Research Group on Global Issues #5

"Research Reports" are compiled by participants in research groups set up at the Japan Institute of International Affairs, and are designed to disseminate, in a timely fashion, the content of presentations made at research group meetings or analyses of current affairs. The "Research Reports" represent their authors' views. In addition to these "Research Reports", individual research groups will publish "Research Bulletins" covering the full range of the group's research themes.

Introduction

The decline in Japan's birthrate and the aging of its population are rapidly accelerating. Senior citizens aged 65 or over numbered 36.17 million in 2020, accounting for 28.7% of the general population, and both the absolute number of senior citizens and the population aging rate set new all-time highs¹. Looking back, the ratio of elderly people went from less than 5% in 1950 to more than 14% in 1995 and then to 23% in 2010, surpassing the 21% level that defines super-aging. A drop of 290,000 from the previous year in Japan's 2020 population marked the start of a downtrend, and the aging of that population is expected to pick up speed. An estimate by the National Institute of Population and Social Security Research contends that the ratio of elderly people will reach 35.3% in 2040, when the generation born during the second baby-boom period (1971-1974) will be 65 years or older.

A declining birthrate and an aging society have wide-ranging socioeconomic impacts, and a number of issues have surfaced. Labor shortages stemming from aging have already adversely affected some corporate activities, casting a shadow over economic growth. Additionally, a growing percentage of elderly people facing financial uncertainty makes itself felt in lower purchasing power, which in turn leads to a contraction of Japan's consumer market as a whole. The population decline in rural areas has been particularly serious, resulting in an increase in empty houses, empty shops and abandoned farmland, thus imposing heavier burdens on local economies. If Japan's society continues to age further, it is highly probable that local governments will find it difficult to maintain administrative functions at their current levels. On the fiscal side as well, there is a disturbing imbalance between the cost of social insurance benefits for expanding medical and nursing care and its burden sharing. .

Japan faces a host of such challenges, but a look at the rest of the world reveals that many countries will similarly confront the issues of declining birthrates and aging societies in the near future. Efforts directed at the elderly have been incorporated in many aspects of the UN's Sustainable Development Goals (SDGs). Elderly people currently make up less than 9% of the world's total population, but this figure is expected to double to around 18% by 2060. Currently, it is mainly in Europe and East Asia that countries have high ratios of elderly people, but aging trends will become conspicuous in developing countries hereafter. Due consideration should also be paid to the speed of aging. Comparing the number of years it takes the aging rate to exceed 7% and double to reach 14%, Germany has a figure of 40 years, the US 72 years and Sweden 82 years, all indicative of a gradual trend, whereas Japan by contrast has a relatively quick 24 years. Asia has countries in which aging will advance even faster than in Japan - South Korea at 18 years and Singapore at 20² - and there is urgent need for countermeasures in these countries.

The aging population combined with the diminishing number of children that confront Japan at the moment will one day become a global megatrend, with numerous countries forced to address these as socioeconomic issues. As a country on the leading edge of these issues, Japan should tackle them by sharing its wisdom on coping with a low birthrate and a graying society and encouraging international cooperation. An aging society with fewer babies is not an entirely negative development, however, as new possibilities can also come from the silver economy. Japan's leadership should focus on the brighter aspects of declining birthrates and aging societies and undertake discussions on improving the quality of life for people around the world.

Japan, a pioneer in policies to address the graying of societies, announced its views on financial inclusion for aging societies as the G20 chair in 2019. The G20 Fukuoka Policy Priorities on Aging and Financial Inclusion³, prepared jointly by the Global Partnership for Financial Inclusion (GPFI) and the Organization for Economic Cooperation and Development (OECD), offers useful guidelines not only for Japan but also for many other countries with the prospect of aging societies. The recommendations presented on eight topics are extremely comprehensive in nature, including social policies directly connected with the financial sector as well as those indirectly related to aging.

Utilizing data and evidence

Sufficient data and evidence are needed when drafting comprehensive financial policies for the elderly. Basing data analyses on age, sex and other attributes in as much detail as possible enables discussions on policies better tailored to the characteristics of senior citizens. While large volumes of data are presently used for data analysis, relative scarcity of data on the elderly has been noted. There may be instances in which it is not as easy as with younger generations to collect digital data from elderly persons with relatively low access rate to digital technology. Paying attention to this point, particular effort should be made to collect and utilize data and evidence on the elderly.

Enhancing digital and financial literacy

Digital technology has made remarkable progress, altering economic and social environments at a speed never before experienced by humanity. In such circumstances, there is a tendency for education and knowledge acquired in the past to become obsolete at a quickening pace, and even highly-educated elderly persons may find it extremely difficult to understand and effectively use digital technology. Timely opportunities must be provided for senior citizens to familiarize themselves with digital technology and finance through a variety of channels. Systems for public-private cooperation should be put in place to increase the opportunities for education, with special care to communicate with non-specialists in easily understandable ways that avoid difficult terminology.

Encouraging lifelong financial planning

Numerous adults around the world are entering their senior years without sufficient savings to cover living expenses and long-term nursing care costs. The percentages of pension recipients in Central/South Asia and Africa are exceptionally low. There is also a worldwide tendency that women receive lower pension coverage than men. Lifelong financial planning is important, and it should be based on a combination of financial guidance, advice and product design as well as suitable consumer protections. People need to visualize the financial needs of old age and understand the importance of preparing from a young age, and to have access to tools and services.

Customizing approaches to the diverse needs of the elderly

Individual senior citizens have extremely diverse needs. Adopting across-the-board approaches based solely on age entails great risk. Support customized to individual needs should be provided that respects the wishes of the individuals themselves and takes into account factors that could help eliminate financial risk, including gerontological perspectives as well as sex, cognizance, physical ability, state of health, home ownership and wealth building status. Financial institutions have a role to play in supporting aged consumers who need support customized in this fashion. Such approaches will enable the providers of credit and insurance products to take into account of the information about, and the needs of, elderly consumers and entrepreneurs.

Promoting innovation

Technology plays an important role in attaining financial inclusion and addressing issues that stem from the aging of society. The elderly in all countries have inferior access to digital financial services than do other age groups. Low digital literacy or confidence can often constitute obstacles for the elderly, and technology can provide the key to eliminating these obstacles. The latest biometric technology has in some cases been incorporated when providing services, and practical use is being made of services that employ algorithms to identifiy mistakes by elderly customers. Knowledge of behavioral economics and pedagogy can be utilized in developing easy-to-use digital tools that achieve innovative approaches.

Protecting the elderly

According to the definition by the World Health Organization (WHO), financial abuse of the elderly includes the illegal use of senior citizens' cash, property or other assets. It has been pointed out that elderly investors face higher risks than other investors of losing money due to fraud or misuse. The authorities responsible for protecting financial consumers need to promote awareness among the elderly, and to oversee financial institutions by, for example, setting out clear legal and regulatory requirements for properly ensuring informed consent.

Adopting cross-sectoral approaches

Given the multifaced nature of the issues involved and the breadth of the approaches and responses needed, it is essential that parties from both financial and non-financial sectors cooperate to support the financial inclusion of elderly consumers and entrepreneurs. Among these parties should be public institutions in the financial sector, private companies, civil society organizations, and groups representing the interests of the elderly. There are also instances in which local service providers (e.g., convenience stores, nursing care facilities, pharmacies, public transport companies and restaurants) are themselves not aware that they have roles to play in the financial inclusion of the elderly, so awareness must be raised within the community at large.

Addressing vulnerabilities

Financial inclusion has become an issue of great urgency for certain persons placed in particularly disadvantageous positions from which it is difficult to gain access to services, especially persons suffering from poverty, chronic illnesses or disabilities. Such disadvantages combined with aging often result in financial and social exclusion or greater susceptibility to isolation, with women being especially vulnerable. Women have a lower average lifelong income as well as lower digitial and financial literacy while at the same time having a longer average lifespan.

Further leadership from Japan

Based on the recommendations compiled by Japan's leadership, opportunities for dialogue should be arranged with a wide range of countries. Several of the eight topics are amenable to international cooperation, and many countries could benefit from sharing information and knowledge. Global efforts in areas pertaining to innovation are particularly vital. Japan should seize the initiative and provide a platform to promote innovative technologies, services and products tailored to aging societies and propose frameworks within which multiple countries can participate in discussions.

This is English translation of Japanese paper originally published on December 20, 2020.

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