Must-know: The aging population’s impact on the economy

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While the United States is aging at a much slower pace than much of the rest of the world, the U.S. population will almost certainly continue to age. As Russ explains, this has three implications for the U.S. economy.

Demographics, a subject normally confined to academia and a once-a-decade census is experiencing a revival.

Economists and journalists are increasingly turning to the topic in order to explain everything from developed countries’ relatively slow growth rates to their low level of interest rates. In my mind, this is a useful discussion. Populations’ growth rates and age profiles have been shown to have important economic and investing implications.

 

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Market Realist – The previous graph shows the estimated percentage change in populations by age group from 2010–2050 for the U.S. and the world. According to a report by Pew Research Center, the number of people above 65 years is expected to triple from 531 million in 2010 to 1.54 billion in 2050. The population of seniors in the U.S. (IVV) (SPY) is expected to more than double and increase from 41 to 86 million in the same time period.

An aging population is often tied in with lower productivity of the labor force, shifts in demand, and a general economic slowdown. Since the most productive class of the work force is from the age group of 15–64 years, a shrinking proportion of this age-group in the overall population could put a strain on the country’s economic growth. The smaller working age population also needs to support the growing older dependents. This could mean increased financial stress for the countries with entitlement and social security programs.

The prospect of a graying population has countries like Japan (EWJ) and South Korea especially worried. According to 2010 data from World Bank, Europe (EMU) is currently the oldest region in the world. It will likely retain this position even in 2050. In response to concerns about an aging population, China (FXI) relaxed its one child policy in November, 2013.

Read on to the next part of the series to understand where the U.S. stands in terms of the world’s aging population.

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