How Demographic Trends Affect Your Financial Plans

Demographic trends, i.e., the analysis of population statistics to identify markets, can uncover significant, large-scale, long-term economic movements that are already in place. Once in place, demographic trends may take a long time to play out, so understanding these trends may be valuable in shaping future financial plans.

Among the most significant trends currently affecting the industrialized world: Depopulation of developed countries, particularly in Europe and East Asia, coupled with more people living to the limits of extended life expectancies. The result: decreasing populations with an increased percentage of older people, a format that will be unable to sustain social and economic models started in the post-World War II era.

As a consequence of these changing demographic trends, many of the paradigms and products related to personal finance may need to be adjusted. This includes length and type of employment, retirement and accumulation planning, self-employment and insurance programs (both public and private).

In light of these conclusions, think of your own financial programs. The following questions might be relevant:

• Are your retirement plans designed to provide income and security to age 100 and beyond?

• Does your career path include working, in some capacity, well into your 70s (or 80s)?

• Are your savings and retirement programs structured to accommodate self-employment or phased retirement?

On reflection, a lot of financial information is just trivia that takes up space and is quickly forgotten. But historically, economic demographics seem to have staying power. The last great demographic trend began after World War II. More than sixty years later, the Post-War demographics are finally winding down, and in developed countries, the rising demographics of depopulation and rectangular longevity are already in place. Do your financial programs account for the possibilities – and perils – of these new trends? Remember, the impact of demographics can span decades, even centuries.