Effects Of Changes In The Age Structure On Savings

Chinese household savings rate has been growing very rapidly since the twenty-first century, while the consumer has maintained at a low level.Currently, the China’s ratio of consumption to GDP are less than 40%, while in the United States and other developed countries, it is usually higher than 65%.The consumers are major force in promoting economic growth in these countries. Generally, as the economy continues to develop, a country’s household savings should be reduced, while consumption should be increased accordingly. Therefore, to maintain a certain consumption should be an important policy goal of national economic development, which is an important strategy to benefit people’s livelihood. In addition, China’s economic growth is now over-reliant on investment and export which is very difficult to go long. To maintain sustained, healthy and stable economic growth, China must change investment-driven and export-driven economic growth model to a consumer-driven economic growth model. According to the life-cycle hypothesis, the age structure of the population is an important factor affecting the household savings.But up to now, literatures which research from the perspective of the age structure of the population are relatively rare. Therefore, to analyze the population age structure rising Chinese household savings has important theoretical and practical significance.Firstly, based on life-cycle theory and its extensions, this article takes age structure of the population (including children and elderly dependency ratio dependency ratio) into the life cycle model which analyzes the effects of age structure on savings. Then, we choose the child dependency ratio, the elderly dependency ratio, household disposable income, income growth, interest rates and other explanatory variables to explain why savings ratio is so high. We choose the 1990-2012 panel data of 29 provinces to study the effects which population ages structure has on savings. The results show that child dependency ratio has a very weak negative effect on savings, but this effect is not significant. The elderly dependency ratio has a very significant positive impact on savings. This paper argues that even if the Chinese population policy has resulted in a declining child dependency ratio in the future, it can only have a very limited impact on savings. The elderly dependency ratio will gradually rise to a certain extent and increase the amount of community savings. The empirical results from different regions show that the effect of the eastern region’s elderly dependency ratio to savings is the largest, followed by the western region, the impact is relatively low in central region. In terms of the impact of child dependency ratio to savings, the impact of the various regions is not large. In addition, the empirical analysis finds that savings have greater inertia. Finally, on the basis of the conclusions of the empirical analysis, we present a few suggestions to make China increase consumption and reduce saving.