The effect of demographic changes on saving for life cycle motives in developing countries

Abstract

If developing countries follow the same paths that industrialized countries have followed, saving for retirement will initially become more important as the population growth rate declines. To calculate the potential importance of life-cycle savings (saving for retirement), the paper presents a simulation model that translates demographic projections into savings-rate projections. It simulated aggregate rates for life-cycle savings for Brazil, China, Korea, Mexico, Nigeria, Pakistan and Turkey. The savings rates increase 5 or 6 percentage points when the last baby boomers enter the work force and begin to save after their children leave home. The effect on life-cycle savings is dramatic; the effect on total savings rates which are often three or four times as high, is not. Simulated life-cycle savings rates peak at an absolute 10 percent or less in all cases. The patterns of these projections seem robust with regard to assumptions about productivity growth, interest rates, and age-specific participation in the labor force.Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research,Health Monitoring&Evaluation,Inequality