Aging societies need new strategies

ZHANG CHENGLIANG/CHINA DAILY

Lenders must reconsider their business as the world will have more old people than young 

Much has been written about the impact of Japan's aging population on its economy. But many emerging markets－including China and South Korea－need to brace for some similar issues.

As of 2000, Germany and Italy had more people 60 and above than below 20. And as of 2010, Japan joined that group of countries with more over-60s than under-20s, as did many countries across Europe including Greece, Portugal, Spain, Austria, Bulgaria, Slovenia, Croatia, Finland, Switzerland and Sweden.

What may be less evident is that by 2025, 46 countries or territories are projected to have more old people than young people. For example, China and Russia will join the trend by 2030, Indonesia by 2050 and India by 2070. That is not that far off.

And the demographic shift is significant: The size of the population aged 65 and over is projected to triple by 2050 to 1.5 billion, representing 16 percent of the world's total. Much of this growth will take place in East Asia (China, Japan and South Korea) where 1 billion people aged 65 or older will live by 2050. It is important, therefore, to note that aging affects both developed and emerging markets and has a pan-Asia impact, particularly considering most major banks have operations across the region.

What does this mean for banking?

Clearly these demographic trends will affect banking but they also create opportunities. In our view, an aging population will affect at least three key dimensions:

First, wealth distribution will be weighting more toward this segment of the population. Much has been said about attracting millennials and new generations to banking but developing products for older customers will be a large opportunity for banks. The major Chinese banks have begun thinking about segmenting their offerings to cater to older customers but at the moment the market is open for a bank to take a leadership role.

Second, customer behaviors, product preferences and demands will change: As people retire, their income will obviously drop. The countries with more elderly people will therefore likely have a declining earning and savings rate, which may force banks in those countries to tap into more expensive sources of funds. This has implications for profitability as well as capital adequacy ratios. Therefore, as we describe in our recently published book A New Era in Banking, banks will need to find more opportunities to increase non-interest income, including advisory services, asset management and annuities.

Third, as we live longer and given that women's life expectancy is higher than men's, women will accumulate larger portions of wealth (especially in countries such as India or China). By 2050 there will be 800 million women in the world older than 65 and only 650 million men (and as of 2010, 27 percent of these women were high net worth individuals). These demographic shifts matter to financial institutions given that men and women typically have different approaches to investments and saving patterns.