By: Alan Nevin
As published in the San Diego Daily Transcript: Feb 14, 2012
These days, we are inundated with news on the financial and economic woes of the United States and Europe and other developed countries. Though many of these woes relate to recent splurging of government funds and the devastation caused by the mortgage malaise, it is perhaps more useful to look to the future of these nations to better forecast their long-term economic health and financial power.
For this purpose, I put on my demographer hat, because in the long run, the ultimate key to the economic success of developed and emerging countries relates to the number of consumers that drives their economies and the costs that are associated with caring for their elderly. The two most important numbers to consider, therefore, are the percent of the population that has not yet reached adulthood and the percent of the population that is over age 65.
Let’s look at the aging of the senior sector. The senior sector causes the heaviest financial burden to an economy. For instance, in the United States, 50 percent of our health care bill is related to persons within two years of their death. In a similar vein, seniors have passed the acquisitive stage of their lives and therefore contribute relatively little to retail sales, demand for new housing and spending on discretionary items like automobiles, home furnishings, clothing, restaurants and entertainment. Most often, their incomes do not justify splurging on those items. Further, they are on the receiving end of pension funds and Social Security rather than the contributing side of the equation. That’s harsh, but an economic truism.
In developed nations, 36 percent of the population is under age 30, compared to 52 percent in emerging nations. The over 65 crowd accounts for 16 percent of the population in developed nations and only 7 percent in emerging nations.
The developed nations with the highest percentage of their population over 65 are Japan, Germany and Italy. All have more than 20 percent of their population over age 65. The United States, by comparison, has only 13.5 percent of its population over 65. We’re youngsters.
Let’s focus here for a moment on the rapidly developing BRIC nations (Brazil, Russia, India and China) because they have 40 percent of the world’s population and, Russia excepted, they continue to grow at a dependable pace. Poor Russia. They are on track to lose 20 million by 2040 as a result of an aging population and few new children.
Youth remains a synonym for consumerism. In Brazil and China, more than 35 percent of the population is under age 19, compared to less than 20 percent in Russia, Japan, Germany and Italy. In the United States, it’s 28 percent.
Think in terms of spending potential. Right now, the United States has a per capita gross domestic product of $47,000. China is at $4,420 per capita, and India is at $1,474. Just consider what that could mean to world spending if the 400 million population addition in India (between 2010-2040) doubles or triples its per capita income. It becomes a bonanza for consumerism. We have already seen that in China. It is likely that China will double its per capita income within the next 20 years.
The importance of this emerging world growth is that they do not have the time and expertise to develop the capital goods and knowledge base that inevitably are demanded by the growing population and the infrastructure that inevitably must be developed to be part of a modern world. That leaves a door wide open for the United States and other developed countries to fulfill those capital needs and provide the scientific and business know-how that will allow these countries to advance to developed world status.
Now let’s turn back to the United States as the primary producer of these capital goods and the know-how. It is the youthful states that will ultimately create the highest percentage of new jobs and produce the highest percentage of goods that emerging nations require.
And, therefore, we look at the demographic profiles of our nation. I look for the highest levels of economic growth to take place in those states that have at least 25 percent of their populations under age 18. That includes our beloved California, as well as Arizona, Texas, Utah and Georgia. These states attract youth, and youth creates jobs. Note that two-thirds of our national economy is created by folks consuming goods and services. Even in a recession.
I know that it is often satisfying to track the stock market, money supply, interest rates and politics, but if you are looking for a sure bet on where the economic action will be in the next few decades, don’t follow the money. Follow the people.
Adoro me mostrar peladinha na web cam
Understand the age issue but let’s not forget, particularly in California, the ‘make up’ of those under 18, their education, their family role models and their financial capability relating to spendable income.
A brilliant, and hopeful, piece, especially for California, but only if we can educate and motivate our youth to unleash their full potential. Right now we are failing abysmally, but we have recovered from worse before . . .
Thanks . . .
Thanks for sending this to me. I don’t take the Transcript, but occasionally, I receive articles from the authors. I would appreciate being put on the list of people you send your articles to!
Reading this was a shot in the arm, which I sorely needed. With the soaring debt problem we, as well as many European countries, have, and the soaring deficits which our governments can’t, or won’t, do anything about, I’m especially worried about the future of this country, and the developed world. I agree that young people are the answer, yet our young people seem to be mostly inept at finding a job, doing a job, etc., I fear you may be using the statistics and/or demographics, but attributing intent and abilities from my generation, or yours, but which is certainly different today!
I basically have no fears for myself or Berta–we’re old enough and prudent enough, to make it through the rest of our lives, but I certainly worry about our children, our grandchildren, and certainly Trevor James Berger, our great grandson,, living with his parents, Curtis and Karen Berger in Durango, CO.
We have lived in the best of times! It was great using lots of leverage when leverage was a good thing, living in the best climate in the world, etc.
I see Warren Buffett is saying that if he were younger, he would be buying houses by the hundreds of thousands, if he only had a way to “run them.” My thinking has long been along similar lines, with cheap; houses, and especially cheap financing! Instead, we’re sitting tight, not being wlling to sell any real estate, and not buying any, either. What are your thoughts on that?
Let’s get together sometime soon!
Thanks very much for a very interesting article.
Interesting analysis. Here is a question for you:
We often read about the great cost to society tobacco use imposes. However, despite the healthcare costs it imposes, it does make people die younger, thereby reducing the economic burden of the elderly. The percentage of smokers in developing nations is greater than in developed nations. This may be a factor in keeping the age distribution skewed towards the young. Tobacco may not be as bad for the economy as we are lead to believe?
P.S. When it comes to a better future, I say think better not bigger. Overpopulation is not sustainable. In ecologic biology, all populations undergo boom and bust cycles (just like the stock market does). I think we humans are on the verge of a bursting bubble.
As an economics major in undergraduate, I make and appreciate these types of observations as a tool to focus, navigate and take action in business and personal finance. Thank you!
Very interesting and I wonder how this will impact senior housing in the affordable sector?
Caterpillar is building its largest plant in China. Bigger than any in the US. Will we be exporting products or just technology and ideas?
Great article! I love your insight, and it’s good to see you put on your Economist hat.
A refreshingly insightful article in a world of “me, too” writers who fret about the capital market concerns.
Keep it up!
As usual Nevin is spot on!
You always see the glass as at least half full.
US has immense potential.
Jim Darr is also right. Those of us with silver hair were hungrier than many of our kids, nieces, nephews, grandkids etc. Education was valued differently 20 – 50 year ago than today. Drop out rates and out of wedlock births are astounding. Condalisa Rice says that 75% of our youth cannot qualify for military service.
You know I’m also an apartment junky. Having helped more than 100 families become millionaires with apartments, I know how inflation works its magic for real property.
My hope is that CA government won’t put so much sand in the gears that this state lags the national average job growth rate in the next 20 years.