West Faces “Demographic Deficit” As Populations Age

Rising life expectancy and falling fertility rates mean that a third of the Western population is now in the low spending 55-plus age group. Given that consumer spending is around two-thirds of the economy in developed countries, the above charts provide critically important information on the prospects for economic growth.

They show official data for household spending in three of the major G7 economies in 2017 – the USA, Japan and the UK:

Each country reports on a slightly different basis in terms of age range and headings, but the basics are similar

US spending peaks in the 45 – 54 age group: Japanese spending peaks at age 55; UK spending peaks at age 50

After the age of 75, US spending falls 46% from its peak and UK spend falls 53%: after the age of 70, Japanese spending falls 34%

The data confirms the common sense conclusion that youthful populations create a potential demographic dividend in terms of economic growth. Conversely, aging populations have a demographic deficit and will see lower growth, as.older people already own most of what they need, and their incomes go down as they enter retirement.

The Western world has been, and still is, a classic case study for this demographic effect in action, as the second chart shows:

In 1950, only 16% of Westerners were in the New Old 55-plus age group; 39% were in the 25-54 age group that drives economic growth and wealth creation; and 45% were under 25 as the Baby Boom got underway

But by 2015, the percentage of New Olders had doubled to 31%, while the percentage of Wealth Creators was virtually unchanged at 41% and only 28% were under 25 (as fertility rates collapsed after 1970)

The Boomers were the largest and wealthiest generation that the world has ever seen, and as they joined the workforce they created an economic Super-Cycle. This was turbo-charged by the fact that, for the first time in history, Western women began to re-enter the workforce after childbirth: