This might seem an unusual topic to discuss on a personal finance website, but it’s something I’ve recently become fascinated with since reading What to Expect When No One’s Expecting: America’s Coming Demographic Disaster (read my review on Goodreads!)
Whether or not to have children comes up often on personal finance blogs because kids are just so damn expensive! Well Heeled shared a great post on the topic yesterday: To Kid Or Not To Kid – How Did You Figure It Out? In a world that seems grossly over-populated, it’s hard to imagine declining birth rates and population contractions are a problem, but they are — particularly in the first world.
Before we get started: note that “fertility” in this post refers to how many children a couple actually has, not how many they might or could have.
Like numbers? The stats for this post were sourced from this table on worldometers.info
The main concern about over-population is that the earth doesn’t have enough resources to support all its inhabitants if we insist on maintaining our lifestyle. There’s simply not enough to go around. The main concern about a declining fertility rate is a progressively aging population. This means there isn’t enough young people to support seniors citizens or keep the country running.
The replacement rate is 2.0
That is the number of children each couple must have in order to maintain a country’s current population. It’s called the “replacement rate” because the two children will replace yourself and your partner. Once a country’s fertility rate falls below 2, it’s almost impossible to get it back up.
Declining fertility is a self-perpetuating problem.
Example using a fertility rate of 1: Say 4 couples — 8 people total — have one child each, for a total of 4 children. These couples grow old, but their 4 children marry each other to form 2 couples and, because they each enjoyed being an only child so much, elect to have only one child each. These 2 children grow up and couple up, and have only one child and… the line ends.
See the problem?
That’s an extreme example. At this point in time, Canada has a fertility rate of 1.66. The US has one just below 2, at 1.98, buoyed up by religious populations who tend to have bigger families. Countries that are starting to really feel the dip are places like Germany, with a fertility rate of 1.42, and Japan, which has a fertility rate of 1.41.
Japan is in a lot of trouble.
Japan’s population peaked at 128 million 7 years ago and has been on a steady decline ever since. By the year 2060, the government estimates there will only be 87 million people in Japan, and over 50% of them will be over the age of 65. Just imagine living in a country where half the population is old and retired. Yikes!
If that surprises you remember this: a woman is well past natural childbearing age by 45, so when looking at population statistics concerning fertility, a more accurate consideration might be the percentage of the population over the age of 35. That’s a better representation of who will be, and excuse my bluntness here, simply dying off.
What does this have to do with money?
Major Market Problem : Fewer People = Fewer Consumers
The economies of fertility-challenged nations are already adapting to the shifting demographic. For example, in poor aging Japan, adult diapers are already outselling baby diapers. Investors are targeting markets like retirement homes, pharmaceuticals and health care, since this is where increasing profits will come from as the senior population in developed countries balloons.
But what about industries that don’t target old people? Retirement communities aren’t filled with big spenders. Aging and declining populations directly translate into declining demand for conventional consumer goods. Businesses that can’t adapted to shifted or reduced demands will die out.
And just think about real estate: a contracting population means a lot of homes will be left empty. Because of a fertility rate below the replacement level, Canada’s population growth is slowing down.
We’re not reaching negative numbers like Japan yet, but only because we still have good immigration — not that that’s any saving grace.
Immigration masks declining fertility, but it doesn’t change it.
Both the US and Canada welcome a number of immigrants from countries that have much higher fertility rates than their own. The problem is that after one or two generations, the immigrant families adopt the fertility rate of the country they now inhabit rather than maintaining that of their country of origin. This means increasing immigration won’t fix declining fertility rates, only buy us some time to make cultural changes.
Why is fertility declining?
There’s a myriad of reasons but the ones that really stand out to me are:
- declining religious affiliation
- longer time spent in school
- increasing age of first marriage
- increasing age of mother at birth of first child
- and increasing levels of DEBT
There is a difference between factors that impact how many children a couple might want, and how many they can actually have. For many, the decision is made by how many they can afford. Some people genuinely don’t want children, and that’s ok (actually, childless couples are way happier!). We have more choices than ever about our fertility and families, and this is a good thing!
But the problem for young people buried in consumer and student loan debt are facing is that, by the time they”re financially ready to have children, they won’t be physically able to.
Delaying having children usually means having less children, because it becomes increasingly harder to conceive as you age.
What needs to change?
Frankly, so much I’m doubtful it’s even possible, but here are some ideas:
Governments and employers should offer more support for parents. What I mean by this is first, we need to create a culture of equitable contribution from both parents. Canada already provides up to one year of parental leave at reduced pay that can be used by either parent or split between them. This reduces the fear of job loss for choosing to start a family, and the income provided during leave helps with the cost of having a child. Secondly, things like tax breaks for families, particularly big families would make child-rearing less of a debilitating expense.
Education must remain accessible without creating a financial burden that lingers long after graduation. The continuously inflating cost of tuition is preventing students from getting out of debt fast after they’re done school, prevention them from achieving other goals and milestones of adulthood.
What can you do?
Don’t waste money on a big wedding. If you blew $25,000 on the Big Day and now have the nerve to complain your debt is keeping you from starting a family, I don’t have any sympathy for you. The same goes for being up to your eyeballs in debt on a car loan or a mortgage. If you spent your money in the wrong places, there’s no one to blame but yourself.
Sometimes our financial choices have more than financial consequences.
Next time you buy something on credit you can’t afford, ask yourself if it’s worth having one less or no children for. Will you trade the family you want for disposable stuff? I hope not, but many 20-somethings do, and how much you really blew won’t hit you until it’s too late to fix it.
The second big thing you can do is start saving. You need to start putting money aside for retirement as soon as you start working. This will ensure you don’t have to rely on your children or the government to support you in your old age.
Everyone should be allowed to raise the family they want, but I think it’s interesting to look at how our individual choices effect national and global economics.