The economic effects of an ageing population are considerable. Nowadays, more and more people are paying attention to the economic issues and social policy challenges related to the elderly population. Older people have higher accumulated savings per head than younger people but spend less on
consumer goods. Depending on the age ranges at which the changes occur, an ageing population may thus result in lower
interest rates and the economic benefits of lower
inflation. Some economists in Japan see advantages in such changes, notably the opportunity to progress automation and technological development without causing unemployment, and emphasise a shift from
GDP to personal well-being. However, population ageing also increases some categories of expenditure, including some met from public finances. The largest area of expenditure in many countries is now
health care, whose cost is likely to increase dramatically as populations age. This would present governments with hard choices between higher
taxes, including a possible reweighing of tax from earnings to consumption and a reduced government role in providing health care.The working population will face greater pressure, and a portion of their taxes will have to be used to pay for healthcare and pensions for the elderly. However, recent studies in some countries demonstrate the dramatic rising costs of health care are more attributable to rising drug and doctor costs and the higher use of diagnostic testing by all age groups, not to the ageing population that is often claimed. The second-largest expenditure of most governments is
education, with expenses that tend to fall with an ageing population, especially as fewer young people would probably continue into
tertiary education as they would be in demand as part of the work force. in OECD countries (per 1000 populations)|left Social security systems have also begun to experience problems. Earlier defined
benefit pension systems are experiencing sustainability problems because of the increased longevity. The extension of the pension period was not paired with an extension of the active labour period or a rise in pension contributions, which has resulted in a decline of replacement ratios. Population ageing also affects workforce. In many countries, the increase in the number of elderly people means the weakening or disappearance of the "
demographic dividend", and social resources have to flow more towards elderly people in need of support. The demographic dividend refers to the beneficial impact of a decline in fertility rate on a country's population age structure and economic growth. The older workers would spend more time on work and human capital of an ageing workforce is low, reducing labor productivity. The expectation of continuing population ageing prompts questions about welfare states' capacity to meet the needs of the population. In the early 2000s, the World Health Organization set up guidelines to encourage "active ageing" and to help local governments address the challenges of an ageing population (Global Age-Friendly Cities) with regard to urbanization, housing, transportation, social participation, health services, etc. Local governments are well positioned to meet the needs of local, smaller populations, but as their resources vary from one to another (e.g. property taxes, the existence of community organizations), the greater responsibility on local governments is likely to increase inequalities. In Canada, the most fortunate and healthier elders tend to live in more prosperous cities offering a wide range of services, but the less fortunate lack access to the same level of resources. Private residences for the elderly also provide many services related to health and social participation (e.g. pharmacy, group activities, and events) on site, but they are not accessible to the less fortunate. Also, the environmental gerontology indicates the importance of the environment in active ageing. In fact, promoting good environments (natural, built, social) in ageing can improve health and quality of life and reduce the problems of disability and dependence, and, in general, social spending and health spending. An ageing population may provide incentive for technological progress, as some hypothesise the effect of a shrinking workforce may be offset by
automation and productivity gains. == Social policies and intervention ==