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2022’s Top Ten: #2

A Greying World

The world’s population is getting older and saving more, and experts predict that this trend will send shockwaves through the world economy. As The Economist discusses at great length, three main trends contribute to a “savings glut”, a term first coined by Ben Bernanke in 2005. According to the McKinsey Global Institute, since 2000, the value of global wealth held by households, firms and governments has more than tripled, from 160 trillion USD to 510 trillion USD. In other terms, that has meant a rise from 460% of global GDP to 610%. This rise in global savings is attributable to three main areas: governments padding their foreign-exchange reserves, households and companies spending thriftily, and workers nearing retirement age. As The Economist discusses, “savers of all sorts—from older Americans preparing for retirement to oil-exporting countries accumulating sovereign-wealth funds—were shoving more money into stocks and bonds than could be put to use by those looking to invest in plants and equipment”. Although government and corporate spending are fascinating topics, the savings glut cause that hits closest to home for most people is the ageing world population.

The fact that the world’s population is getting older may seem innocuous in and of itself, but according to economists, it can “apply relentless pressure on the macroeconomy”. That’s because household savings follow a pattern irrespective of era or country. When people are young, they either save very little or take on debt. During their 30s and 40s, however, their savings increase, and those savings hit their peak about a decade before retirement. Because populations in rich countries have grown older in the last 50 years, a higher percentage of the world is in their “peak saving” years. Thus, more of the world is keeping more of the world’s money in their private coffers.

The Anti-Boom

According to researchers from Stanford University, Northwestern University, and the University of Minnesota, the share of the population above 50 rose from 15% in the 1950s to 25% today. These experts predict that the number will be 40% by the year 2100. This number might actually be an underestimate if population trends continue. As we have witnessed in the last few decades, as countries grow richer, their populations tend to have fewer children. We have known about this problem for years in rich countries like Japan and Germany, but now this trend has even touched emerging economies like India. It used to be that this transition from high birth rates to low birth rates took 80 years, but now that transition is happening faster and faster, as it has in India in under two decades. Moreover, this trend was already happening across the world before the pandemic, but lockdowns and other factors are depressing birth rates even further. China had a record low birth rate in 2021, despite government policies intended to reverse that trend. In the US, plummeting immigration led to a population growth rate of just .1% in 2021, the lowest annual increase ever since records began to be kept in 1900.

There is some hope: even though workers approaching retirement tend to save more, there is data showing how those post-retirement tend to spend down their savings. They do stop saving eventually, since they stop working, forcing them to spend. Eventually, if a critical mass of savers converted to spenders, this trend might reverse. But those in retirement do not spend everything they have, and often for different reasons. Some save their money to pass along to their heirs. Others are simply afraid of living longer than their retirement will allow. No matter the cause, the trend is clear: the world is greying fast, and there are broad economic implications of an ageing world.