In 1997, the Asian Financial Crisis demolished Malaysia’s GDP. And soon, we might be facing another detrimental financial crisis - one that might change our economic landscape forever.
And what crisis is this, you might ask? It’s the Aging Population Crisis.
Back in 1700, Earth’s population was the size of less than half of China’s demographic. But today, we have eight billion people living and breathing on our planet. The world has never been this crowded, and it all started post-World War Two.
Between 1950-1987, 2.5 billion babies were born and this was a good thing because rapid population growth means a growing workforce which in turn, helps build the nation's economy. In fact, between the 1950s and 2022, the world went through rapid modernization and economic growth because of this workforce.
Quickly, a strong workforce became the backbone of a booming economy. As a result of that, for a country, a healthy demographic was very important because it meant higher tax revenue for governments. With higher tax revenues, governments would be able to fund projects which civilians could take advantage of. For example, infrastructure in healthcare, retirement pension and social security.
The Aging Population Crisis: Examples Through Population Pyramids
So, how do we know if a country’s age demographic is healthy? Well, it will look like this.
Healthy Population Pyramid: Kenya
A healthy age demographic means there are more younger people in society that can replace older people. In other words, having the younger generation replenish the workforce and drive consumer growth, the two main pillars of economic growth.
Unfortunately, this healthy age demographic is becoming less frequent, especially in developed countries like Japan and Singapore.
Extreme Population Pyramid: Japan & Singapore
In these two extreme cases, we can see that their demographic is aging and the younger population is dwindling. This means, at one point, they will have more older people than younger people. And if this problem persists, these two countries will come face to face with a lower workforce and lower consumer growth. By now, we know that when this happens, it leads to lower tax revenue and since these countries’ governments use it to fund social programmes, at one point, they may start running out of money. When that happens, it could very well mean that the older Japanese and Singaporean citizens would have to come out of retirement and join the workforce once again. All because they simply can’t afford to retire.
Dwindling Population Pyramid: Malaysia
Coming back to Malaysia, we are forced to face the truth that we are not far from the extreme cases discussed previously. Our population is declining and the effects of it are already being seen. Back in 2013, the mandatory retirement age was raised from 55 to 60 years old. This goes to show that our workforce is lagging behind and is not being replaced as quickly as it should be.
We are staring directly at a potential retirement crisis. Keep in mind that with an aging population, there will be a significant increase in healthcare costs, pension withdrawals and so on. At the same time, there are fewer younger people who will be able to contribute to the workforce and consumer spending, which leads to lower tax revenue. In other words, the younger generation will spend way more than they can earn leading to the potential crash of the existing system and structure.
So if you are expecting to retire in the next 30-40 years, you might want to think again.
The Aging Population Crisis: How Did We End Up Here?
Tracing the roots of our current population crisis brings us face-to-face with the consequences of rapid modernization and its influence on traditional family structures. In the past, women were given fewer opportunities. Their roles predominantly centred around marriage and raising children. However, as education and employment opportunities presented themselves, more and more women were starting to join the workforce.
This shift, while a triumph for gender equality, unfortunately, presented women with a challenging decision to make: prioritize their careers or their families. A considerable number of women opted to postpone starting families to focus on career advancement. And working mothers encountered issues ranging from maternity leave restrictions to fewer work opportunities, coupled with inadequate support easing their transition back to professional life.
Moreover, another daunting factor that has fueled the aging population crisis is the rising cost of living. Today, the economic pressure of raising children is a heavy burden for many households. Consequently, families are shrinking, a trend visible not only in Malaysia but in other developed countries as well.
The Aging Population Crisis: What Does This Mean For Us?
Looking forward, we can expect to see some significant shifts on the global stage. One of these is a more relaxed stance on immigration policies to bring in foreign workers. Actually, we're already witnessing the beginning of this. Workers in Africa, Vietnam, and Indonesia - countries that have a healthy age demographic - are starting to fill the gaps in the workforce of nations struggling with an aging population.
Moreover, the dream of a quiet retirement is becoming less achievable for many. Instead of living out their golden years, the older generation might have to extend or even rejoin the workforce. In fact, we might even see the retirement age increasing once again like what is happening in France.
If this aging population crisis were to persist, we will soon see that it's not the younger ones but the older generation that could become the backbone of society, the main force keeping our economy driving along.
But with that being said since the older generation will make up a larger population and chances are, they will have to stay in the workforce for longer, this means they will have more time to accumulate more wealth. With that, naturally, they will be the biggest consumers in the market. So, products and services that focus on solving these older generations’ needs will be the opportunity for businesses and careers. One of those industries would be the healthcare sector.
On top of that with a declining workforce, more and more industries are adopting AI and tech to fill in the gap in the workforce. Therefore, it is important to equip yourself with relevant skillsets, for example understanding how to use ChatGPT or generative AI tools in your work to stay relevant and get ahead in your career.
Addressing the aging population crisis we're currently facing is no simple task, and certainly not a quick fix. But that doesn't mean we're left without options. There are proactive steps we can take now, to brace ourselves for what's coming, and to remain relevant in a rapidly evolving world.
Truth be told, this is a massive topic and we've only dipped our toes into it. If you're interested in diving deeper, there are excellent resources to explore. Books like "2030" by Mauro F. Guillen shed light on potential future trends and strategies we could adopt. Guillen paints a picture of how these demographic shifts could actually open up opportunities for regions like Africa, Asia, and the Middle East. Another insightful read is "The End of the World Is Just the Beginning" by Peter Zeihan, where he unravels the evolution of global demographics and its likely impact on our future.
At the end of the day, we all have our individual idea of what's in store. It's crucial to do your own research, form your own opinions, and understand how these changes might impact you personally. But regardless of our individual views, one thing is clear: this crisis has the potential to impact us all. So let's be ready. Let's prepare ourselves for what the future might hold.
We also made a video talking more in-depth about this crisis. Watch it here.