One of the many disorienting feelings that eventually hit you once you arrive in Japan — or at least for people who think about demographics for a living — is the lack of young children. I was in and about Tokyo for almost two full days before I actually saw any kids. It's not that I was actively looking for them or hanging out in the wrong parts of town.
The dearth of youngsters is an established fact. According to the Statistics Bureau in the Ministry of Internal Affairs in Japan, only 13 percent of the current population of over 127 million is under the age of 15. This is the lowest percentage for any country in the entire world. In contrast to the disappearing youngsters almost 23 percent of the Japanese population is over the age of 65, which is equivalently one of the highest rates in the world.
The same Statistics Bureau projects that under current trends the population will shrink by almost 25 percent by the year 2050. Contrast that shrinkage with the trend for the U.S. population which is expected to grow by 28 percent to 402 million by the year 2050. Japan has an aging problem and they know it.
In fact, when I asked many of the people I met from Kamakura to Yokohama what is the greatest problem facing Japan today, more often than not I heard the following response: Not enough babies. Indeed, the fertility rate — which is the average number of children born to each female — is a mere 1.34 in Japan, which is amongst the lowest in the world. Remember that you need at least two births per female (actually, 2.07 to be precise) for the population to grow naturally.
As one of my gracious hosts said after a few shots of Hibiki, Suntory whisky, the age distribution in Japan used to look like glorious Mt. Fuji, with a thick base on the bottom and a thin crown on the top. Now it looks like a pot-bellied foreigner; thin on the bottom, fat in the middle and growing on top.
All joking aside, the table on the next page is yet another snapshot of the difference between what the future looks like in Japan vs. North America. It shows that the probability a typical 65-year-old American female surviving 30 years of retirement to the age of 95 is 11 percent.
Remember that this figure is for the entire U.S. population without distinction as to health, race or wealth. In Japan this number is currently 22.4 percent.
And yet, with this aging phenomenon lies another little-known fact with enormous implications for the global financial services industry. Namely, Japanese consumers have one of the highest rates of life insurance penetration in the world. It is estimated that over 95 percent of households have some form of life insurance.
It is not uncommon to see young college graduates in their 20s purchasing life insurance with death benefits equal to five to 10 times their annual pay, well before they are married or even have any children. The typical Japanese personal balance sheet has about 20 percent of wealth allocated to life insurance.
Are the Japanese highly risk-averse? Is it pure altruism? Why have insurance companies been so successful? Is it the result of the atrocious performance of the Japanese stock market since their bubble burst in the late 1980s? Is it related to the deflation they have experienced in the last decade?
