The Longevity Dividend from an Aging Population

The Longevity Dividend from an Aging Population

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As the 2016 American presidential campaign gets rolling, it will be interesting to see how the candidates outline their strategies for dealing with an aging population. The candidate who gets it right will not talk about how to deal with more “old people,” but how to drive economic growth as aging demographics shape productivity, labor participation and financial planning.

Indeed, a central issue with America’s aging population – driven by longer lives, lower birth rates and the graying of 78 million baby boomers – is the question of how to manage a society with as many old as young. This is fundamentally a question of economics.

The U.S. is hardly alone. The question is far more urgent in Europe, Japan and the rest of the highly industrialized world. And in emerging markets, population aging is striking like lightning. The ratios of old-to-young that took three or four generations to evolve in G7 nations are unfolding in a matter of decades in China, Brazil, India and Turkey. The question for all of us is how to square 21st century aging populations with misaligned 20th century policies.

Investing giant BlackRock recently addressed this challenge in a white paper and related panel discussion in New York. BlackRock, which manages $4.77 trillion in assets and serves 89% of the largest U.S. retirement plans, brings a compelling set of new ideas to the table.

The most remarkable thing about the new BlackRock report, “Unlocking the Longevity Dividend: How Longer Lives Are Changing Retirement, Investing and the Economy,” is that it’s not another woe-is-us lamentation on how demographics are going to doom America and the world. Instead, the report argues that if we get things right, longevity and population aging can be a lever of growth for individuals, families, businesses and nations – essentially, everyone on the planet.

BlackRock gets it right by focusing on the fundamentals of human capital: “Longer lives have created a vast pool of experience, capability and wealth that can become a driver for 21st century economic growth. Indeed, the transformative power of the generation now entering retirement should come as no surprise: Baby Boomers, born in the two decades following World War II, have reinvented every phase of life they have entered, often by design and sometimes through sheer force of numbers and economic clout.”

With any luck, we will look back at 2015 as the year that changed the conversation and ushered in a new idea that shaped how people behaved – and how the economy found a new source of human capital to launch us into an era of economic growth.  Policymakers, politicians and corporate leaders ought to take note.

It wouldn’t be the first time this happened. Over the past half-century, we have seen other similar moments of change that had huge impacts on investment decisions and growth.            

Women enter the workforce

While women’s equality was certainly the right thing to do, there is no arguing that it has also had incredible economic benefit for all. When millions of women entered the formal workforce, they ignited an economic boom. Today, women contribute nearly $3 trillion to the American economy and women-owned businesses employ nearly 16% of the workforce. If businesses owned by U.S. women were their own economy, that economy would have the fifth-largest GDP in the world. The parallel to population aging is clear. Enfranchising older adults as workers, investors, customers and savers will help push the economy to grow at its full capacity.       

From “third world” to “emerging markets”

In 1981, Antoine van Agtmael, a World Bank economist, coined the term “emerging market” to highlight the opportunities for investment in countries outside the industrial democracies. Twenty years later, Goldman Sachs chief economist Jim O’Neill coined the term “BRICS” to the same end. What’s significant about this terminological history is that the language focused our attention on new  opportunities for economic growth and wealth creation.

Much like “old people,” these non-OECD countries had previously been seen as unworthy places to invest. If we consider that by 2020 there will be a billion of us on the planet over 60 years old, and already more over 60 than under 15 in the OECD countries, this is at least as interesting a growth opportunity as a BRIC or two.   

Like it or not, the 2016 presidential campaign is now with us and candidates are scrambling to find their positions on the issues. A crucial if underappreciated issue is the relationship between longevity and population aging on economic growth.  BlackRock’s strategic thinking demonstrates leadership that will shake things up. It will be interesting to see how their ideas on savings, investment, retirement and economic growth resonate as our national conversation on the state of the union progresses. No doubt others across the globe are also paying close attention as they, too, struggle to connect aging demographics to visions of economic growth and individual value. 

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Executive director of the Global Coalition on Aging, Michael W. Hodin, Ph.D., is also managing partner at High Lantern Group and a fellow at Oxford University's Harris Manchester College.