Declining Fertility and Contracting Populations: Money, Markets, and Myths


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

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.

Screen Shot 2014-02-10 at 10.21.55 PM

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.

Screen Shot 2014-02-10 at 10.38.07 PM

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.

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19 Comments. Leave new

  • When we were in Germany for Oktoberfest a few years ago, a radio station was running a promo called “10,000 Babies for Bayern.” Basically it was a not so subtle giveaway for a free hotel weekend so couples could help replenish the German population. When I first head the add I wasn’t sure it was what I thought it was since my German is basically non-existant, but then we heard it again with my German friends and all they could do was laugh to keep from crying.

  • While I understand your point, I fail to see why this is a problem. A decreasing population is a good thing. We’re currently consuming ourselves into a potentially irreversible environmental catastrophe, and one of the only ways to manage that is to decrease the population. Yes, there will probably be some very uncomfortable changes ahead of us, lots of businesses will probably fail or have to cope with lower revenue but if we don’t continue to decrease the population, climate change will make things a lot more uncomfortable for us.

    • You need a minimum to replace the population, otherwise the younger generation (us) will get screwed by having to compensate for paying for a person who doesn’t exist because he/she was never born.

      You need a replacement rate of at least 2 as Bridget said.

      2 is to keep a minimum, otherwise anything lower than 2 means that you and I are on the hook for more than 1, like 1 and a half, or even a full 2, which means double the costs for us and with income being the way it is, cost of living.. debt… all that stuff means we pay double.

      In the example of Japan above, the aging population is so much greater than the younger one that the young ones are feeling the squeeze in paying for these seniors because the birth rate is not replenishing at a minimum amount required, and seniors are living longer to boot.

      Basically you need people to pay into these programs to keep them running otherwise all these social services disappear. It isn’t just businesses that are affected, it’s the whole infrastructure of running a government and a country. All these roads, traffic lights, and things that we take for granted will be cut in half or more to compensate for the lack of income coming in to provide for the rest of society.

      You’re seeing it only from an environmental perspective and from a simpler perspective of “businesses just go out of business”, which is true, but not the whole picture.

    • SSS answered this better than me! I had a hard time wrapping my head around the idea that a declining population was bad until I read the book. The current world population is totally out of control — but obviously it isn’t good that countries like Japan will lost half their population by the end of the century either. We need balance.

  • In France if you have 3 children you get a serious tax bonus, which is why all French families pretty much have 3 children (2 of them are considered by the government just to replace the parents).

    Some families make a living off this by having kids.

    I should also note that France has FREE daycares and healthcare that is included in the taxes paid each year … unlike here in North America where a kid can cost up to $1000 a month (or more) just for daycare alone, and if they’re younger, more… and if you have more kids, it costs more money.

    No wonder no one has children.

    • The cost of daycare is outrageous and terrifies me.

      I think France has an interesting system, but it’s also not good that people are abusing it by having children strictly for the payment from the government.

  • I read this book last year and was really rooting for the author to convince me of his thesis. I don’t think he quite clinched it in the end, though – to me, he didn’t quite make the air-tight case for raising our fertility rate above replacement. However, coming out of reading this book, I was convinced that I personally should have about 4 kids (we had previously been thinking about replacement only).

    This book is an interesting complement to ones like Lean In and Getting to 50/50 that advocate for national-level policy changes that are more supportive of parents. The US is woefully behind the rest of the world in this regard, but as you pointed out hasn’t really had to face the consequences of its below-replacement fertility rate because of immigration.

    The posts I have read in the PF blogosphere that reduce the decision about having children to money vs. warm fuzzies area bit frustrating because they don’t consider the larger societal consequences. I don’t make that point on their posts, though, because it doesn’t really matter if one particular couple decides to limit their fertility to below the replacement rate. However, as the trend grows we are committing ourselves to some big changes.

    • haha in my review of the book on Goodreads I complain that he’s overly right-wing and religious undertones. I liked his points, but I agree, he didn’t seal the deal.

      And you’re right, the PF sphere is totally about having children as a matter of money vs. “warm fuzzes” — but North America is such an individual-centric culture is it even possible to suggest you should have children for the good of your country? We’re so very much “I have to do what’s best for me”… not that I think anyone should have kids if they don’t want them, there’s just so much to consider.

    • @Emily

      If the author did not convince you of his thesis, what did you base your decision that you personally should have at least four children on?

      I have not read the book, but I haven’t been convinced of his arguments in the reviews I have read.

  • When you consider how many things have to be worked out before you even have a child in the US, you wonder why there are so many children around. Childcare is definitely way overpriced, preventing a lot of parents from even wanting to have more children if they do not have a parent or someone else to provide cheaper daycare.

    As a 20 year old, I am excited to have children one day, but also know that it’s going to be a financial burden mainly during the first few years. If the US provided resources for young families just starting out, there would probably be even more kids running around.

    • I agree! Having children has become unaffordable to many people, and that’s not fair. I think there definitely needs to be more resources for young families.

  • I’ve studied demographics for the last couple of years. The only saving grace the US has going is immigration. But most of the population thinks immigration is bad for our country.

  • You forgot to add infertility as a reason why fertility rates are decreasing. This is an ever increasing issue for a lot of people. I have two close friends and know of many others (myself included) who have sought fertility treatments, some unfortunately without success. As complications with fertility have many underlying factors, some of which are environmental and lifestyle, this may be part of the reason why fertility rates are especially decreasing in developed countries. Please remember that fertility is not always as easy as deciding on the financing portion of the equation. Sometimes it is not a matter of choice and this can be a very emotional and sensitive issue for most people undergoing fertility treatments. Not to mention the risks and the very expense of these fertility treatments, which can cost anywhere from 10,000-15,000 per round of in vitro.

    On a side note, I have come across your website just recently and I am otherwise enjoying reading the content.

    • Thank you for the comment. I tried to avoid a discussion of infertility because it’s a topic I’m largely unfamiliar with so I don’t feel confident enough to talk about it at length. As an integral part of the equation of population economics, its something I’m interested in, but I’ll need more time to explore it before I can analyze it with the sensitivity and and understanding it deserves.

      I’m glad you’re enjoying the blog!

  • Don’t worry; one day the sun will engulf the earth, and then all our petty, egotistical issues will be forgotten. ha!

  • Another thing you should consider is daycare costs. We pay $500/week for both our kids to attend part time which is 3 days a week! Great article though and you hit some points that I have not really thought of, I foresee a lot of vacant land and buildings in America in a couple decades.

  • I’ll probably read the book to get the more nitty gritty information, but I’m with @Jordann above. I get the whole 1-for-1 support concept, but just because we overpopulated ourselves into this situation, doesn’t mean we should maintain it. That’s like saying “well I spent myself into $50k worth of debt and getting out of it will mean painful cuts, so instead I’m just going to keep revolving my debt.” Will it hurt to reduce the population, at least at first? No doubt. There will be serious economic adjustments that will have to be made. But I think it’s better to do it than not.

  • Did the book cover the population trap? Fertility rates are a piece of a global concern and there are issues around all ends of it. As you’ve said, the problems lie when there is a huge imbalance, however there are other ways to solve it than everyone having two kids. Spacing, lengthening, gradual slowing and redistribution are all pieces of the puzzle.


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