Birth rates have been on the decline for the past several years.But things are changing. For the first time since 2014, the US birthrate has actually increased — by 1% in 2021. (Guess people were really tired of social distancing.)
But 3.6 million babies born last year doesn’t make up for the general downward trend of the past few years.And that could bring some economic growing pains.
What birth rates mean for your money
Birth rates can impact where the economy is heading. Because children are the future...consumers, investors, and labor force. Of course, that doesn't mean you should change your own baby-making plans one way or the other. But understanding the economic effect of everyone making babies — or not — can help you make a financial plan that works, either way.
Here’s what you need to know:
A declining birth rate means eventually there’ll be fewer workers to pay the taxes that fund public programs like Medicare and Social Security (which is already having financial problems). So a lower birth rate means your tax rate could go up. Or Social Security benefits could shrink.
Companies that make baby supplies, car seats, and toys have already felt the blow of declining birth rates. To help curb losses, some — like Pampers and Huggies — had started developing alternative and more sophisticated products (think: fancy and plant-based diapers) to justify higher prices. (Psst...some of these companies are also increasing prices due to rising commodity costs. Especially with inflation.)
Watch out for more recessions. More workers generally = a bigger economy. And vice versa. Meaning that steadily declining birth rates could be an indication of future economic trouble.
And finally, the bright side: Not so many people could be better for the environment and less strain on the world's resources. Because overpopulation can cause economic problems, too. If the gov wants people to have more babies, it could introduce policies to help. Think: paid parental leave and easier access to affordable child care.
Your move: Prep your finances for low birth rates
You might need to invest more for retirement. Investing as much as you can for your future can help you maintain a comfy retirement on your terms — no matter how much the gov can afford for Social Security payments by then.
You could pay (even) more for certain products. If you're adding a tiny plus-one to your fam, make sure to factor potentially higher baby-gear costs into your new-parent budget.
Birth rates can change where the economy heads next. But working on your savings — the kind you can use in the short term and to live off of in retirement — is a smart move, no matter how fast (or slow) the world’s population grows.
Updated May 25 to include the latest birth rate data from the CDC.
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