Aging and Hawaii’s Generational Economy
from UHERO, Dec 18, 2024
Hawai‘i’s population is aging rapidly. By 2035 one in four people will be 65 or older according to the most recent projections. The purpose of this study is to assess how aging is affecting Hawai‘i’s economy and steps that could be taken to prepare for this unprecedented change in our population.
Executive Summary
Hawai‘i’s population is aging rapidly. By 2035 one in four people will be 65 or older according to the most recent projections. The purpose of this study is to assess how aging is affecting Hawai‘i’s economy and steps that could be taken to prepare for this unprecedented change in our population.
Aging will affect all generations. An important question is whether our support system will be sufficient to generate resources that kūpuna need during their senior years. If not, how can the support system for seniors be strengthened? The growing needs of seniors, however, must be balanced against the needs of other generations. Can working-age adults be expected to pay more taxes to fund old-age needs? Should we reduce spending on children to support a growing senior population? The choices about these and many other important issues will be decided by others. But this study considers Hawai‘i’s economy from a generational perspective to improve our understanding of the choices we are facing.
This study provides new estimates of Hawai‘i National Transfer Accounts (HNTA), presented in Part 1, which show how people at every age meet their material needs, measured by consumption. As a group, people in their “working-ages” earn more than enough to fund their consumption. But people in Hawai‘i who are younger than 26 or older than 63 must rely on a complex support system to fund the gap between what they consume and what they earn by working. Very young children rely heavily on support from the family while public support, mostly public education, is important for older children. Kūpuna rely heavily on two components of the support system: public transfer programs, such as, Medicare and Social Security, and private assets, such as, funded pension programs, owner-occupied housing, and dividends and interest income to name a few examples.
The 2022 generational economy has changed in important ways since 2012, the first year for which it was estimated. This is not surprising given the rapid pace of aging during the last decade and the impact of the COVID-19 pandemic on Hawai‘i’s economy. Our assessment of changes since 2012, shown in Part 2, is sobering. Per-capita consumption of working-age adults grew slowly, but stagnated or declined for kūpuna and children. Older children and younger kūpuna were hurt more than any other group. The effects are likely to be long-lasting as spending on education declined for children and saving declined for kūpuna.
The greatest change in age structure over the next few decades will be a surge in the number of older kūpuna, those 75 and older. The gap between what they consume and what they earn from their labor is projected to rise from 11% of Hawai‘i’s total labor income in 2010 to 23% by 2050, with the greatest increases occurring before 2035.
Four challenges confront us: strengthening economic security particularly in light of uncertainty about the future of Social Security and Medicare; building a stronger health care system; improving training and financial systems in support of accumulating pension wealth; and investment in children on whom future generations will depend.
The oldest members of Hawai‘i’s baby-boom generation turned 65 in 2011 igniting an unprecedented acceleration of population aging. The rapid pace of aging is expected to continue for another decade lasting until 2035. After that aging is expected to be slower but the population of kūpuna likely will grow more rapidly than the child and working-age populations based on key but plausible assumptions about the future: steady increases in life expectancy, little change in fertility rates, and a resumption of moderate net in-migration (DBEDT 2024). The actual path of Hawai‘i’s demography will undoubtedly differ from the projected values, but it is likely that our population will age substantially, presenting the economic challenges highlighted in this report.
This report examines the effects of population on the economy using a generational perspective, introduced in Part 1 using Hawai‘i National Transfer Accounts (HNTA). Children, working-age adults, and kūpuna play unique and distinctive economic roles in society. Children consume more than they contribute to the economy through their labor. They depend on parents and, to some extent grandparents, to provide food, clothing, shelter, and other material needs. Children also depend on taxpayers who fund important public programs. Education, funded both by private and public sources, is of particular importance in preparing children for the future.
Like children, kūpuna consume more than they produce through their labor. Kūpuna consume more in per capita terms than members of other generations primarily because of their consumption of health care. Two funding sources are especially important to seniors in Hawai‘i: transfers from Federal programs like Social Security and Medicare; and assets including funded pension programs, owner-occupied housing, and profits from corporations and small businesses.
HNTA is used to show how members of each generation acquire and use economic resources at every point in their lifetime. The accounts provide estimates at every age from the youngest keiki to those 85 and older. The analysis emphasizes the connections across generations including the roles of families and governments.
Hawai‘i’s generational economy was first examined, using HNTA estimates for 2012, just as rapid population aging was beginning (Mason and Abrigo 2020). Important challenges were identified but the results from that study were optimistic. It appeared that solid economic growth and generational equity were well within reach. Unfortunately, Hawai‘i faced unanticipated difficulties, especially the COVID 19 pandemic. Part 2 uses HNTA estimates for 2012 and 2022 to assess the damage. The bottom line is that net resources, and hence standards of living, grew slowly for working-age generations but declined or stagnated for young people and kūpuna. The reasons for these unfortunate developments are discussed in more detail in Part 2.
The impact of aging in the future is the subject of Part 3. Population projections are combined with HNTA 2022 estimates to reach several important conclusions. Total spending on children will not be driven by changes in the number of children but by how much we choose to spend on each child. Economic prospects for Hawai‘i will suffer if we do not invest enough in children. Hawai‘i will experience a surge in the number of kūpuna 75 and older. As compared with other generations, older kūpuna have lower labor income. They have higher consumption particularly higher consumption of health care. They depend heavily on Federally-funded programs namely Social Security and Medicare. In light of these changes, policies in Hawai‘i must emphasize the distinctive needs of our oldest kūpuna.
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HPR: UHERO report calls for more education funding as Hawaiʻi population ages | Hawai'i Public Radio