The socio-economic potential of population ageing

While population ageing is typically expressed as a threat or burden for society in public debates, elder people are often characterised as uniform social group which is ‘passive’, ‘unproductive’ and thus reliant on the welfare state. However, the economic possibility of population ageing and the function of elder people as consumers, are generally ignored. This means that the economy fails to understand a business area with a lot of growth potential such as the ‘silver economy’. There have been many interesting studies carried out in Germany in this context. According to Michael Cirkel and his co-workers in 2004, the ongoing reduction of social security combined with the adjustment to good living standards will lead to higher private investment and consumption. This mainly pertains to financially potential groups of society, who try to keep up their familiar way of life. For young people, the focus is more on issues like insurance policies (life insurance, private pension insurance, private unemployment insurance and so on) while elder people services and products are more important. Regarding the elder people, especially the fields of health care, security, housing and home services, communication, time off and wellness, as well as handcraft are considered to be profiting from this development.

Cirkel and his cp-workers emphasised the fact, that population ageing will strengthen the service department while the importance of the industrial department is expected to decrease because older people need less cars and machinery but more services. Economically, this is a good movement as services are usually generated at the local and regional level while the industry is producing globally. Therefore a stronger service sector with a focus on the elderly has the potential to bind money and create jobs. If societies with quickly ageing population get used to and modify their economies, not only will they have direct financial advantages but also a jump start at the international level in terms of knowledge, new technologies, services and policies concerning population ageing.However, countries that ignore the development, do not only face problems with their social security systems but also their economic development in general because of the lack in consumption and investment and the inadequate use of resources.

The assumptions of Cirkel are very interesting. Most of the old people in the Finland are in a good shape, they live independently in their own houses, and they will most likely never be in need of long-term institutional care. These facts lead to a completely new target group for marketing experts: those who are financially well off, healthy and youthful retirees who are interested in self-development, continual studying, travelling and a high standard of living. Jyrki Jyrkämä (2001) debates that in Finland the new image of active pensioners has been reflected among others in advertisement campaigns and popular self-help literature in recent years. Yet, Erja Väyrynen (2003) points out that the market for elder people is not very developed yet, because the economic possibilities connected to population ageing have been ignored for so long. This will probably change when population ageing becomes more popular in the future.

The economic potential related to the ‘silver economy’ in Europe is basically saying that the ones who retired in the baby boom-generation will be wealthier than their predecessors were ever before. A research project in the federal state of North Rhine-Westphalia in Germany came to the conclusion that the large majority of elder people dispose of a large consumption potential which is worth developing. As a result the economy and the elderly would profit alike; the first due to new markets and higher turnovers, and the latter due to more customer tailored services and products which enhance the quality of life at a higher age.

In Finland’s case, the general socio-economic situation of the elderly has gotten better with the development of pension schemes and other welfare institutions. Yet, there are significant differences in the income level of retirees. For example, women receive smaller pensions on average than men as they earn less and their working careers are more uneven. Some of the current and future retirees will also face smaller pensions due to spells of unemployment, either in connection with the economic crisis of the 1990s or due to the high level of unemployment among older workers. On the other hand, there are pensioners who were able to make savings or to purchase property which allows them to add up their pension by some capital income. According to Helsiningin Sanomat International Edition in 2004, the Finnish baby-boomers had a lot of time to accumulate considerable wealth during the growth years of the economy for example, over 70% are home-owners. The baby boom generation is used to a high standard of public services, which the state and the municipalities may not be able to provide anymore in the future. That's why it can be believed that the new retirees will fall back on their wealth and savings to purchase different kinds of goods and services which allow them a comfortable retirement. Matti Hakamäki (2004) expects that the baby-boomers will not settle with shallow entertainment or mass services like generations before, but instead insist on high quality services and individually tailored offers. Therefore it is essential for companies and society as a whole to realize that ageing is an individual process and the elderly are anything but a homogeneous group.

The economic potential of the baby boom generation in Finland is also highlighted by a survey from 1998 which was carried out by the national Statistics Centre. The households of the baby boom generation (age 55-64 and 45-54 at the time of the survey) were the richest in the country. At the average, they had savings, properties, and stocks worth 130,000 Euro (55-64) correspondingly 117,000 Euro (45-54). Another interesting result is that the baby-boomer households had noticeably higher non-refundable incomes but at the same time higher consumption expenditures compared to pensioner households. Although the disposable income of the baby-boomers will go down when they leave the labour market, their purchasing power stays comparably high and radical changes in consumption patterns are unlikely. As a result, the importance of the ‘silver economy’ will increase.

In 1998, pensioner households had about 9,200 Euros for savings and the settlement of debts compared to about 11,000 Euro of the baby-boomer households. The difference is amazingly small and it should be considered that the pensioner households had hardly any debts to settle. In theory the 9,200 Euro are at least partly available to be spent on new quality services and products for elder people. The question of how far this will be the case in the future depends on three main factors: first of all, the market behaviour of elder people; secondly, the quality and accessibility of public welfare state services; and thirdly, the ability of the economy to develop this new market.

However, it would not be correct to define the socio-economic potential of population ageing only on the basis of people’s market behaviour. Even financially weak pensioners can be a valued addition for society when it comes to voluntary work or care arrangements such as taking care of grandchildren, sick family members or friends in need. Such kinds of actions are frequently neglected in public debates, as a higher quality of life cannot be expressed in financial terms like immaterial growth. The same applies for the knowledge, skills and experiences of older people in general. Also, the Finnish ‘generation contract’ entitles the elderly to enjoy their retirement without worries about the accessibility of quality services and products, ignoring their own economic situation. Yet, it remains to be seen if this promise can be kept in times of quick population ageing. The worst case would be rather contrasting scenarios of ageing in Finland: while the well-off and healthy Finnish pensioners enjoy their retirement in the coastal regions of Spain or other countries without any cutback as far as their standard of living is concerned; sick, poor and immobile retirees are forced to reduce their expenses and depend on public services.