Demographics Unravelled - Amlan Roy

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on the more important differences that are typically glossed over in order to aggregate countries, regions, and cities on some common feature. For example, what are the key differences across similar-looking Nordic countries; or open economies like Singapore, Taiwan, etc.; or smaller countries in the Middle East; or the US vs. Canada or the EU4? This chapter shows why certain commonly used and aggregated metrics or indicators may be misleading. Why are the largest advanced countries different from each other in important ways? The pace of urbanisation and growth of megacities have implications for sustainability, human development, health, and education. The concept of demographic transition, which interacts with economic cycles and affects all aspects of human life worldwide, is also discussed. Data differences and interpretation provide motivation for further discussions in later chapters.

      3 Macroeconomics: This chapter shows how characteristics and behaviour of consumers and workers affect economic growth, living standards (GDP per capita growth), inflation, and unemployment. Demographic effects are not just long-term, as these factors are also short-term variables. Consumers and workers make decisions throughout their lives, not just for the long-term. Understanding the implications for public debt, savings, and capital flows is vital to develop better policies and make optimal decisions. Economic growth is related to growth in worker numbers, worker productivity, and hours worked. I discuss why labour productivity growth is key to reviving global GDP growth in the developed world as well as major fast-growing emerging markets. Gender equality and youth empowerment are potential solutions to greater economic output. It is argued that long-term ageing-related promises are unsustainable in a lower-growth world and need renegotiation for fairer intergenerational equity. The chapter discusses the potential realisation of the demographic dividend across emerging and developed economies.

      4 Asset prices: This chapter discusses how demographics affects equity, bonds, real estate, and commodities in terms of asset prices and returns. The chapter presents insights from the academic literature on allocating accumulated resources over the human lifetime. Workers and retirees are faced with longer retirement periods, lower average growth, “lower for longer” interest rates, lower investment returns (equity, corporate bonds, high yield, etc.), and lower inflation than in the past. Investment returns and asset prices are influenced by consumption, savings, and investment decisions of households. Governments are faced with the responsibility of ensuring lower poverty rates for retirees in the future. The chapter presents the links between demographics and equity premia, sovereign bond yields, and sovereign ratings and also highlights equity sectors that are demographically advantaged and likely to emerge as winners.

      5 Longevity and health: This chapter provides insights into and discusses the reasons for uncertainty regarding longer horizon resource planning for individuals and institutions. The emphasis on good health and importance of public health investments has been continuous throughout the ongoing COVID pandemic. The need to focus on healthy life expectancy and disability-adjusted life years rather than life expectancy at birth is emphasised. It is also important to know how longevity uncertainty and longevity risk management can be improved to enjoy a healthy and adequate retirement life. The models of longevity and instruments to defray longevity risk (the risk of outliving accumulated savings) need to be better understood by institutions (pension funds, reinsurers, insurance companies) to manage assets to meet longevity-related obligations (liabilities).

      6 Retirement and pensions: This chapter highlights the importance of pension institutions amongst global financial institutions and investors. It presents a history of retirement and pensions, pension investment trends, issues facing pension funds, and design of pension systems. Issues underlying strategic and dynamic asset allocation for pensions are discussed, as are the implications of funding for corporate pension funds. The behaviour of the “new giants” (pension funds) is considered important by policymakers such as central banks and treasury departments for the well-being of citizens as well as potential contributors to global systemic risks. The rise of defined contribution plans where participants bear the risk is not without its own issues and has led to the origin of hybrid pension systems. The chapter highlights issues for the collective world of pensions in dealing with the changing new world by adopting changes to mindsets, tools, and asset allocation. It is noted that the governance and management of pension funds is as important as the investment returns from an efficiency and comprehensiveness perspective.

      7 Gender, human capital, governance, and quality of life: This chapter extends the focus and objective of individuals and households as well as collectively of institutions beyond monetary and pecuniary values. The extension beyond individual utility to social welfare functions and the human development index and happiness scores is essential for a world where income equality, gender equality, climate change, and corruption are serious concerns. The chapter discusses United Nations sustainable development goals (SDGs), transparency, national governance indicators, and gender scores to assess progress on a sustainable quality of life in a world where Millennials and younger generations care about the environment, equality, sustainability, fairness, and the “means more than just the ends”. We note that quality of life, climate change, and happiness are considered important for a better world and should be monitored.

      8 Summary and conclusions: A broader and deeper understanding of demographics is core to creating a better economic and investment environment for multiple generations in an ageing world. Healthy life expectancy with adequate retirement savings is essential for a responsible, sustainable future. Globalization, technology, geopolitics, and politics will interact to influence future consumer and worker behaviour.

      Throughout the chapters, all the notes and references have been collected and presented at the end of the book, separated by each chapter. The References are an essential part of this book as I connect references from various different disciplines in the Notes section.

      1 1. Peter Drucker pioneered management thinking in many different unorthodox directions and is considered the guru of all pension gurus by many experts, including Keith Ambachtsheer.

      2 2. Aldous Huxley's Brave New World (1926) posed many challenges rooted in the basics of demographics.

      This chapter introduces and amplifies my broader and deeper perspective of demographics. It presents the layout and chapter sequence with a few sentences on the highlights, including key issues discussed, major take-aways, and challenges to the conventional perspective. It should encourage some readers to go to specific chapters for a deeper dive if they wished to read outside of the sequenced layout of the book.

      Broadening this definition of demographics then naturally extends to all the people in the world who are consumers, ranging from the newborn baby to the oldest centenarian, consuming the entire universe of goods and services. The aggregate consumption by individuals in an economy, which is referred to as private consumption expenditures, accounts for the largest share of GDP by expenditures.

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