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World’s demographic dividend turns to deficit as populations age

Consumer demand
By Paul Hodges on 20-Mar-2015

New Old Top 10 Apr14We are living in a world of ageing populations for the first time in history.  For many, this conjures up a picture of vast numbers of old people leaning on walking sticks with one hand, and swallowing mouthfuls of pills with the other.

But reality is a long way from this stereotype.

As I discussed last month, vaccination against smallpox was the first crucial enabler for increased life expectancy:

  • It was the starting point for a doubling of Western life expectancy from 36 years in 1820 to 80 years today
  • The benefits of vaccines, water chlorination and healthier lifestyles have added decades to life expectancy
  • In addition, increased life expectancy meant adults could pass on their learning to the younger generation

More recently, the same effect has begun to be seen in the emerging economies.  Since 1950, their life expectancy has increased by 60% from 42 years to 68 years today.

Globally, this means that life expectancy has risen 50% since 1950 to reach 70 years today.

The chart above highlights the truly dramatic increase in the size of the over-55 age group in the world’s 10 largest economies – responsible for around two-thirds of global GDP:

UN data shows there were just 185 million in this age group in 1950.  But by 2000, there were 500m people aged 55+ in these ‘Top 10 economies’.  This was a 2.5-fold increase in just 50 years.

And today, the numbers are rising even faster, due to the impact of the global BabyBoom from 1946 – 1970.

The reason is that fertility rates were still relatively high in the BabyBoom period, as I discussed last week.  And increased life expectancy means most of these Boomers are still alive today, and joining wha we can call the New Old 55+ generation:

  • There are now 750m New Olders in the ‘Top 10 economies’, an increase of 250m people in just 15 years
  • And by 2025, all the Boomers will be New Olders, adding another 225m to the total
  • By then, there will be a total of 975m in the New Old generation, versus 185m in 1950 – a five-fold increase

Global trends follow the same pattern.  So by 2025, the world will have 1.6bn New Olders, compared to just 300m in 1950 – also a five-fold increase.

So we have gained the fantastic benefit of a major increase in life expectancy.  And contrary to the stereotype, the New Olders are NOT people using walking sticks with one hand, whilst they swallow pills with the other.

Yet we all still intuitively retain the mindset of the 1950s, and assume people will die soon after retirement.  We ignore the fact that Westerners who reach the age of 65, likely have another 20 years of life ahead of them.  And we still insist on seeing the post-65 period as simply a very lengthy period of retirement.

This failure to change our mindset means that the demographic dividend created by the BabyBoom is now becoming a very serious demographic deficit.  Today’s relatively small number of young people have not only to support themselves and thir children – but also the older generation in their 20-year retirement via their taxes.

I will look at the impact of this in more detail next Friday.