Global Aging Demographics

Pat Dorsey on the implications of America's aging population vs. the much more rapid aging in Germany, Japan, and France.

Global Aging Demographics Morningstar Investing Insights with Pat Dorsey Pat Dorsey: Hi I’m Pat Dorsey Director of Equity Research at Morningstar. With the healthcare bill it seems finally out there and becoming a law and social security reform possibly on the table. We’ve seen a few news reports on that. I thought it might be time to kind of pull back and take an 80,000 foot view of things and look at some demographic issues in terms of how much older the uses is getting and importantly though how much older the rest of the world is getting at a faster pace than us. So if you look at just the U.S the numbers are a little bit scary. There is a ratio called the dependency ratio which is basically the number of dependents folks and you know under 15 over 65 per 100 working age individuals. Now for the purposes of thinking about supporting older individuals which is more expensive than supporting a young folks and it also gets more expensive over time because as life expectancies go up medical treatments cost more and more. The cost of formula physically change over long periods of time the cost of healthcare does so its really that number of older people, number of older 65s per 100 working age individuals that we want to pay attention to. In the U.S right now this is about 19. You have about 19 individuals over 65 per 100 people between the ages of 15 and 65 per working age adults and over the next 40 years that’s going to go to about 35, folks over 65 per 100 working adults. Now that sounds pretty scary and indeed its you know pretty rapid increase in the number of folks in needing more medical care, few of them working that the working age population only to support. The silver lining is the rest of the world has it much worse. If you look at the numbers in say Japan, Germany, France many other parts of the world these trends are there in spades. In Japan, right now you have 35/65 and its going to 75 per 100 working adults over the next 40 years. Germany almost as bad currently 30/65 per 100 working adults going to 59 and France 26 going to 47. Now again people are working longer as you move more and more a knowledge based economy. It’s feasible for people to reproductive later in life in a way that it wasn’t when work consisted of you know poorly in the fields or working a steal mill but the thing that they remember is that you know net, net more folks in that over 65 bucket relative to other countries say you know Russia and Europe relative to the U.S is the U.S has frankly more productive people being used per capital so our GDP growth is probably going to be significantly higher because we have fewer folks in the over 65 area to support. So it’s a fast leading thing to think about because in a lot of ways these are the countries were competing with right now certainly over longer periods of time as countries like Brazil and Indonesia and India move further out the economic value chain and are able to export and compete in more advanced markets with the U.S and German and Japanese goods. They will be our competitors as well but right now our major competitors for you know complex manufactured goods on global market really are these other watching your PNN nations as well as Japan and frankly they’re going to have a harder and harder time doing it because they don’t have this demographic tail at the USS. And we’re really breaking this down. There’s only two elements really to GDP growth, how many people you got and how productive are they, population growth and productivity growth so unless there are massive changes in say birth rates in the world and those tend to be pretty stable over time the US just culturally had a higher birth rate than many other countries what immigration rates with the USS has been very immigration friendly relative to many other countries in the world, well over a very long hull it puts us on firmer footing perhaps than our industrialized competitors. I’m Pat Dorsey and thanks for watching.