Magazine article Journal of Banking and Financial Services

Population Ageing and the Implications for Financial Markets: How Will Financial Institutions Respond to the Transactions and Asset Management Needs of Both the Ageing Population and Their Carers?

Magazine article Journal of Banking and Financial Services

Population Ageing and the Implications for Financial Markets: How Will Financial Institutions Respond to the Transactions and Asset Management Needs of Both the Ageing Population and Their Carers?

Article excerpt

The ageing of the population has generated increased interest from both government and business, including banking and financial services,f in the sorts of services that will be required by older people, and how their money and property will be managed. This article examines the trends and implications for banking practice of this increasing population of customers and their carers.

Demographic change and its implications

Three significant demographic events gradually being played out in Australian financial markets are the ageing of the population, increased numbers and proportions of older people in late old age and a shift in wealth from younger to older members of the population. These changes are occurring in a policy context that increasingly emphasises the need for prudent management of assets to provide ongoing income support in older age and to pay user charges for health, care and accommodation options. These factors are also affecting consumer decisions within Australia and, as a result, suppliers of goods and services are adjusting their product offerings, their marketing and their range of services to account for this demographic trend.

Current population projections indicate that the number and proportion of Australians aged 65 years and over will rise from 12.6 per cent (2.5 million) in 2002 to 27 per cent (7.1 million) in 2051, with the most rapidly growing group being those aged 85 years and over (ABS 2004). These demographics indicate a continuing trend in the structural ageing of Australia that is evident in other developed countries.

The asset rich

Many older Australians have a considerable asset base. Recent estimates indicate that the average wealth of older Australians (65+) increased from $106,000 in 1986 to $204,000 in 1997--a nearly two-fold increase (Harding, King & Kelly 2002, p. 16). Older Australians currently hold 22 per cent of total household wealth, and this is predicted to increase to 47 per cent by 2030 (AMP.NATSEM 2003, p. 3). The post World War 2 economic boom and policies promoting home ownership have resulted in high levels of home ownership in the older population. This is the primary asset of most older people. The recent extended housing price boom, accumulated superannuation benefits, and a well-performing stock market in the 1980s and 1990s have all contributed to the substantial growth in the asset base of older Australians.

The critical role of financial institutions in the asset management process

Financial institutions administer a significant proportion of older people's assets. In the United States, the financial assets of adults aged 65 years and over make up 70 per cent of all funds held in banking institutions. While the family home remains the major component of older Australians' assets, deposits in banking institutions represent the second largest asset class for those aged 65 and over (Harding, King & Kelly 2002). The vast majority of this age group currently receives the Age Pension, and 99 per cent of these payments are made electronically to bank accounts (APSL 2000). Financial institutions therefore play a critical role in the asset management process for older people, with the banking community being a supplier of financial services that offers both transactions-based and investment services.

One prediction arising from the increasing numbers and proportions of people aged over 85 years is the likely proportionate increase in the number of people with cognitive impairments and other severe disabilities. Such disabilities are likely to impact upon their capacity to administer their own financial affairs. Third-party asset management in later life is therefore likely to become an important feature in a growing number of older people's lives. Protective legal frameworks in the form of enduring power of attorney and guardianship and administration legislation exists across all Australian states to protect the interests of older people and to promote prudent asset management by third parties. …

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