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The “old” to “young” ratio has been climbing ever since, thanks to three factors:

1. People are living longer, which makes the saver group larger than it would otherwise be.

2. Fertility rates are dropping, which means the borrower group is growing more slowly. The fertility rate (average number of births per woman) in the U.S. and Canada was 4 in 1960, but is now well below 2.

3. Baby boomers grew older and transformed themselves from borrowers to savers over the past 15 years.

As a result, the ratio of “old” to “young” climbed to 42 per cent in Canada by 2010. Given what is happening globally, it seems that a ratio of 40 per cent is a tipping point. Below that, it is still more or less a saver’s market and above that, it is a borrower’s market. The ratio in 2010 was a little more than 40 per cent in Europe and slightly less in the United States.

While this phenomenon has taken most of the developed world by surprise, it is something we should have seen coming. All we had to do was look at Japan, which had a 20-year head start on us, demographically speaking. Japan’s “old” to “young” ratio first surpassed 40 per cent around 1993 and is now about 60 per cent. For the entire time, Japan has been gripped by an economic malaise, has flirted with deflation and has seen its long-term interest rates remaining stubbornly close to zero. While we used to think these symptoms were strictly a Japanese phenomenon, we now find the same happening in other countries with “old” to “young” ratios of 40 per cent or more.