Investor Behavior of Capital Flow Analysis: Population cohorts and Aging

Lesson: 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20

Lesson sections: 12 | 12A | 12B | 12c | 12D

Investor Behavior: Population cohorts and aging Investment Theory: Population and Aging

Old and Young

The American population can be divided into three age cohorts:

  1. those of working age (20 to 65);

  2. the young ( under 20); and

  3. the old (over 65).

Most societies have customs of generational cooperation.

Those of working age raise and sustain children who, in turn, sustain their parents when they become too old to support themselves.

Less Dependents Than Before

In the United States, since 1929, the population cohort over 65 more than doubled relative to the rest of the population.

This 'aging' is given as the reason for the expected collapse of the social security system.

While the older cohort has grown, the younger cohort has shrunk.

However, while the older cohort has expanded, the cohort of the young has shrunk.

In other words, the burden of caring for the young and old, in 2002 was less than in 1929.

Breakdown of Families

What is different and the cause of today's concern about the future, is the breakdown in family ties, the decline in the sense of duty, escalating costs of medical care and education, and the rise of self-indulgence and selfishness.

Perhaps in some parts of the world, there may still be enough respect for the elderly for an aging population to be easily accommodated, but in the United States the changing culture may be breaking down intergenerational cooperation.

The elderly are expected to provide for themselves, rather than be dependent on their children.

The elderly are expected to provide for themselves.

Since people are living longer, the savings required to sustain a certain standard of living in old age has increased.

Whereas in 1900, the 65-year-old might expect to reside with a son or daughter, in 2000 this was no longer the case.

In 1900 there was no income tax, the dollar was protected by gold, and living costs were modest compared to 2000.

Changes in society, economics, and tax laws work against the elderly.

Forecasts for an Aging Population

The official forecasts for social security may be pessimistic, since positive effects of immigration are not fully considered, probably because so much of immigration to the U.S. is illegal.

The Social Security Administration assumes that life expectancy at 65 will continue to increase:

The ratio of older folks to the working population is expected to double by 2075:

If these projections hold true, there will be selling pressure on the securities market as the elderly seek to raise cash for living expenses during retirement.

However, immigration of younger people and social security reform measures, such as President Bush's retirement accounts, might increase investment demand enough to keep the market in equilibrium.

In any case, it seems certain that the sociopolitical composition of the American population in the 21st century will be as different from that of the 20th century, as the 20th century was from the 19th.

Predicting the Birth Rate

Another parameter that influences the ratio between the young and the old is the birth rate.

The following graph shows average births per woman in her life-time, since 1940:

The chart shows the 'Baby Boom' followed by the 'Baby Trough'.

The Social Security Administration's long-term projection of a birth rate sufficient to sustain the population may be optimistic.

Judging from the last half of the 20th century, the U.S. birth rate seems anything but stable.

Social and Political Trends

There are a number of social and political trends that may reduce the birth rate further:

  1. Homosexuality: The Democratic Party, liberal universities, and the media promote homosexuality, and this campaign is moving into the public schools.

  2. Homosexuality and abortion do not increase the birth rate.

  3. Clearly, homosexuality does not have a positive effect on the birth rate.

  4. Abortion and Birth Control: A large part of the population, supported by organized and well-financed political groups, encourages abortion and birth control, including promotion in elementary schools.

  5. Rising Costs of Education: With the decline in quality of public schools and with costs of college increasing faster than inflation, and with a society intent on accumulating credentials that guarantee a good job, the economic pressure to keep the birth rate down is intense, at least among responsible parents.

  6. Rising Costs of Retirement: With medical costs increasing faster than inflation, extended life expectancy, and with a scarcity of guaranteed high-yield, inflation-protected savings instruments, the wise parent may decide that the cost of rearing children will be contrary to his or her interests in old age.

Whereas the intellectual community of the 20th century pushed hard for policies lowering the birth rate, the world may find in the 21st century that it got what it wished for.

Empty cradles are not conducive to a healthy investment market.

Because saving for retirement is a major motivation for investment in securities, the demographics of the young and old must be followed closely in Capital Flow Analysis.


Before proceeding, check your progress:


In 2002, compared to 1929, the number of Americans between 20 and 65, compared to those under 20 or over 65 was:
Choice 1Much less, causing the social security crisis.
Choice 2Greater.
Choice 3The same percentage.
Choice 4No statistics are available.
Which of the following trends favor an increase in the American population in the 21st century:
Choice 1Increased homosexuality.
Choice 2Lax enforcement of immigration laws.
Choice 3Promotion of 'A Woman's Right to Choose'
Choice 4Increased real costs of education.
The Baby Boom was caused by:
Choice 2 An increase in the birth rate after WW II.
Choice 3 The popularity of rock and roll music.
Choice 1 The discovery of the birth control pill.
Choice 4 Increased minimum wages after WW II.

Investment Theory: Capital Flow Analysis: Demographics  Demographics return to lesson 12 >

Lesson: 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20

Lesson sections: 12 | 12A | 12B | 12c | 12D

Suggested Reading: Investment Theory, Population cohorts and Aging
'Pricing the Priceless Child: The Changing Social Value of Children', Paperback, Viviana Zelizer

This landmark book, traces the emergence of the modern child, at once economically 'useless' and emotionally 'priceless,' from the late 1800s to the 1930s.

'Centuries of Childhood: A Social History of Family Life', Paperback, Phillipe Aries

About how the Western concept of childhood has evolved.

'Duty, Honor, Privilege: New York's Silk Stocking Regiment and the Breaking of the Hindenberg Line', Hardcover, Stephen L. Harris

A history that of a time when honor fueled men to do their perceived duty without hesitation and with great patriotism.

'The Unexpected Legacy of Divorce: The 25 Year Landmark Study', Paperback, Judith S. Wallerstein, Sandra Blakeslee, Julia M. Lewis

A classic best-seller study on the after-effects of divorce.

'Grand Illusions: The Legacy of Planned Parenthood', Paperback, George Grant

With meticulous scholarship, Grant exposes the racist, elitist, unscientific and subversive policies of Planned Parenthood and the free ride they have received from the American government, media and academia.

'Global Aging and Financial Markets: Hard Landings Ahead?', Paperback, Robert Stowe England, Robert Hormats

The retirement of the baby boom generation poses a challenge to the world's financial markets.

'Shadow in the Land: Homosexuality in America', Paperback, William Dannemeyer

The story of how homosexuality was declared 'normal' by the American Psychiatric Association marks a low point in modern medicine.

'The Economics of Declining Population', Hardcover, W.B. Reddaway

The economic consequences of changing demographics

'Adult Children: The Secrets of Dysfunctional Families', Paperback, John C. Friel, Lynda D. Friel

An excellent overview of dysfunctional lifestyles and symptoms

'The Marriage Problem: How Our Culture Has Weakened Families', Paperback, James Q. Wilson

Meticulous research shows how the erosion of family life has damaged children's futures

'The Rise of Selfishness in America', Hardcover, James Lincoln Collier

An exploration of the changes in American social and behavioral patterns since the 1890s.

'When Generations Collide: Who The Are: Why They Clash: How to Solve the Generational Puzzle at Work', Paperback, Lynne C. Lancaster, David Stillman

With four generations in the work system, misunderstandings happen.

'Tuition Rising: Why College Costs So Much', Paperback, Ronald G. Ehrenberg

A professor of economics at Cornell explains spiraling college costs.

'The Empty Cradle: How Falling Birthrates Threaten World Prosperity and What To Do About It', Hardcover, Phillip Longman

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