AGING THAT KILLS CONSUMPTION

Article by:  Asst.Prof. Suwan Juntiwasarakij, Ph.D., MEGA Tech Senior Editor

The 2008 – 2009 global economic downturn and the current explosion of a new middle class in emerging markets will have significant implications for changing consumer demographics. In developed markets, the downturn eroded consumer confidence about the future, causing some to not only hold off on unnecessary consumption but also from starting families. In emerging and developed markets, the change in consumer demographics results in changes in consumption.

THE IMBALANCED AGE RATIO

When countries become more advanced and developed, the are variety of factors that cause people to have fewer children. As a population shrinks, the labor force and national consumption power will shrink accordingly, weakening the growth potential of the country’s economic output. The problems are only multiplied by rapidly improving life expectancy, resulting in an imbalance of age distribution. This results in an imbalance of age distribution, the aging population and the old-age dependency ration – the number of people over the age of 64 dependent on working age people between 15 and 64.

In many industrialized nations, the fertility rate has fallen below the replacement rate of 2.1 children per woman – the average number of children that a couple needs to have to replace themselves in a population. In many European countries, births are far below replacement level – between 1.3 and 1.4 in countries such Germany, Italy, or Spain – the level at which these countries would remain stable. As a whole, Europe is expected to lose more than 60 million people over the next five decades.

DECEASED WORKING-AGE AND CONSUMPTION POWER

Globally, the working-age population will see a 10 percent decrease by 2060. It will fall the most drastically by 35 percent or more in Greece, Japan, Korea, Latvia, Lithuania, and Poland. On the other end of the scale, it will increase by more than 20 percent in Australia, Mexico, and Israel. This phenomenon, of course, affect global consumption on goods and services.

The old-age dependency ratio is increasing in most developed countries. For example, the U.S. aged dependency ratio is projected to rapidly increase from 19 percent in 2010 to 25 percent in 2020 to 32 percent in 2030 since this is the time when baby boomers are moving into the 65 and older age category. Though the ratio will rise more slowly after 2030, it is still projected to be 35 percent in 2050, according to United Nations.

TAKE-HOME MESSAGE

Here is the concern. As the cost of education rises, as well as other costs of living, which is typical of development, parents are discouraged from having children or more children. However, having fewer children and having them later in life means accumulating more disposable income to spend on products and services too. Companies should remain agile and attentive to the demographic change in order to become relevant to consumers.