The world's population is aging, and as it gets even grayer, bank balances will stop growing and living standards, which have improved steadily since the industrial revolution, could stagnate. The reason is that the populations of Japan, the United States, and Western Europe, where the vast majority of the world's wealth is created and held, are aging rapidly (Exhibit 1). During the next two decades, the median age in Italy will rise to 51, from 42, and in Japan to 50, from 43. Since people save less after they retire and younger generations in their prime earning years are less frugal than their elders were, savings rates are set to fall dramatically.
In just 20 years, household financial wealth in the world's major economies will be roughly $31 trillion1 less than it would have been if historical trends had persisted, according to new research by the McKinsey Global Institute (Exhibit 2). This study examined the impact of demographic trends on household savings and wealth in Germany, Italy, Japan, the United Kingdom, and the United States. (The full report, The Coming Demographic Deficit: How Aging Populations...