What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing one of the biggest economic issues facing developed nations over the next couple. Decades is population implosion in the resulting economic stagnation, a combination of higher life expectancy and lower birth rates has pushed the median age of almost all developed countries steadily higher over the past 20 years. This will lead to catastrophic economic consequences which are not obvious today, but will become apparent over the next decade, while economies typically face economic crises from time to time, such as the 2008 financial crisis and 2020 covert pandemic. These issues can usually be resolved by policymakers within a few years, and economies can return back to their long-term growth trends.

The trend of population implosion is far more dangerous, as there's almost nothing that governments can do to stop it. We've already started to see this in japan, which has a median age of 48 years old and more than a quarter of their population, is expected to be above 65 by 2050. It's gotten so extreme that adult diapers now outsell baby diapers by a significant margin. The population implosion in japan has caused 30 years of economic stagnation, which is unprecedented for an industrialized economy during times of peace, while japan is currently in the most advanced stage of population implosion, there is another country whose population outlook is even more severe with the median Age of 48.6 years, japan is currently the oldest major country in the world.

By comparison, south korea doesn't look as bad with a median age of just 43.2 years, but, as you can see from this chart, their fertility rate has nosedived over the past few decades and now sits at 0.92 births per woman, far lower than japan's 1.36. To maintain a given level population and median age, each woman has to give birth to at least two babies to replace both her and the father after they die. Having less than two breaths per woman results in an aging and eventually declining population. South korea's current fertility rate of 0.92 is less than half the sustaining rate.

This is a level never seen before in recorded history, excluding times of war and other disasters, the fertility rate is a leading indicator of population implosion. So korea has yet to experience the devastating consequences, but make no mistake: the results will be catastrophic. Over the next 10 to 20 years, we will likely witness one of the world's most advanced economies crumble under the weight of its own aging population, and this will serve as a grave reminder of the all but certain economic future for the entire developed world. So first we have to establish why an aging population is bad for an economy in any country.

There is some amount of productivity capacity. The production per capita is decided by two things: the productivity of each worker, as well as the size of the labor force relative to the population. If the median age of the population is very young, almost everyone works and the consumption per capita will roughly equal. The production per worker people consume what they produce, but as the population becomes older, a greater share of the people will be retired.

Retired people produce nothing. Yet they still consume resources. In fact, people often spend more money during retirement than during their working years because of the high cost of assisted living facilities and end-of-life medical care. So where does their money come from? Some of it comes from savings that they've accumulated over their working years.

Some of it comes from employer or state-sponsored pensions and health care benefits. If the money they spend just comes from their own savings, it doesn't seem like it should be that bad, they earn the money and they can spend it just like anyone else, but regardless of when the money was earned in equilibrium, the total consumption in the economy Must equal the total production everything that's consumed must be produced, as retired people leave the workforce. The total productive capacity of the economy diminishes, but they continue to spend just as much or more. This causes a situation of the same amount of money chasing a lesser amount of goods which will inevitably cause inflation to rise.

Also, a greater share of the economy's productive capacity will go towards health care and other consumption. This will crowd out investment in capital equipment, as well as research and development, but there's an even bigger problem associated with population implosion. Most developed countries have government-managed pension funds, such as social security in the u.s. These schemes are structured in a ponzi scheme like manor, where current retiree benefits are funded by the contributions from existing workers throughout the later half of the 20th century.

These public social security schemes worked out great and became extremely popular in almost every country they are implemented in. When you have four workers per retired person, you can pay each retiree four times what you would charge the workers. So if you charge people 10 of their salary during their working years, you can give them a pension worth 40 of their salary once they retire. This seems like a great trade-off, because you could likely take out far more money from the system than you put in.

The only problem is that this type of system is basically a ponzi scheme that will collapse once the population stops growing. As the population ages say, there is eventually one worker per retired person instead of four. Obviously, it will now be impossible to pay the retiree 40 of their old salary as pension benefits, because there just isn't a large enough pool of workers to fund this. This will force the government to drastically reduce the benefits in real terms or increase the retirement age.

Neither of these are ideal scenarios. People make their retirement savings plans based on the assumption that they'll receive their social security benefits as promised. If the benefits are reduced. Many people will not have the savings to fill in the gap and will be forced to live their golden years in destitution.

Raising the retirement age will also have severe negative consequences. People inevitably become less productive as they enter their old age as their physical and cognitive capabilities decline. The labor force on average will become less productive if people are forced to work into their 70s. Now we'll turn to south korea, which is a country with the most rapidly aging population.

By far, this pyramid shows the population distribution of the country as late as 1970, the distribution clearly had a pyramid shape, meaning that there are far more young people than old people, but in the mid 2000s this started to invert and as of 2020, it looks like An upside down pyramid: this is the result of their fertility rate falling from more than six births per woman in the 1960s to just .92. Today, at the same time, the life expectancy has increased to 83 years, which is one of the highest in the world. These two combined factors have led to a skyrocketing median age in korea. In 1980, the median age was just 22.

since then it has doubled to almost 44.. There are a variety of reasons for the decrease in fertility rate across the developed world, such as the increasing labor participation rate of women and the high cost of college education. We made a video that examines this issue in detail. Link in the description below the south korean population is imploding at a much faster rate than any other nation.

In 2019, the united nations forecast of the east asian country's population would peak at 51 million in 2024 and by 2050 roughly a third of the population would be over the age of 65.. While these projections already paint a concerning picture, it now appears that they are far too optimistic. South korea's population declined for the first time ever in 2020, four years before the un's estimate. This is because the fertility rate, which is already the lowest in the world, continued to decline precipitously over the past couple years, it's difficult to predict at what level the fertility rate will stabilize because we are in uncharted territory.

But if the current trends continue, things could get a lot worse. South korea has experienced something of an economic miracle over the past 20 years and is now a global leader in semiconductors, consumer electronics and automobile manufacturing. Ironically, part of their economic success can be attributed to the declining fertility rate, which could eventually lead to their downfall for the first 18 to 22 years of a kid's life, they're, basically useless to the economy. Apart from some part-time summer, jobs they may take on, they produce almost no economic output, but it can cost hundreds of thousands of dollars to raise a kit.

If you consider food clothing, education and the opportunity cost, if one parent quits their job to be a full-time parent from a macro perspective, you can think of a kid as a long-term investment during childhood, their net drain on the economy's resources, but once they grow up They'll eventually become a productive member of society and produce output in excess of what they consumed. As a kid. Over the past 20 years, korea has experienced a fertility rate below the replacement level. This means that a relatively small proportion of the country's resources have been spent on education, food clothing and other costs associated with raising children.

Some of these resources have instead gone to investment in semiconductor and automobile factories. Also, the women who decide to not have kids has had greater opportunity to climb the corporate ladder and contribute to the total productivity of society. This has resulted in their gdp growth being one of the fastest of any developed nation, but this growth is not sustainable, as they are effectively trading short-term gain for long-term pain. According to the un forecast, almost a third of their population will be above the age of 35 by 2050, but, as we explained earlier, the fertility rate has declined even faster than expected over the past year.

It's not inconceivable that as much as 40 percent of the population could be 65 or above by that time, and the population could be as much as 10 million below its 2019 peak. That would be unprecedented in human history in the next part of this video we'll try to imagine what society will look like under such extreme demographic conditions. For starters, young korean workers can forget about living off the public national pension service in their old age in 2018. The government estimated that the pension scheme would run out of money by 2055..

The demographic implosion has accelerated since then, so even this dire forecast is probably optimistic. The current state of affairs is obviously unsustainable. They'll be forced to take one of two possible actions. The first option is to drastically reduce the pension benefits to below poverty levels.

If society does not provide for people in their old age, the population implosion will become a non-issue. This course of action is highly unlikely. South korea is a democratic nation, and people over the age of 65 will soon make up the majority of voters. Any politician who proposes draconian cuts to public pension benefits will have little to no chance of being elected.

The second and more likely option is to substantially increase the contributions that working people are required to make to the pension scheme. This will decrease the standard of living for the working population and crowd out investment in the private sector with less disposable income. People will be even more reluctant to shoulder the financial burden of having kids, thus increasing pension contributions may further aggravate the problem. Long term there's very little.

The government can do about this problem as they can't force people to have kids. We will likely see the country face economic stagnation and deterioration in per capital living standards over the next few decades. This video isn't meant to pick on south korea. Their population implosion just happens to be the fastest in the world, but virtually every developed country has an aging population and will eventually suffer the same fate, although in most cases it will take many decades before it becomes a crisis.

For example, the median age in the us has been steadily increasing over the past few decades and now sits at about 38 years old. The social security trust is now expected to run out of money in 2033.. Most politicians are ignoring the crisis because it is still a long way off in the horizon, but unfortunately ignoring the problem will not make it go away. So now that we've gone over these dire warnings, what can we do about it? While this video is not financial advice, investors with 10 to 20 year horizons should consider the effect of aging populations on the stocks that they own.

While many companies will be heard by the associated economic stagnation, there are some sectors that will benefit from the booming retired people. In fact, ishares has an etf that specifically invest in companies which are generating significant revenues from the growing needs of the world's aging population. It is heavily weighted towards healthcare, which will benefit, as older people tend to have greater need for medical care. It also includes a lot of financial companies which are involved in the pension and asset management services geared towards older people.

The holdings of the etf are publicly available on ishare's website. This could be a good starting place if you want to do your own research on stocks that will benefit from aging, alright guys that wraps it up for this video. What do you think about the global population? Implosion? Let us know in the comments section below as always. Thank you so much for watching and we'll see in the next video wall street millennial signing out.