Aging, well-being and social policy

The economic effects of an aging population are considerable. Older people often have higher accumulated savings per head than younger people, but may be spending less on consumer goods. Depending on the age ranges at which the changes occur, an aging population may thus result in lower interest rates and the economic benefits of lower inflation. Some economists (Japan) see advantages in such changes, notably the opportunity to progress automation and technological development without causing unemployment. They emphasize a shift from GDP to personal well-being. In countries that are overpopulated, population aging resulting from lower birth rates is a first step towards reversing the trend.

However population aging also increases some categories of expenditure, including some met from public finances. The largest area of expenditure in many countries is now health care, whose cost is likely to increase dramatically as the population ages. This would present governments with hard choices between higher taxes, including a possible reweighing of tax from earnings to consumption, and a reduced government role in providing health care.

The second largest expenditure of most governments is education and these expenses will tend to fall with an aging population, especially as fewer young people would probably continue into tertiary education as they would be in demand as part of the work force.

Social security systems have also begun to experience problems. Earlier defined benefit pension systems are experiencing sustainability problems due to the increased longevity. The extension of the pension period was not paired with an extension of the active labor period or a rise in pension contributions, resulting in a decline of replacement ratios. In recent years, many countries adopted policies to strengthen the financial sustainability of pension systems, although the challenges regarding pension adequacy remain.