Saturday, August 6, 2011

The Economics of Japan’s Aging Society

Japan is said to have the oldest society, in the sense of having the greatest fraction of the population over age sixty-five. One might then expect that Japan would be an example for other countries to learn from as their populations age. However, it appears that Japan will have its own unique tale to tell.

The typical aging-society scenario has the elderly growing in number and needing ever more support in terms of pensions and healthcare, while the taxpayer base needed to finance that support grows relatively smaller. Japan seems to be facing a different issue.

An article in The Economist provides some interesting data.

“Japan is greying fast: already a fifth of its people are over 65. And the “silver generation” has gold to spare. The incomes of middle-class working folk have declined in the past decade, but seniors are sitting on a vast pile of savings. Almost a third of the nation’s household wealth, some ¥450 trillion ($5.8 trillion), is in the hands of those aged 70 and older (see chart). In the West, the elderly pinch pennies, but Japan’s seniors [can afford to] pay extra.”

One might think that his imbalance in wealth is a result unique to the current generation and will be dissipated soon. Perhaps that will be the case, but some Japanese worry that this is a result of intrinsic Japanese characteristics. One must also consider that in a deflationary economy holding onto cash is a smart strategy for an individual. In any event, the elderly seem to be concerned with their economic security to such an extent that they save rather than spend. If that has become a cultural response, then consider how this might propagate from generation to generation. The life expectancy for women in Japan is 86, and for men it is 80. An 86 year-old woman who dies and passes her fortune on to the eldest child will be funding someone who is likely in their 60s. People in their 60s tend to worry about their economic security and hold onto their money—and so on..... It has even been suggested that the elderly should be forced to leave their funds to grandchildren rather than children. Lots of luck with that!

The Economist was, somewhat humorously, focused on illustrating marketing ploys that the Japanese have developed to try and pry loose some of the cash from this large and enduring segment of the population.

“Many firms tailor their services to silver shoppers without letting on, explains a marketing specialist. Consider the Keio department store. On the outside, nothing warns you that it is a mecca for the mature. But inside there are chairs for weary shoppers. Signs are in large fonts. Many salespeople are in their 50s and 60s, since elderly customers trust such people more than whippersnappers. The food hall promotes good old-fashioned Japanese noodles more than newfangled foreign muck.”

“The shelves are lower, so older people can reach them. (Because of wartime food shortages, the elderly are much shorter than their juniors in Japan.) Loyalty cards at Keio award points not according to what you buy, but according to how often you visit. “Seniors have a lot of time on their hands,” the marketer explains.”

“Marketing to the elderly is tricky. The direct approach—say, calling your product “the soap for the over-70s”—does not work. And traditional advertising fails. “You can’t use TV adverts: they forget them,” groans the 30-something executive. “We show it again and again and again—and they still can’t recall it,” he sighs. Word-of-mouth is the only way.”

On a more serious note:

I have not seen the US data broken out in exactly the same way that the data for Japan was presented. What I have seen would suggest that peak wealth comes just prior to retirement age, and then drops off significantly as one ages and consumes resources. Japan’s elderly seem to have discovered how to maintain their wealth even though they live considerably longer. While there are a few humorous moments to be derived from Japan’s demographics, there is little to smile about concerning the situation in the US.

The US has not had deflation to drive income down for the younger groups, instead it has used an ever increasing income inequality to drive wages down for most of the population. In both the US and Japan, some of the lack of security on the part of the elderly comes from knowing that those who come behind them will not have as much as they had and thus will not be able to help them if needed. Indeed, it is common now to have to divert what should be retirement savings to helping out struggling younger family members.

The current generation of US retirees would appear to have the best chance of surviving retirement with their dignity intact. It will get harder for people to accumulate savings and more will depend to a greater extend on Social Security and Medicare to survive. Now the conservative politicians are telling us that not only will we have to live with lower wages, but we will have to make due with less support from the federal programs. It does not have to be that way.

Conservatives like to accuse the liberals of trying to make the country into twentieth century France. The liberals could accuse the conservatives of trying to make the country into eighteenth century France—just before the revolution. We will not have a physical revolution, but if we could get the seniors, the most reliable voters, to actually vote in their self-interest, we could see some changes.

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