The aging of the developed world is creating a demographic deficit that could radically transform the financial wealth of households, and therefore, the capital available to businesses and governments. There are no easy choices, but fiscal discipline today can yield healthier balance sheets tomorrow.
Over the next two decades, demographic trends will create significant downward pressure on household savings and financial wealth accumulation. The demographic transition is occurring throughout the developed world, albeit with different timing and severity across countries. Demographic pressures on wealth accumulation can be counteracted through policy adjustments, but it will not be easy.
In the next 20 years the U.S. baby boomers will enter retirement, creating a significant economic "headwind“ for the nation. If the U.S. is to navigate smoothly through this demographic transition, U.S. households and their government will need to increase savings, reduce borrowing, and work to further improve the returns on savings.
Japan is the only developed nation facing an absolute decline, rather than a slowdown, in financial wealth because of demographic trends. To reverse, or even moderate, the projected slowdown, Japan needs to institute broad reforms that generate increased domestic competition and better productivity.
Demographic trends are expected to exert significant pressure on the growth of German household savings and net financial wealth accumulation, with potentially substantial implications for economic growth. German households and their government will need to take actions to halt the decrease in saving and to improve the returns that households obtain on their portfolios.
Italy’s situation is particularly difficult because of its surging aging population. For example, by 2024, it will already have more than 1 million people over the age of 90. Mitigating the demographic forces already at work in Italy will require sustained, coordinated efforts by the public and private sector.
Over the next two decades, demographic trends are expected to have a limited impact on U.K. household savings and financial wealth accumulation because of impressive returns on savings ratios and other characteristics unique to the U.K.
Video Diana Farrell answers questions on the Coming Demographic Deficit. Read video (8:40 min.)
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Perspective: The Graying of Europe: How Aging European Populations will Threaten Living Standards and Prosperity Europe's rapidly aging population and the poor investment returns in many countries will cause a shortfall in savings and financial wealth. Read more
The Economic Impact of an Aging Japan The rapid aging of the Japanese population will dramatically reduce savings and wealth–and cut off an important supply of capital to the world. Read more on the McKinsey Quarterly site
