Roller-blades clue to a grey savings area of the future Why you will be the prey when you're old and grey

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The Independent Online
In 30 years, this sentence will be twice the size - the type that is, not the number of words. Because doubtless the average reader will have failing eyesight, just like the rest of us. By 2030, a quarter of the European population will be over 65, against only 15 per cent today, and businesses, governments and economists are already starting to anticipate huge changes to come.

Expanding markets for these new richer grey consumers, and falling national savings rates (as more people draw down their savings in retirement) are only two of the biggest consequences that most people expect. Economists then argue further about whether this kind of drop in savings will be bad for growth.

But the changes may not be quite as we anticipate. New research by Professor Richard Disney in today's issue of Fiscal Studies suggests that the key to the changes to come may lie in the rash reactions of the young, rather than the spendthrift habits of the old.

The idea that elderly consumer markets will expand seems well founded. The leisure and catering industries think so. The Joint Hospitality Industry Congress warned members last week to consider extra disabled access for restaurants and bigger type-faces for menus to cope with an older clientele.

The retired want different services from the yuppies and dinkies of the Eighties and Nineties. Businesses catering to the tastes of the older consumer will find their audience richer than ever before: 78 per cent of the 45-60 age-group are owner occupiers, compared with around 60 per cent of the over-70s.

Watch out, for example, for a boom in exotic foreign holidays aimed at older travellers, as Mintel the market research firm predicted last year. Or perhaps, looking further ahead, we can expect a sudden burst of outrage about the hitherto ignored monopolistic tendencies in the funeral industry. The wider economic consequences seem straightforward enough too, at least if you listen to simple economic theory. Given that spending patterns, savings habits, productivity rates and tax obligations are all heavily age-dependent, the greying of the nation seems bound to have an effect on aggregate economic performance too. As German economist Axel Borsch- Supan argues, "demographic shifts of such magnitude and speed are unprecedented since the Industrial Revolution, and the industrialised countries will need to learn how to cope with this change".

Simple economic theory tells us that more old people should mean less savings. According to the "Life-Cycle hypothesis" we borrow when we are young, save when we are middle-aged, then draw down those savings when we retire. As a result, if there are more old people running down their savings, then the aggregate savings rate must fall.

But the theory isn't borne out in practice. Many people want to die in credit, perhaps to pass assets on to children, or because retirement has made them more cautious than they ever were during their working lives. If assets aren't just financial but sentimental - such as a family home - the desire to hoard rather than spend increases even further.

In an analysis of the 1988-9 UK Retirement Survey, Professor Disney finds that many people keep saving long into retirement. So, a gradually ageing population should have a lot less impact on the overall level of savings than the pessimists predict.

If the next generation of old people carry on saving in the same way as the current one, then in theory there shouldn't be much problem for the savings rate after all. The OECD calculated the effect on savings rates over the next 30 years assuming the over-65s continued to save, but at half the current average savings rate. The upper lines on the graphs show the results for the US, Japan and the UK. The overall saving rate hardly changes.

Of course it would be foolish to be too optimistic. Suppose on the other hand that the elderly are forced out of their prudent habits by demographic pressure. If, for example, government provides less health-care support, long-term care support and lower pensions than they expected, they may have to run down their savings after all. The OECD calculates what would happen in this case, too - producing the much more pessimistic lower line on the graphs.

On the face of it, however, it looks as though we can sit back and relax. Savings by the elderly are fine - so presumably overall savings rates will hold up, too. Furthermore, retailers should not expect too big a boom in sales of elderly leisure services. For while there will be more of them, they won't be blowing their bank balances. Most of them will carry on saving instead. As a warning for the leisure industries, these new retired consumers may be more interested in special savings plans than they are in a round-the-world cruise. The two massive consequences expected of the ageing population look set to be damp squibs.

But a huge puzzle remains in all of this. Professor Disney's research shows that there is still a relationship between the age of a population and its savings ratio. Looking across different countries, and different time periods he finds that older populations do still save less. Despite the fact that the elderly don't run down their savings, countries as a whole do seem to cut their savings as their populations age. Savings may be set to fall in future after all, even if the elderly are not to blame.

He offers a fascinating possible explanation. We know that the elderly are reluctant to spend their savings, but what if someone else in the family is doing the spending instead?

Families who receive inheritances certainly spend more. They can pay off the mortgage quicker, go on a nice foreign holiday, or give the teenagers some extra cash to help them through college.

Research by Weil in the US found that families there increased consumption by an average 10 per cent once the nest-egg from granny arrived. More intriguing, families who anticipated an inheritance, raised their spending by around 5 per cent before the windfall even arrived.

So the middle-aged couple with their two kids and their mortgage, seeing that their parents have no intention of blowing their savings on world tours or trinkets, spend the cash for them in advance. Could this be the reason old people keep saving while nations with lots of old people still save less?

The statistical evidence to back up the Disney/Weil thesis may not be there yet, but the anecdotal evidence is pretty good.

Anyone else anticipating a boom from services for a grey generation should think again. The big spenders of the future may turn out to be exactly the same selfish consumers in their youth and middle age. Forget double- sized menus and invest in roller-blades after all.