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Welcome to the land of elders!

Published at: 21-09-2018

Posted on: September 21st, 2018 by RaduC No Comments

We live in a country which is aging and losing its population at an alarming rate. In the last 30 years the population fell by 3.5 million people and UN estimates show that by 2050 it will have lost another 3.3 million. That means that the country we live in will experience the 7th most dramatic population reduction worldwide. The problem, however, does not lie in how few of us there will be, but rather in that we will be much older. According to estimates, by 2060 one third of this country`s population will be over 65 years old.

Without a doubt such dramatic developments will leave a mark on the economy and living by presenting temporary opportunities, but also serious social challenges. The wave of opportunities will come and go with this demographic wave which is set to be followed by increasingly less numerous generations. Look at the boom and bust of the private higher education industry, the number of public day care centers and schools shutting down from lack of children. Being in an industry targeting the very young in this country does not seem to hold exciting prospects. A demand which is at least stable is all you can hope for, and not a market with potential for growth.

Business opportunities clearly followed the babyboomer generation born in late 60s. Its members have now reached an age where they see their own children fly the nest if they haven`t done so already. They have collected assets throughout their live and move to another stage in their existence: becoming more interested in buying experiences that they can enjoy in the spare time now available to them. Tourism is the main beneficiary of that behavior and the boom in tourism sales or the number of airport passengers attest to that. All business operating in industries offering experience-related services will thrive for another 10 to 15 years going forward.

Companies must be aware that, in a country exhibiting such strong negative demographics, they cannot ignore that aging comes with changes to the size and structure of personal and household budgets, and that working and living habits will shift radically. A series of other concerns move up the priority ladder as retirement closes in: concerns relating to health, healthy eating, knowledge and to the extent they can afford it, saving.

We see these concerns already reflected in the demand dynamics and the reaction of some businessmen who have seized the opportunity. The concern for health has led to a rapid rise in demand for private healthcare services, health insurance and drugs sales. This is a trend that undoubtedly will continue to produce strong numbers over the next decade as well. The dodgy public healthcare infrastructure will act as an additional driver. As the degree of sophistication of the private healthcare system increases, medical tourism involving foreign patients looking for affordable healthcare will expand. This can already be seen in the dental industry.

The popularity of organic food will also be on the increase together with the tendency of more and more Romanians buying organic fruit and vegetables at small trustworthy producers or growing their own. I believe that Romania has a huge potential here which is yet to be tapped into, and namely to take advantage of the reputation of an “unadulterated”,  free of chemicals land associated with non-industrial, naturally-grown food.

The aging babyboomers have too little in common with their parents when they were at the same age. They are less self-conscious about their age, feel young and want to extend their time as young adults as long as possible. The supply of leisure and entertainment for this age group will increase based on that. Those putting them in the same basket with the young age group will miss out on an opportunity. Radio stations playing music from the `80s, the `90s and the `00s are as popular as the ones streaming the latest hits. From this perspective, night clubs seem to lag somehow behind when it comes to engaging with those wishing to relive their youth. The rapid spread of ballroom dance studios is to be noticed.

Not only will this generation feel younger, but they will be younger and healthier. Life expectancy is rising with our country seeing a seven-year increase from 1990 to date.  And it will continue to grow. That means that people`s availability to work into an older age will also increase. It is already a fact that those staying active despite their age are less likely to experience impaired cognition due to aging. Furthermore, topping up your regular income will be another incentive. As a result businesses should be ready to create a flexible working environment able to accommodate the senior population. An offer not likely to be dismissed given the younger, less experienced generations to come.

Working past the state pension age will clearly cushion some of the shock of when the babyboomers will massively retire. The impact however, will be extraordinary. Let us imagine that all these people will all of the sudden turn from taxpayers into state pension beneficiaries. Given the huge deficit of the social security system even with their payments, the future of state pensions looks gloomy indeed. Private pensions systems will be urged to ease the pressure, but they will not be able to do so unless they are allowed to function and the pension contributions are high enough. Large private pensions can only come from equally large contributions.

By and large, a significant drop in the babyboomers’ standard of living will only be avoided by those who are starting to realize that they will have to “desperately” save money for their retirement. In 20 years state pensions will only “glaze” the income that they will have to provide for themselves from their own savings and investments. The reason is simple, but hard to hear: this country will age before it gets rich.

That means that in 15 – 20 years, consumer behavior will experience significant changes as their income is halved. We will witness the dissolution of the middle class and an increased polarization within the society. Belonging to the middle class now does not ensure staying there after retirement. State pensions rely not only on the size of contributions over your years of employment, but also on the number of people paying into the fund in 15 to 20 years to cover our pensions, the elderly. And we will be twice as many as they will… Those of us who have started to put money aside or the people who do not have to save as they will be sure to draw a generous defined-benefit pension offered by the state, are the exception. The existence of the latter will lead to a deeper divide within the large community of pensioners. While the income of the large majority will be halved after retirement, the income of the few with a state-sponsored special retirement plan will only slightly be affected.

Under these circumstances, the bulk of money currently saved in bank accounts, investment funds or pension funds will be disinvested and used for consumption. Part of the sums that the financial system has used to sustain the development of the country will be gone. That means slow growth and fewer banks and investment funds. Size will matter and only those large enough to withstand the shock and keep their profitability will be able to survive.

One remark for those investing in real-estate in order to secure a regular rental income in retirement. The question I think should be in their mind is what will happen with the value of properties and rents once the number of inhabitants has dramatically decreased and aged. Who will buy houses anymore? Who will pay rents and what the level of the rents they will afford to pay is going to be like? The elderly will continue to live in the houses they already own. But as many of the already old property owners die, the younger generations will prefer to buy/lease the rather old houses or new houses. As a result, the real-estate market may see important shifts which need to be looked into and foreseen by those expecting to top up their pension through property owned.

The demand for healthcare will also be rising. Collapsing incomes, however, and the falling number of employees will cause private health care demand to stagnate if not drop in ten years` time.  All the more so as the current demand is funded by the health insurance policies supplied by an increasing number of employers. As the babyboomers come out of employment, everything will become much less affordable to them leading to pressure on the public health care system to rise sharply. From this perspective, not only should the multi-pillar private pension system be preserved, but also be replicated in health care to help avoid a collapse of the state system.

An aging population will not need health care alone. It will also require eldercare. We will be more alone than our parents are today. The departure, be it encouraged or not, of our children will have us cope in later life by ourselves. We can already see the implications in countries with large aging populations. In Italy, more than 22% of the population is over 65 years old. And the demand for care workers is huge despite being one of the countries where family ties are stronger than in Northern Europe.

The demand for care workers in Italy caused a significant inflow of immigrants from Eastern Europe, Romania first of all. Will this also be a solution for the lonely elderly in our country? The answer is simple: only in so far as they have sufficient incomes since they will have to compete against rising demand coming from a wealthier Western Europe. And just very small portion of our elders will enjoy the benefits here due to the above-mentioned polarization. As a result, “importing” nursing labor could be a growing business with limited potential, however.

Which leads us to the other solution. The significant increase in the number of nursing homes. Many of the people our age having no children to support them and unable to take care of themselves will end up in nursing homes. This looks like a business idea with big potential and if you have been following the news closely, you will have noticed that there are businessmen in Bucharest and Constanta who have started to build such facilities. As in the early stage of real-estate development, the first projects are on the premium market, but let`s be honest… too few of the Romanian pensioners will be able to afford such services. Far less than the number of those affording the same level of housing during their years of employment. This is why the future looks brighter for those investing in the medium-price range segment. And the government must definitely take responsibility for supplying decent nursing care at a reasonable price. Unfortunately, the quality of the public health care system does not bode well.

Aging will also produce losers as we can see in developed countries. Japan, a country where 27% of the population is over 65 years old offers alternatives to how the elderly can survive. Nearly one in five women in the Japanese jails is elderly, 9 out of 10 being sentenced for petty shoplifting. From 1980 to 2015 the number of old people in Japan living alone rose six times to reach 6 million. As half of the women 65 and older are faced with poverty, going to jail is one way of receiving company and care free of charge. This happens in Japan where, as the immigrant labor force is missing, the elderly are starting to be looked after by robots. Just another instance of the social polarization present in an aging country.

What are you plans, as a businessman or employee, to make it in a Romania of the lonely elders?

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