Growing Old and Less Secure
NEW YORK, Januray 26, 2009 - In a panel discussion on population aging in Asia and the impact of the current global recession on older people, co-presented by the AARP’s Office of International Affairs and Asia Society, experts stressed the need for financial literacy and education and the importance of avoiding a “culture of consumption” and over-reliance on Social Security,
The panel, which included Greg Boyko, senior vice-president of the Business Solutions Group and chairman of Hartford Life Insurance KK; Mitchel Lee, consul of Singapore in New York; and Charles Ruffel, chief executive officer of Plansponsor Magazine, moderated by Edward Johns, associate director of AARP’s Office of International Affairs, pointed out Asia’s predominance in global aging. By 2050, Japan, South Korea and Singapore will lead the world in oldest populations.
According to Mitchel Lee, some countries, such as Singapore, have been very proactive in introducing policies that will mitigate, or even take advantage, of the potential challenges of population aging. Other countries, such as China and Japan, have taken more gradual steps in addressing declining labor forces and pressures on pension and other support systems. Lee stated that Singapore has been making an effort in bringing more women to the workforce, eliminating seniority pay, encouraging couples to have more children.
Lee discussed Singapore's universal, mandatory retirement savings scheme, the Central Provident Fund (CPF). The CPF deducts 20 percent of a worker’s salary and is regulated by the government. Funds are available when the worker turns 62. The CPF has an earnings return of 4-5 percent and employers must contribute to the fund as well, but at a lower rate (currently 14 percent). The funds can also be used to purchase a new home or medical and education expenses.
Greg Boyko discussed the dangers of obesity globally and its impact on retirement savings and the ability of older people to work longer. While only 5 percent of Chinese and Japanese are currently obese, the rate is increasing rapidly. Chinese cities have an obesity rate of 30 percent (in the US, 49 of 50 states has an obesity rate of over 20 percent). Obesity is also affecting the cost of healthcare. Boyko stated that treating obesity costs healthcare companies more than treating smoking, drinking and aging combined. He suggested that public and financial policy changes could be influential in leading people to live healthier lives.
The panel agreed that the cornerstone of making wise financial decisions relies on financial literacy and education. Charles Ruffel stated that Americans have failed in learning about the importance of savings or investing intelligently. In the US there is a culture of consumption, living beyond our means, and an over-reliance on Social Security. He discussed how the Obama administration is considering creating a mandatory IRA for all workers, although he cautioned this would be very expensive to implement and maintain. According to Ruffel, the savings amount would be small for the retiree and it would undermine the 401K system. He feels the current administration will move forward in that direction.
The problem of living beyond our means is not only relevant to the US. Lee stated that Singapore has been experiencing credit card defaults and lower savings rate. He feels that the current economic crisis will force people to change their habits and develop habits of austerity. He also acknowledged that employers have the responsibility to help their employees develop a savings plan.
The panel agreed that financial literacy is an important step to understanding how to save, invest wisely and handle finances more responsibly. They also stressed that in order to prevent the challenges of shrinking workforces, countries may need to be more open to immigration to supplement the shortage of labor and look to education, training, and other means to increase future productivity.