So as fertility rates and life expectancy change, there's not only changes or implications for the size of the population in different parts of the world, there's also implications for the age structure of the population. As fertility drops, well, you have more people above a certain age, let's say 60 or 70. If life expectancy grows, you're also going to get more people above the age of 60 or 70 or 80. We're going to be analyzing these trends in this segment. We're also going to be analyzing the so called generations, for example, the millennial generation. And we're going to be making projections into the future as to how the size of the younger age group is going to be changing in different parts of the world. And we're also going to be focusing the attention on another very important segment of the population which is people who have at least 60 years of age. Let's start with the so-called millennial population. So the millennial generation, as you know, is defined in terms of the numbers of people who are between the ages of 15 and 35. I'm showing you on this table those numbers for the year 2015 which is the last year for which we have actual recorded data. As you can see, the largest Millennial population in the world as of the year 2015, is located in Asia with about 1,441 million people between the ages of 15 and 35, which is a very large number. Notice that the second largest number is for Sub-Saharan Africa and it's only 329 million people. Now in the next column of the table, I give you the projection to the year 2030. So, in other words in the year 2030, how many people in these different regions of the world are they going to be between the ages of 15 and 35? And as you can see, that number will be slightly smaller in Asia but it will be much, much bigger in Sub-Saharan Africa. That's of course, because today, fertility rates are very high in Sub-Saharan Africa. Whereas in Asia, it depends on which part of the continent you look at. If you remember, if you look at Eastern Asia, including China, that number is dropping down quite quickly. Whereas if you look at South Asia especially India, the number is actually continuing to grow. Now let's take a look at individual countries and again, what we're examining here is the size of the so called Millennial generation meaning people between the ages of 15 and 35. And you can see that India is going to have by the year 2030 the largest millennial population. That is to say the largest population between the ages of 15 and 35, 490 million young people in India between those two ages. In China, the number is going to be 312 million, but notice the evolution, comparing 2015 to the year 2030. In China today, there are 413 million people between the ages of 15 and 35. But by the year 2030, they're only going to have 312 million. That's about a 100 million fewer students, for example, in high school. Now, think about it? Here's a problem for you. What would you do with all of those buildings? What would you do with all of those teachers in China that aren't going to have students to teach? Again, it would only going to take 15 years for the population between the ages of 15 and 35 in China to decline by 100 million which is a very, very large number. Here in the United States, as you can see in this table, the number of people between the ages of 15 and 35 will remain relatively stable at around 88 million people. In other parts of Europe, in other parts of the world we're going to see different changes. But I want to bring to your attention in a visual way how this is going to impact the world. Here we have a map in which each circle denotes the size of the population between the ages of 15 and 35, and the first map is for the year 2015. And then next we have the map for the year 2030. And you can see, if you compare the two maps, how quickly the size of that age group between 15 and 35 years of age is going to change in a place like China, where it's going to be shrinking. Versus in the various countries of Africa, Sub-Saharan Africa where that number is going to be increasing. This is Stone Town in Zanzibar, a city that grew over the centuries with the volume of trade in the Indian Ocean. Ships took advantage of the monsoons to sale from one port to another. It is one of the most important centers of Swahili culture in all of East Africa. Now, let's think about the other segment of the population that I told you I wanted to bring to your attention which is the numbers of people above age 60. Now, if you consider this to be a market, it is one of the fastest growing markets in the world. You can see over here that as of the year 2015, there were about 900 million people in the world above the age of 60. But you see by the year 2100 the projection is that there will be nearly 3 billion people above the age of 60. As a percentage of the total population in the world, we will go from about 13% all the way to about 28% of the entire population in the world, that will be above the age of 60 by the year 2100. In terms of different regions of the world, you can see on this table that the numbers of people above the age of 60 is going to grow very much everywhere in the world. So every region of the world, every part of the world is going to see the population above age 60 increasing. Why? Well, essentially because as I told you earlier, people are living longer and longer, life expectancy is growing. So we're going to have more people above age 60, above age 70, above age 80, pretty much everywhere in the world. In terms of individual countries, the one with the largest population above age 60 in the world, in the year 2015, is China, with 209 people. But look at this, by the year 2030, China is projected to have 358 million people above the age of 60. That's about 140 million additional people above the age of 60, it's a very large increase. India will also have more people above the age of 60. So will the United States and Japan and Brazil and Indonesia, pretty much every country in the world. Once again because life expectancy is growing everywhere in the world. Let's take a look at the map, this is the map of the year 2015. It gives us the size of the population above age 60 for countries around the world. Let's now compare this to the map for the year 2030. And we can see how especially in China, in India, Europe, the United States and even in Brazil there will be tremendous increase in the size of the population above age 60. I am in Dublin, Ireland, once a country with one of the highest fertility rates in the world. Nowadays, few babies are born here. Today, there are 900,000 people in Ireland above the age of 60. By the year 2030, there will be 1.3 million, that will be 47% more. I am in Bordeaux. France has at the present time the highest fertility rate in all of Europe, about 2 babies per woman, when the average in the European Union is 1.6. This is due to both policies encouraging families to have children, such as tax breaks and more support services for mothers and higher fertility among immigrant families. Now you might be wondering, why should we care so much about these demographic trends, in terms of the age structure of the population? Well, let me share with you an example. It's an example that refers to the situation in the United States, where, as you've seen a moment ago, the numbers of people above the age of 60 have been growing for a very long time. The example has to do with financial markets, and to be more precise, it has to do with the stock market here in the United States. I want to share with you two charts that come from a study that was conducted by two economists of the Federal Reserve Bank of San Francisco. They looked at the time period between 1954 and the year 2009, and as you can see on the top chart they plotted two variables. The first one which is the thickest line that has a red color is the average price/earnings ratio for all listed equities in the US stock market, so every company that is listed. The price/earnings ratio is just the calculation that is commonly made to try to envision where the stock market is headed. In other words, the price/earnings ratio for a company, the price of the share divided by the value of the earnings or the profits that the company has made during the preceding year. If that ratio is very high, that means that there's optimism about that company. And in general, what you see on the chart is the average for all companies. If the price/earnings ratio is going up or is very high, that means there is optimism about the future. Now, of course, the red line as you can see fluctuates quite a bit, goes up and down. Well, that's because the stock market is always very volatile. And then there's a second line, which is smoother, which is blue and is thinner. And that is a line that captures the age structure of the US population between the years 1954 and the year 2009. It's an indicator that was calculated as follows. What they did was for every year, they divided the number of people in the United States between the ages of 40 and 49 by the number of people, also in the United States, between the ages of 60 and 69. So as the ratio becomes bigger that means the US population is becoming younger. But as the ratio becomes smaller that means the US population is becoming older. Now they could have calculated this ratio comparing people in their 50s to people in their 70s and I can assure you that the results would be very, very similar. So regarding the chart at the top, I only have one question for you which is the following. Do you see a correlation between the two lines between the price/earnings ratios in the stock market and the indicator of the age structure of the US population? Well, I think the obvious answer is that over a long period of time, there is a correlation. And the correlation is that when the US population becomes older as it happened in the 1960s and early 70s, and is again happening now or has been going on for the last 10 years or so. Then price/earnings ratios in the stock market tend to go down. So older populations lower price/earnings ratios. That's the first question that I have for you. Now my second question is, why do you think there is this correlation between the two phenomena? Are there any reasons to believe that they are connected with one another? Are there any reasons to believe that the changing age structure of the US population has a causal effect on the stock market? Well, you think about it carefully, you will probably come up with two potential reasons for the correlation that we observe on the chart. The first is that, as people become older they no longer save as much money and more importantly, they invest their money in a more conservative way. So when you're young and you're setting aside money for investment, for your retirement, what you do is you put that money into asset classes such as the stock market, that potentially can give you a very high return over the long run. Although they're riskier than let's say investing in government bonds. But as you grow older, you start to rebalance your savings and your investments away from riskier asset classes such as, for example, stocks, and towards government bonds. And of course, when you'll retire you start using your pension fund, the money that you've saved. So in other words, people change their investment behavior over their life-cycle. And this certainly has an impact on the stock market to the extent that older people are more conservative in their investment as they should be. As the US economy gets more people above the age of 60, then you would expect that fewer of them will be investing in the stock market. Now, the second reason for the correlation that we see on the chart has to do with consumption. People as they age they continue to spend money on food and water and shelter. But they also change their pattern of consumption in a very important way, which is that they no longer buy new homes or new automobiles or new durable goods such as washing machines or dryers or microwave ovens. All of those types of goods, houses, or homes, automobiles, and durable goods, are mostly purchased by people in their 30s, and in their 40s. So as the US population over time has become older in its age structure, then obviously the demand for automobiles, for homes, or for durable consumer goods has been dropping. And this has had the effect on the stock market that we see on the chart. Now, we'd like you to take a quick look at the second chart at the bottom here of the screen. What we see that the authors of this study made some projections into the future beyond the year 2009 which is when basically their study was published. What you can see over here is that they made projections based on the same kind of assumption that I've been using all along, which is the medium assumption. And what they found was that we should expect price/earnings ratios in the stock market here in the United States to continue dropping on average until the year 2022, more or less. Beyond that point, the age structure of the US population will start to change in the opposite direction. Because unfortunately, people in their 80s or 90s will start to pass away. So in other words, what the authors of this study are telling us is that demography is really important. The age and structure of the population matters and in particular, that one should expect lower price revenue ratios in the stock market. We should expect more pessimism in the stock market when the population grows older. In other words, it really matters for financial markets. All of these changes that we've been contemplating here regarding fertility and life expectancy.
