As much of working-age Japan frets about having enough money in old age, the nation’s seniors are increasingly propping up consumer spending, accounting for the little growth in consumption the country has seen in recent years.
It is something of a paradox. In rapidly aging Japan, the world’s oldest country, the growing number of seniors is seen posing big challenges for the future, particularly for public finances as the pension system comes under growing strain. For now, though, the elderly are doing more than their share to keep the world’s third-largest economy going.
Though they account for more than a third of the population, those over 60 contribute nearly half of consumer spending, according to government data. Spending by seniors is offsetting falling consumption among younger generations, according to UBS.
Prime Minister Shinzo Abe’s hoped to spark a "virtuous cycle" of higher corporate profits and wage increases that would drive stronger domestic spending, but that hasn’t materialized.
A big reason for that is aging-related anxieties, according to Goldman Sachs. A long-term decline in nominal consumption was particularly sharp among consumers in their 40s and 50s, partly due to stagnant incomes and rising social insurance premiums, Goldman said in a report this year.
As they enter retirement, seniors’ spending habits change. Unsurprisingly, they spend more on medical care. They also increase spending on social activities, travel and home renovation. Spending on autos drops, with fewer seniors on the road.
Although the elderly are spending more in aggregate, it doesn’t necessarily mean they’re all living well. Many live off income from public pensions, according to Hideo Kumano, chief economist at Dai-Ichi Life Research Institute.
"Seniors’ consumption is going to increase at places like convenience stores and discount shops. They won’t be able to go to department stores, luxury hotels and places like that," he said.