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Estate planning implications of the coming Demographic Dividend     

(Article published in the Mar 15, 2006 issue of Manila Standard Today)

The terms “Demographic Dividend” and “Demographic Transition” acquired global currency in 1998 when Harvard’s David E. Bloom and Jeffrey G. Williamson, wrote their piece, “Demographic Transitions and Economic Miracles in Emerging Asia” for the World Bank Economic Review (vol. 12, no. 3, pp. 419-56).  The gentlemen in their published study suggested that the issue of “how many we are” is as important as “how we are many.”

Their thesis is that a particular change in the structure of a country’s population, specifically a decline in fertility and mortality rates (the “demographic transition”) results in significantly more people in working age than in dependent age and thereby opens a brief window of opportunity for a country to achieve significant economic development (the “demographic dividend”).  The more rapid the decline, the greater the opportunity.  Evidence? The “economic miracles” of the Asian Tigers.

          The proposition is almost self-evident.  It begins with the situation of high births and high deaths in a typical population of people in working age and in dependent age.  Improvements in public health due to various factors such as better education, advances in medicine and widespread use of technology, however, make people live longer.  More babies grow to become adults; more adults die older than their parents did.

Less deaths plus less births equals a population of more people able to work for themselves and others than people, such as the very young and the very old, who depend on others.  This shift in the ratios among the age groups provides a singular opportunity, albeit passing, for a country to allocate a bigger portion of the resources previously needed to take care of the dependent to more productive uses in order to achieve “economic development” which in some vague way means a better life for all. 

In a later publication by Bloom, “How Demographic Change Can Bolster Economic Performance in Developing Countries” printed in World Economics, vol 4, no. 4, October-December 2003, he demonstrates, with David Canning, that demographic transition, although world-wide, is at various stages in different parts of the world. The dividend, they further say, could be reaped  by both developing countries such as the Philippines as well as developed ones like Ireland.

This view, like most topics of interest spawned by empirical research in an academic institution, has since its broadcast been refined and refurbished. But the basic insight has remained reputable and recognized.  I leave to the economists (whom we at the Ateneo University’s philosophy faculty room many years ago under Fr. Jose A. Cruz, S.J., half-seriously called “people who document the obvious”), to debate amongst themselves the merits of the theory as basis for public policy decisions.

My interest, as one whom the Ateneo economics faculty in turn labelled as a “navel contemplator”, is not the phenomenon of population but people.  The noumenon, as far as my current field of familiarity is concerned, is what the consequences of the presumably coming demographic dividend will be for people living in the hic et nunc.  How can we, in planning our estates, prepare for it?

For us Filipinos residing in the Philippines there is urgency to start the planning now.  Jaime Augusto Zobel de Ayala II speaking before the 3rd Filipino Global Networking Convention in Cebu City in January last year points out that 61.8% of our present population consists of people in the working age.  That share of the population pie is expected to grow to 63.9% by 2010; to 65.6% by 2015; and to 68% by 2025.  Those in the working age will have less and less young, aged 14 and below, to care for: from 33.8% in 2005; to 31.1% by 2010; to 28.6% by 2015; and 24.1% by 2025. Indeed, the window of opportunity appears to be opening for the Philippines and we have to play our cards right by examining the demographic dividend in greater detail.

The first characteristic of the demographic dividend is that economic development and the expected better quality of life for all do not result automatically from the demographic transition.  Low birth and mortality rates, per se, do not necessarily result in economic progress. 

The shift in the composition of the population must, among other imperatives, be accompanied by creation of not only more jobs (to accommodate the bigger work force) but also of the right kind of jobs (to serve the needs of the post-technology age). It likewise requires tooling the education of the young, in both knowledge and skill, to equip them with ability to respond to the demands of the near future. 

It is thus essential for the estate planner to actively intervene in the education of his loved ones to insure that the knowledge learned and skills acquired are suited to the needs of the future.  And just as essential is the issue of how to ensure the funding of the right kind of education of one’s child, or better still, grandchildren.  They are the ones who will face the music and they will be better off if by then they know how to go with the flow.

  A second characteristic of the demographic dividend is that, like all development, some places will get more benefits than others.  This almost inevitable uneven distribution of the resulting wealth among various locales demands, for one thing, that the estate planner carefully consider where to establish his loved ones’ homes.  With development comes the challenge of the so-called “urban sprawl”, and it would be most imprudent for an estate planner to decide for or against a neighborhood simply on the basis of glossy brochures and the optimistic spiel of real estate salesmen.

  A third feature is that the dividend is not permanent.  Like all good things, it must end and the end will come when those who used to be in the work force get, as they ultimately do, old.  We have already seen how the post-World War II “baby boomers” are threatening to cause, if they have not yet already done so, the pension crisis in the United States, for instance.  The piper, sooner or later, must be paid and provisions must be made for the care of the increasing number of senior citizens.

  Even now, we see already the beginnings of the increase in the ratio of our senior citizens to the rest of the population.  Again picking up from the aforesaid address of Jaime Augusto Zobel de Ayala II, the elderly, i.e. aged 65 and over, was estimated at 4.4% of our population in 2005; to be 5% by 2010; 5.8% by 2015; and 8% by 2025. 

  These figures hit estate planners of my generation close to home and spur us into thinking about our own senior years.  Genetics will most likely be the most significant determinant of my own longevity (or lack thereof) but, assuming the time I spend with my granddaughter not only enhances the quality of, but also adds to, my remaining years, I have to rethink the implications of making lifetime gifts to avoid the estate tax.  Intervivos gifts reduce the possible estate subject to tax, true.  But they also reduce the resources to finance old age infirmities of the donors.

  The location of the home that was suitable when we had to crave out our careers is certainly not going to be the place recommended by our doctors to serve as pre-departure lounge.  And shouldn’t those of us who expect to live long enough to catch the beginnings of the population implosion (a period that economists say will experience a fall in real estate prices) think of selling our residences now and relying on the interest of the proceeds to lease smaller places?  In a more general stance, shouldn’t we cash in on our hard asset investments and live on the income of financial instruments?

  These and many more questions need be asked in the light of impending demographic dividend.  Depending on how we, as a country and individually, respond to the transition, the outcome could turn out be a blessing or a curse or a blend of both.  Satis for now to bring it up to the public authorities and, for estate planners, to start the personal thinking.