A Shortage of Funds to Cover Daily Living Expenses Becoming Common Among Elderly Households
- The Need for a New Means of Covering Living Expenses -
May 24, 2007
In recent years, the daily living expenses (expenditure) of elderly households have been rising steadily, and, owing to the slow pace of improvement in income conditions among other factors, the average household is facing a shortage of funds to cover living expenses on a day-to-day basis. The deficit in household accounts is particularly severe among elderly households whose chief source of income is public pensions. Although households can tap into their financial assets to make up the shortfall, Japan's increasing longevity means that more than half of all elderly households are likely to run short of financial assets in the future, and may well find it difficult to meet their daily living expenses. Elderly households need to be offered a new means of procuring funds to cover their living expenses.
Monthly deficit growing as living expenses rise while income falls
The rise in the portion of medical costs borne by the patient in conjunction with the reform of Japan's medical care system and the rise in the burden of living expenses as a result of elderly parents living apart from their children, have led to a rise in the living expenses that people face in old age. Meanwhile, owing to a reduction in pension benefit payments resulting from the reform of the public pension system and a fall in interest income as a result of the low interest rate policy, incomes have seen little or no growth. Moreover, with more people living apart from their children, elderly households cannot rely on their children's households to make up their living expenses. This has resulted in a shortage (deficit) of funds to cover daily living expenses. Among unemployed households where the head of household is aged 65 or over and the spouse is aged 60 or over, the deficit in household accounts has grown from an average of ¥13,000 per month in the 1990s to ¥34,000 per month since the year 2000.
In future, it is highly likely that more than half of all elderly households will have difficulty in covering their living expenses
Although elderly people are making up their monthly deficit by tapping into their savings and other financial assets, increasing longevity makes it highly likely that these financial assets will eventually be exhausted. If the minimum amount that an elderly person will require to make up the deficit in their daily living expenses over their lifetime is assumed to be ¥17 million, then less than half of all elderly households will be able to cover their living expenses using their own financial assets alone. If elderly households are to have a stable means of covering their living expense deficit, they must have access to a means of procuring funds other than tapping into savings and other financial assets.
The need for promotion - also on the part of the government - of the use of reverse mortgages as a means of fund procurement
The asset value of housing and land owned by elderly households is more than twice the value of their financial assets. Accordingly, the reverse mortgage is an effective means of fund procurement for elderly people in that it allows convert housing and land (stock) into funds (flow) over an extended period of time. However, reverse mortgages are by no means easy to use: the use of private sector services is currently limited to the owners of properties with a relatively high value, and, if the owner falls into negative equity part way through the period of the contract, there is a risk that finance will be cut off.
If reverse mortgage services are to be promoted on a large-scale basis, it will be necessary for financial institutions to improve product characteristics through the use of insurance functions and securitization. There will also be a need for positive action on the part of other sectors, such as construction and real estate, and the government, to expand and improve the used housing market, etc.
For more information on the content of this report, please contact Takako Hoshi, the Japan Research Institute, Limited.