Low Birth Rate + South Korea = Japan Economy?

For better or worse, the U.S. sports system has evolved into a fortune-spending establishment for our kids to pursue any given sport, year round, through “travel ball,” which does contribute to our economy.

This requires a lot of time and money on the part of parents, which can be quite a sacrifice.

This is what South Koreans are missing.

Yes, they spend lavishly on their kids, although their expenditures tend to be for education and music, not sports.

The problem is, they don’t have enough kids.

So while they do plunk out a bunch of money, it’s not spread around. As the Japanese can attest, this doesn’t end well.

After WWII, the Japan economy was in shambles. Whatever industrial base they had, we bombed back to the Stone Age.

As hostilities ended, the Japanese population began to experience a baby boom. The government was fearful that the Japan economy could not support both the rebuilding of infrastructure and raising kids, who are really expensive.

So the government encouraged families to have, at most, two children. The population complied, and that’s where the problem starts.

While this family planning did wonders for allowing the nation to focus on rebuilding, it also meant that families could spend their dollars on fewer people (parents and maybe a child or two).

When the government finally wanted people to have more children, so as to rejuvenate the workforce, the population wasn’t interested.

Having more kids would require more of, well, everything — living space, food, education spending, etc.

The birth rate for women of child-bearing age in Japan is hovering near 1.40, which doesn’t even replace the two parents, much less leads to a growing population, but is up from recent lows of 1.32. (The population replacement rate is 2.1 children per woman of child-bearing age.)

This situation has gone on for so long that Japan is expected to lose a third of its population by the middle of this century. Arguably, the situation in South Korea is worse.

While the Korean population is not shrinking today, they are setting themselves up for a demographic disaster in the decades ahead.

In 1970, women of child-bearing age had roughly 4.2 kids. This number fell to 2.8 in 1980, and has been at 1.2 for the last decade.

At this rate, when the older Koreans die off, the nation will suffer the same sort of population decline as Japan.

Keep in mind, their birth rates dropped as the Japan economy boomed.

As the Koreans industrialized and became the most internet-connected people on the planet, they learned what the rest of us knew: Kids are really expensive, and the more kids you have, the more they cost.

But judging by the birth rate in the U.S., we have a different view than the Japanese or South Koreans — we think more kids are worth it.

While the birth rate in the U.S. has dipped just below the replacement rate of 2.1 during the financial crisis, our long-run birth rate has remained well above this threshold.

So while we might appear to spend too much on volleyball, cheerleading, baseball, crew, band, or a multitude of other things, what we’re really doing is perpetuating the population.

It hurts the wallet in the short term, but the long-term benefits are worth it.


Rodney

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.