Americans aren’t having babies, and the economy’s to blame.
After all, who has enough cash to save up for food, clothing, college for another human being? Due to the recent recession, the fertility rate has fallen to its lowest point in 25 years.
The fertility rate is measured as the average number of children per woman, and right now the American rate is down to 1.87 children per woman. This number represents a sharp decrease of 12% since 2007. Get started with a free financial assessment.
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Kids are expensive (obviously), so when the economy is shaky, it makes sense for individuals to reevaluate whether they can really afford to have their first child, or add a second child to their family. But while this thinking is prudent on a personal finance level, this trend is potentially dangerous for the economy as a whole.
We'll break down what lower fertility could mean for the economy … and how this trend could potentially improve motherhood in the United States.
As Countries Develop, Fertility Rates Usually Drop
In the United States, for instance, the average fertility rate was 3.67 children per woman between the years of 1875 and 1925, dropping to a little above 2 children per woman in the second half of the 20th century. And that's a good place to be, because 2.1 is the fertility rate sweet spot: It’s the replacement rate, ensuring that a country’s population doesn’t decline over time. (Because two parents each replace themselves, and then some. Get it?)
Many European and Asian countries in the past few decades have struggled to maintain this replacement rate, falling closer to an average of one child per woman. This leads to an increasingly aging population. For many years, the United States was seemingly immune to this trend—until now.
At first glance, a lower fertility rate would seem to have positive implications for an economy. A country’s government would spend less on education costs; mothers would be able to return more quickly and easily to the workforce, which would increase productivity; and families would have more expendable income, which helps consumer spending.
But these short-term benefits are quickly outweighed by the more serious long-term consequences.
How a Lower Fertility Rate Hurts the Economy
A fertility rate lower than the replacement rate of 2.1 leads to a proportionally older population over time and, eventually, a smaller population. Here’s how that damages a country’s economic future:
1. The dependency ratio increases.
With an aging population, there are increasingly more citizens who are retired or unable to work due to illness or ageism. This leaves them dependent on younger generations or on the state. Over the next seven decades, the ratio of citizens 65+ to working-age citizens is expected to double in the United States. Which brings us to …
2. Government programs are overburdened.
With fewer workers, there are fewer citizens paying taxes to keep government programs afloat. In Italy, where the fertility rate is currently about 1.4, 22% of the population is currently supported by a pension, which consumes 15% of the country’s gross domestic product. In the United States, Social Security is expected to stop being able to deliver full, expected benefits in 2037.
3. Older citizens spend less.
Because retired citizens often have lower budgets or fixed incomes, they spend less than younger, working citizens, hurting the economy. In Italy, workers younger than 35 spend nearly €900 more per month than citizens ages 65 or older.
Considering that nearly 75% of Americans nearing the retirement age have less than $30,000 in their retirement accounts, the decreased spending for this group will likely have large repercussions for our country’s spending--and those retiring in the next 20 years who were depending on Social Security will continue the same trend.
4. Workers without children spend less, too.
Research from The Sustainable Demographic Dividend shows that large sectors of the economy flourish and depend upon married couples having children. Sectors dependent on families go beyond kids' clothing makers or toy companies; families spend more on groceries, health care, home maintenance, household products, insurance and child care, so all of those sectors will take a hit as the fertility rate decreases.
5. Entrepreneurism and advancement decrease.
Studies have shown that most new companies are started by people in their late 20s and early 30s, and that young workers are more inventive, creative and likely to take risks. An aging population means fewer human resources that are the most likely to push a country forward by creating new jobs, new technologies and new sectors of industry.
For example, Sweden was one of the first developed countries to see its fertility rate fall below the replacement level, and only one of the country’s 50 largest companies was created after 1970.
How to Save America’s Economic Future
One of the probable reasons the United States kept its fertility rate higher for longer than most is its immigration policy, as recent immigrants have more children than native-born citizens. However, we've seen that in other countries, immigrants quickly adopt the childbearing norms of the countries’ native-born citizens. In Germany, first-generation immigrants often have higher fertility rates, but second-generation immigrants reproduce at nearly the same rate as native Germans.
This is increasingly true in the U.S. as well: Hispanic Americans have experienced the largest birthrate decline over the past five years. That means immigration isn't a long-term answer for getting our birth numbers up.
But, if the government takes notice of this trend and enacts policies to help raise the U.S. birth rate, the upshot might be surprisingly helpful for women raising children, or planning to.
That's because America might:
1. Economically incentivize child-rearing.
France has the second-highest fertility rate in Europe, likely because it has some of the strongest policies that help parents financially, including a payment of $1,300 to all mothers-to-be. France's birth rate first started stalling in the 1930's; since then, the government has continually enacted new policies to encourage greater reproduction. And it's working--in 2006, France's fertility rate jumped to 2.0 from 1.88 in 2000, and has stayed around the replacement rate since then. (For more information on their progressive policies, read this.)
2. Improve conditions for working mothers.
In the U.S., some mothers feel like they have to make the choice between motherhood and their careers. (At least, so say some commenters on Marissa Mayer's high-profile appointment as Yahoo CEO and her high-profile pregnancy.) Sweden has tried to combat its low fertility rate by allowing women to "have it all"--a career and a family life--more easily. The Swedish government subsidizes child care, allows for more flexible work schedules and provides extensive parental leave.
Of course, researchers on this subject are quick to point out that the success of policies aimed at increasing the fertility rate often depend on the specific characteristics of the countries in question and the underlying reasons why fertility has declined in those countries. That said, policies aimed at lessening the financial burden of childbearing and improving work conditions for mothers may be essential to improving our country’s economic future outlook.
Better options for families and mothers, you say? Decreased fertility rates may have some good news for us, after all.