Harvard Professor Richard Cooper recently made a presentation at a meeting of the Boston Security Analysts Society. His presentation analyzed international census data and included a variety of predictions about global demographic changes over the next 30 years that will likely have a profound effect on business and financial leadership throughout the world.
Some of his comments include:
1. Declining birthrates
Demographers know that it takes an average birthrate of about 2.1 children per family to sustain a population. This level could be lower if there is consistent immigration into the country.
A combination of public policy, economic and social factors has led to much lower rates of birth in some countries:
|Country||Current Birthrate Per Family|
|Europe||1.2 – 1.8|
According to Cooper, these birthrate levels will lead to:
- A decline in the population of Europe of around 30 million people between 2010 and 2040.
- Dramatic declines in the population of many Asian countries.
- Large decreases in the number of young adults (defined as around 20 years old) in all of the countries above except the United States. By 2050, most of the new young adults will come from sub-Saharan Africa.
- The population of the U.S. is expected to grow from about 310 million today to over 400 million by 2050.
2. Aging Societies
The lower birthrates will mean that the median age of the inhabitants of many major countries throughout the world will rise dramatically:
|Country||Median Age 2010||Expected Median Age 2040||Change|
3. Changing Population Ratios
The ratio of working individuals to children and retirees is a very important factor when determining whether programs Social Security in the U.S., are priced correctly. The higher the ratio of workers to dependent individuals, the lower the required contribution for each worker. Currently, the U.S. has about 4.8 workers for every dependent individual. By 2050, this number is expected to shrink to 2.6 workers. Although this number is low, the Japanese have proven that it is possible to pay for nationalized retirement programs for workers with this ratio—like starting the program at age 70 rather than age 65 – are implemented early.
This ratio is expected to be much lower in other countries in the next 40 years:
- In Japan, it will decrease from 2.6 to around 1.2 by 2050.
- Similar rates of 1.2-1.5 or less are expected for Italy, Spain and Germany.
Cooper concludes that the U.S. will be less affected by huge demographic changes than many developed economies over the next 30 or 40 years. This could lead to a more positive economic outlook for U.S. investments than for investments in many other countries.
~ Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA