extensive social support for the elderly, the over-65 population will increase by an astonishing 85% over the next 25 years. Simply put, the world is becoming much older, and it is not prepared for such a seismic change.

This change will have massive economic implications for the United States and the world. For example, 34% of government spending in the United States goes to programs exclusively for people over the age of 65%, while more goes to programs whose beneficiaries are increasingly in that age group. Given the debt and deficit projections for the US government, it is clear that these programs will be unsustainable if current population and economic trends continue. At the same time, labor shortages will continue to worsen for many sectors of the economy if an increasing share of the population consists of retired persons.

For businesses, this increase in the number of people over the age of 65 will also have a major impact on their financial well-being. For example, businesses whose primary customers are young people are in trouble as their core market shrinks. We already see this problem impacting businesses in sectors such as education or toys. As the over-65 market grows, businesses will have to focus more of their products and services on meeting the demands of older consumers. At the same time, an increasing share of the wealth is being concentrated in the hands of consumers over the age of 65, further increasing their influence in the marketplace. This trend is expected to continue for the foreseeable future, forcing businesses to adjust to this changing market.

The aging of our population will also have major political and social implications. We have already seen how an older population impacts politics. For example, older voters tend to be more conservative, although this gap has narrowed in recent years. Likewise, older voters tend to be more resistant to major changes or reforms, especially when it comes to protecting public spending programs that benefit the elderly. Moreover, not only is the share of voters over the age of 65 rising sharply, but this group of voters tends to turn out to out at a much higher rate than younger voters, giving them at outsized influence in national, state and local elections.

This dramatic demographic change is going to continue for the foreseeable future, so if we don’t take steps to address this change now, we will face some serious challenges in the years ahead. One change that governments have to make is to ensure that an increasing share of the over-65 population are enabled to productive members of society. We need a regulatory environment in place to allow this. At the same time, we will have to focus more public spending on the infrastructure needs of people over the age of 65. As for businesses, they need to focus more products and services on this growing segment of the market that also happens to possess an increasing share of our economy’s disposable income. At the same time, businesses need to find more ways to employ older workers. In short, our world is becoming much older right before our eyes, yet we are not doing enough to prepare for this massive change.