Need for inheritance amid slowing birth rates

Greying population: According to the ADB statistics, the average life expectancy in Malaysia from 2025 to 2050 will be 76.8 years.

MOST parents often leave some sort of inheritance for their children.

It can be in the form of cash, gold, real estate or even stocks. Of course, some do leave substantial amounts that can be distributed through several generations.

But in a climate of inflationary pressures, bulging ageing demographics, low birth rates that could lead to lower consumption levels and the demographic dividend fading, there are suggestions that parents should seriously plan for inheritance for their future generation.

However, there are counter arguments that a good education should suffice. Moreover, with a growing ageing population which needs to fend for themselves as life expectancies are increasing, it would put a strain on graying demographics.

By 2050, there will be 1.5 billion ageing population across the globe. In Asia alone, in 30 years there will be 923 million ageing people, according to the Asian Development Bank (ADB) statistics.

South Korea will lead with the largest share of the 34% aging population aged 65 or more by 2050, ADB stats show. This is followed by Singapore (32%), China (23%), Thailand (20%), Vietnam (19%), Indonesia (18%), Malaysia (16%) and the Philippines (12%).

The average life expectancy in Malaysia will be 76.8 years and fertility rates of 1.9 child per woman from 2025 to 2050, ADB’s stats showed.

The greying population will have to work longer, save more and rely on substantially enhanced public programmes, said a report.

Most governments across the world are in debt thanks to the large stimulus packages dished out during the Covid-19 pandemic.

Will governments be able to spend to provide for the ageing population’s needs when fewer people are working or will it raise taxes to earn more to pay debts and for its other expenditures?

“The challenge I believe is not really to create higher income, as anyhow the amount of population earning money will be shrinking. Rather, I would focus on how to create a sustainable welfare system; too much focus is today put on the idea that welfare should be provided by governments,’’ said Centre for Market Education chief executive officer Dr Carmelo Ferlito.

He added that “we should promote the creation of a mix system, whereby people can divert tax money to private institutions for their healthcare and pension. So, less tax and a vibrant and diversified private market for welfare service.’’

He believes that this goes together with a rationalisation of the government sector: too many civil servants are going to represent, in the near future, the real weight on government pockets.

He adds that countries which aged fast, like Italy and Japan, indeed recorded the highest debt over gross domestic growth in the world.

As the population shrinks, liquidity shrinkages are possible. When that happens the government may lower interest rates to create liquidity or increase to attract more liquidity.

Whatever it does, a lower interest rate regime will not bode well for retirees who are depending on interest rates returns for sustainability.

Reports also suggest that Asian economies are not ready for an ageing workforce simply because aging will reduce economic growth as it affects the size of productivity of the labour force. However, aging does not necessarily have a negative impact on labour productivity, it adds.

Topped with low birth rates, the situation could get severe and that is why some experts believe parents must plan inheritance for their younger children.

Ferlito said when the number of children decline, people become less future oriented: they tend to save less and to consume more in the present.

“Indeed, why save if you have no children? Saving is an inter-generational pact. Lower savings could bring – ceteris paribus (all other things equal) – to higher interest rates in the attempt of attracting more liquidity into banks (less supply, higher price).

“But obviously I said ceteris paribus, because the actual behavior of interest rate will depend also on what happens on the demand side (demand of loanable funds for investment purposes,’’ he said.

Manulife Investment Management (M) Bhd licenced financial planner Rajen Devadason has his own views on the future.

He disagreed that economic growth must necessarily slow down because of plateauing human population numbers.

He said humanity’s future is bright and cited three mega trends at play that will offset the worst economic repercussions of reduced population growth.

Firstly, rising human longevity will steadily push average lifespans. This is driven by better healthcare access, medical advancements and improved knowledge about nutrition, wellness and fitness. Lengthening lifespans will force most people to work longer and people will end up spending more money throughout their extended working lives.

Secondly, the rise of artificial intelligence and its integration with robotics will raise efficiency levels in countries that are well-equipped to ride on the electronic tsunami by preparing its populace with high quality science, technology, engineering and mathematics education.

“These countries will end up being the winners while others led by sub-par leaders incapable of integrating with the global community will languish in the backwaters of failed states,’’ Devadason said.

Thirdly, he is of the view that over the next 50 years, current private sector initiatives in space by companies like SpaceX, Blue Origin and Virgin Galactic will open up the Inner Solar System for colonisation and resource extraction, particularly in the mineral rich Asteroid Belt between the orbits of Mars and Jupiter.

To him, the best thing parents can do to prepare their children to thrive in the future is to teach them to be self-sufficient global citizens, imbibe in them a culture of lifelong learning and expose them to key global languages like English, Mandarin and Spanish, and scrub their psyches clean of any false sense of entitlement.While leaving an inheritance is good, Devadason said most parents today are going to be hard-pressed to fund just their own retirements.

“Therefore, what is of even greater importance than leaving an inheritance of material goods and money tomorrow is providing their children with the best education possible today to allow them to make their own way in the world,’’ he said.

Every generation has to find its own way of succeeding in life and in the world and he adds that “the world consistently puts on display those who receive healthy inheritances or large gifts upon the demise of their parents who are incapable of managing their unearned money.

“There are always going to be those who start with little in life other than a solid educational foundation who then charge out, grab the world by its horns and bend it to their will,’’ Devadason adds.

Attracting talent is another way to ensure the future engine of growth, creativity and innovation is intact. That is what Britain and Singapore is doing. Unless Malaysia changes the way it deals with talent, making the whole gamut of attracting them and aligning policies and procedures better, it will have a hard time competing with other countries.

“Currently Malaysia is doing whatever it can to kick out foreign talents and to avoid new ones to come in, by making hiring them more difficult, by making life more difficult for multinationals and so on,’’ Ferlito said. He said to rediscover a business friendly approach and openness to foreigners may be the first necessary steps; but if Malaysia does not act fast, it may become too late, as neighbouring countries are already playing a better competitive game.

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