October 8, 2025 • 57 mins
“Demographics are destiny” is a phrase we’ve all heard. And while the future of America isn’t a foregone conclusion, declining birth rates, rising inequality, and the dramatic increase of single-parent households are having a profound impact on our society, impacting the overall economy. With all of this in mind, another question is raised: how should we respond and what money choices should we be making now? To help answer this question, we’re joined by Melissa Kearney who is an economist known for her extensive research on social policy, poverty, inequality, and the economics of families and fertility. Melissa is author of the book, The Two-Parent Privilege, and she’s a professor of economics at Notre Dame. We discuss:
- How pessimism about the economy often contrasts with individual financial well-being
- Declining birth rates are a global concern with potential economic consequences
- Marriage is not just a romantic arrangement, it has economic implications too
- Immigration could be a solution to counteract declining birth rates
- Declining birth rates could lead to challenges in social security systems
- Investing strategies may need to adapt to demographic changes
Want more How To Money in your life? Here are some additional ways to get ahead with your personal finances:
- Be sure to check out Melissa’s book, The Two-Parent Privilege!
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- Find a thriving community of fellow money nerds by joining the HTM Facebook group!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to How to Money. I'm Joel and today I'm
talking the demographic dilemma and your dollars with Melissa Karney. Yeah,
(00:26):
demographics or destiny. We've all heard that phrase, right. Looking
at current trends can offer insights into what the future
might hold. Declining birth rates, rising inequality, and the upting
uptick of single parent households is having a profound impact
on our society and it's impacting the economy as a whole.
We're side stepping the culture war battles on these topics today,
(00:48):
but I do want to discuss how current trends and
demographic realities are going to affect our society, are going
to affect our economic vibrancy and the money choices that
we should be making now as individuals. So Melissa Karney
is an economist known for her extensive work on social policy, poverty, inequality,
and the economics of families and fertility. So a lot
(01:10):
to dive into here. She's a pressor of economics at
Notre Dame. Melissa, thank you so much for joining me
today on the show.
Speaker 2 (01:16):
Thanks so much for having me.
Speaker 1 (01:17):
Okay, first question that I ask everybody who comes on
is what's your craft beer equivalent. That just means that
I like to splurge on fancy craft beer from time
to time, but I'm not doing it at the expense
of my financial future. Do you have something like that
in your life that people might think is a little offbeat,
But you're spending quite a bit of money on in
the here and now.
Speaker 2 (01:34):
Okay, maybe not offbeat, but definitely indulgent and probably a
little embarrassing. And when my husband looks at our family
app he's always a little horrified how much I spend
at the hair salon. So I'm just gonna admit it, Okay,
cause a lot of money to keep my hair from
getting gray. I want to be the person who's okay
with it, but I spend a lot of money at
the hair salon.
Speaker 1 (01:53):
No shame in that game, you know, I'm a little
bit of shamed. I'm not judging. I'm not judging. Okay.
That's fascinating, and you know it's amazing some people the
grays come in and they look incredible women and men,
and you're just like, how how does how do we
pull off the gray like that?
Speaker 2 (02:11):
And I want to be that person, but but I'm
not it.
Speaker 1 (02:15):
Sometimes, right, Okay, let's let's get to the meat of
the topic. Like you, you're avoiding the culture war stuff
in your book that came out a couple of years ago,
And I appreciate that you're you're really not trying to
castigate anyone, You're not trying to throw anybody under the
bus here. But what drove you specifically into touching on
some of these really tough economic topics that maybe send
(02:38):
people into a tailspin when they start kind of thinking
about them.
Speaker 2 (02:42):
Yeah, so I've so the book you're referring to, the
two parent privilege I wrote a couple of years ago,
really to call attention to what's happened to families and
marriage in the US over the past forty years as
an economic matter, Right, So you're right, there's plenty of
culture wars about marriage, and as an economist, I have
nothing to say about whether somebody should or should not
(03:03):
get married. But what I have a lot to say about,
and what the data has a lot to say about,
is how the decline in marriage in the US over
the past forty years has impacted economic security and inequality.
And so you know, as somebody who's spent my career
studying poverty and inequality. It got to the point where
(03:24):
I wrote this book because this is such you know,
how we choose to form our families and whether or
not we choose to get marriage has really profound implications
for our economic security and that of children.
Speaker 1 (03:35):
So basically became like an unavoidable topic, like the elephant
in the room.
Speaker 2 (03:39):
One hundred percent. It was always the elephant in the
room in academic and policy conversations about inequality in particular
and social mobility, which obviously there's been a lot of
attention to in recent years for good reason. But it
was despite mounds of academic, rigorous evidence showing how predictive
(04:00):
family structure was at both an individual and community level,
these conversations, it just was somewhat easier and more tractable
to talk about the problems of schools or holes in
the government safety net. And so, as you said, it
was the elephant in the room. And so that's why
that's why I wrote the book.
Speaker 1 (04:18):
And most people were saying, I'm not going to touch
it with a ten foot poll, and you were like,
let me at it. I'm going to get in there,
I'm going to write the book on it, and I'm
going to take all the flag for it too.
Speaker 2 (04:26):
I don't know. I wasn't naive going in. I knew
it would be I mean, I knew a little bit
that I was, you know, walking on land mines. But
I was hopeful enough that there was a way to
talk about the issue with empathy, talk about the issue
that was not sort of tinged with the judgmental, really
(04:49):
ugly ways that sort of the conversation has sometimes happened
in the past. Yeah, and felt like, Okay, we can
do this, we can have a you know, a civil,
evidence based conversation. And I will say, for the most part,
I've been really pleased with how that went. Like, yeah, sure,
there were plenty people who didn't like the book before
they read it, or we'll never read it, but wrote
(05:10):
some scathing essay based on the title of premise alone.
But for the most part, I felt like the reception
I got made me think, gosh, really, this was a
conversation America wanted to have. People were having this around
their dinner tables. A lot of teachers and pediatricians wrote
to me saying, yeah, this is what we're seeing. Thanks
(05:31):
for like sort of launching the national conversation. So so
I actually was pretty pleased.
Speaker 1 (05:35):
Yeah, it was a conversation that needed to be had,
and I feel like you sparked it in so many ways,
And I want to dig into that topic in particular,
but I want to get into some other stuff with
you as well. But one thing I'm curious about, based
on the research that you're doing, I feel like the
world is inundated with bad news. We're going to cover
some bad news and some bad trends right now, but
before we go too far down that path, are there
(05:57):
any good trends that you've been researching lately that are
worth highlighting that you seeing on the economic front where
you're like, dang, that kind of surprised me in a
positive way.
Speaker 2 (06:04):
We are, Yes, there's actually a lot of good news
and it gets buried. I mean, you know, we should
always be looking for ways to improve society and make
life better for people. So I think as researchers or
people who focus on policy problems, there's a tendency to
focus on the bad news. There's lots of good news.
I mean, Americans are sort of crazy rich compared to
(06:26):
previous generations and to countries around the world. I mean,
media and household income is in the US is so
much higher than in Europe. It's so much higher than
it was twenty years ago. Even at the bottom of
the distribution, workers are making higher wages than in the past.
I think that gets lost a lot. But fundamentally Americans
(06:48):
are in very good position when it comes to income, wages,
household wealth, you know, living standards. Of course, medical advances
and technologlogies are incredible. Again, there's always I can't help myself.
I am a scholar, so I put a footnote on everything.
(07:09):
There are class divides in all of this. People without
college degrees are falling behind people with college degrees. But
in general, across the distribution, Americans are in quite good shape.
Speaker 1 (07:21):
Why do you think there's so much pessimism? Individual pessimism,
like cultural pessimism. It does seem like when you look
at some of the trial I think inflation was one
of those things. It just got people riled up, right,
and they were like, my eggs cost more, and I
get it. Like I was at the grocery store just
this past weekend and beef prices we're insane. I was like,
I need to just cut steak out of my diet completely.
(07:43):
It's too expensive. But why do you think there is
so much pessimism given kind of the data reflecting overall
solid trends.
Speaker 2 (07:52):
I mean, this is now we can all conjecture as
well as the next person as to why there's so
much pessimism. I think part because we are accustomed in
this country to things just sort of getting better, and
people get used to things being good, right, so there
are things like what behavioral economists would call loss a version.
(08:15):
We get very upset when you know, if beef might
have been more expensive in the past, but when we
were used to paying lower prices for it and all
of a sudden it becomes more expensive. Now we're particularly upset.
So there is some of that that we just have
grown accustomed to things constantly getting better, and so things
that set us off that course have sort of outsized
(08:36):
impact on our psyche. I can't help but speculate, and
this is not my era of expertise, but we are
inundated with social media and messages that just bombard us
with the bad news that it's easy to lose sight
of the good news. And you know, one sort of
(08:57):
survey finding that I think always emphasizes that is when
you see surveys of how happy people are with their
own lives versus how they think things are going in
the country. People generally tend to be happier with their
own lives, and so it's almost like, well, things are
pretty well, going pretty well for me, but I see
all these stories that make me think it's not going
(09:19):
well for other people in the country.
Speaker 1 (09:20):
Yeah, it's kind of like, oh, I love my congress person,
but the rest of them, we're terrible. It should all
be thrown out. Yeah, and I agree, those are fascinating
things to see. It's like, I think I'm actually doing okay,
but everyone else out there is having a tough time,
and it makes you feel like just there's doom and
gloom around you, when maybe it's not nearly the extent
that you might think.
Speaker 2 (09:39):
But can I say one thing on this, because one
of the demographic issues that I've been thinking and writing
and studying a lot about in the past few years,
aside from the decline in marriage and the rise in
single parent families, is just the decline in fertility. And
I am always amazed when I'm talking to young people,
college age people about what's going on with the birth rates,
(10:00):
how low they are Inevitably they tell me how worried
they are about the future, and then I'm like the
old lady, being like, you guys have it so good,
but it is sort of remarkable in a worrying sense,
why this generation of young adults in particular seems to
(10:20):
be pessimistic when really their future is quite right.
Speaker 1 (10:25):
Yeah, yeah, I think we need a reminder every now
and again. I was talking to an immigrant from Cuba
recently and just to hear his experience growing up and
living in Cuba, and then what it's been like these
past four years since his family has been in the
United States, and it hasn't been like easy, right, but
just the access he has to be able to start
a business or live life in the way he wants
(10:46):
is completely different, and I think maybe hearing more of
those stories would benefit all of us. Okay, let's talk
about families for a little bit. I'm curious, based on
your research and just kind of the trends you've seen,
how much have family structures change over the last couple
of generations, And do you have an idea of why
the family structure has changed so significantly overall?
Speaker 2 (11:08):
So let me focus on kids and their living arrangements.
So since nineteen eighty there's been a decline in the
share of kids living in married parent homes, falling from
about eighty percent to about sixty three percent. So now
at a point in time, only about sixty three percent
of kids live with married parents. It's not that so
(11:33):
many of them are living instead in sort of cohabiting parents.
Only about eight percent of kids live with one of
their biological parents and their parents partner. Meant often that's
not actually their second biological parent, but rather we have
about one in five kids in the US lives with
an unpartnered mother, meaning a mom with no other spouse
(11:55):
or significant other in the home. That's often a very
economically vulnerable situation, which is why this is relevant to
issues of poverty and inequality. This is a sea change
in the way kids are being raised in the US right.
The fact that just over sixty percent of kids are
living in married parent homes is really most of the
(12:16):
change happened in the eighties, nineties, early two thousands, but
that's where we are now, which is very different than
where we were forty fifty years ago. The other really
important facet of this trend is that this has happened
almost entirely outside the college educated class. So the decline
and the share of kids living with married parents for
(12:39):
those who are born to moms with a four year
college degree has only fallen from ninety percent to eighty
six percent, like a tiny decrease, even as more and
more moms are getting college So that's like a less
selective group. But outside the college educated class, kids born
to moms with a high school degree or less, or
maybe some college but not a four year degree, you know,
(13:02):
we're getting below sixty percent of them are living in
married parent homes. So there's this real college gap now
in the way kids are living being raised, and that
mirrors a college gap in marriage rates. So if you
think back to the sixties and seventies, when we had
the Cultural Revolution and a lot of institutional, legal, cultural changes,
(13:25):
marriage sort of fell for everybody regardless of education level.
But then going into the eighties, nineties, early two thousands,
it didn't. It's stabilized among college educated adults and continued
to plummet for people without college degrees. That starts to
give us a hint as to what caused this. So,
(13:45):
in very broad strokes, my read of all of The
evidence and literature is that we had these really dramatic
changes in the sixties and seventies that set us up
with new social norms. It was more acceptable to not
be married or have kids outside of marriage. And then
you go into the eighties and nineties when there's a
whole bunch of economic shocks that are pretty bad for
(14:09):
relatively bad for men without college degrees. So if you
take an economic view of marriage, a very non romantic view,
but essentially, we're making a contract with you know, long
term contract with someone to pool our resources. At the
same time as women now have more economic opportunities and autonomy,
and again among those without college degrees, the men are
(14:33):
sort of their their employment rates are falling, their earnings
both you know, relative to women is falling. They become
less desirable as economic partners. Some of them might feel
less ready or inclined to be an economic provider for
a family, and we just see a decoupling of marriage
and having kids in those in those affected populations.
Speaker 1 (14:53):
I know it's not a sexy topic to talk about
marriage as an economic reality, it is right.
Speaker 2 (15:01):
It has always been like from the beginning of time,
marriage has always been an economic arrangement, and I.
Speaker 1 (15:06):
Feel like we primarily view it through the lens of
love companionship, and those are wonderful things, but there's an
economic reality for the rest of your life present to
tying your life to the fate of someone else too.
Why do you think that doesn't get talked about enough?
And like, yeah, I don't know, can you put it
maybe into perspective for us, how big of an economic commitment?
Speaker 2 (15:26):
It is really a modern concept that people are getting
married out of, you know, primarily for love and their
own adult human flourishing. Again, I don't write about this
in the book because I just write about marriages through
an economic lens, but that really is a modern conception
of marriage. And so if you just strip marriage down
(15:50):
to its economic elements, and there's really no denying that
it is in large part in economic decision and commitment.
You have two people who are making a commitment to
share their resources, to pool their resources, and to jointly
contribute I'll use my boring economic language, but to like
producing a household, or if there's children, to raising children
(16:12):
and then jointly consuming things. And so you know, there's
a lot of benefits to this because now if you're
two people forming one household, there's economies of scale, of course, right,
we just need one household and all the things we
share in a household, so it's very beneficial from that.
Speaker 1 (16:27):
I remember being so excited when we got married to
go from having two apartments that were renting to living
under one roof and being like, wow, think about how
much more money we're going to have to surround other
stuff we care about.
Speaker 2 (16:39):
There's totally economies of scale. There's also when we you know,
think about this again from a very economic position, and
when kids are involved, there's specialization, so you can also
it's not even just that you're pooling the resources of
two people, but you're specializing. Okay, Like what does that mean.
It used to be that men would specialize in working
(17:02):
outside the home and women would specialize in household production
and childcare. Today, you know, the majority of women, the
majority of married women, the majority of mothers work and
so it's less about specialization let's say in and out
of the home. But even within the home, you can
imagine that. I mean, I'll be you know, terribly heteronormative
(17:23):
about this, but like my husband, you know, he will
take care of mowing the yard or bringing out the garbage,
or he also deals with dealing with all the health
insurance and car insurance and car repairs and that kind
of thing. And I will deal more with like meal
planning or grocery shopping. And every time you go to
the grocery store again, am I allowed to stereotech? How
many times do you see a guy on the aisle
(17:44):
calling someone back home, being like they don't have that kind?
What kind should I buy? Instead? And I think that's me.
Speaker 1 (17:50):
I'm the one who shops at the grocery store, but
I'm calling because I've got questions.
Speaker 2 (17:54):
Because you've specialized, and so when you have household specialization,
you also can do more things than two people so
separately just combined. But there's also a wonderful insurance component
of a married unit as an economic unit. If one
person loses their job or is injured or sick, there's
another person in the household who can pick up some work,
(18:17):
or pick up some hours, or do some more of
the resources. So there's also a resource insurance component there
when two people have pooled their resources in marriage.
Speaker 1 (18:26):
Do you think the decline in marriage and the subsequent
impact on kids is this and families as a whole.
Is this like a preferences issue or is this like
a response to more economic constraints because you talked about
maybe some younger men not feeling like they could provide
for a family, like are the economic hurdles more significant?
(18:48):
And so people are saying, I'm just going to punt
on marriage for a while until i feel like I'm
economically ready to commit to that.
Speaker 2 (18:54):
It's this is a very thorny complicated question, but a
really important one. Again, my read of the evidence is
that what we're seeing in terms of the reduction in
marriage and the decoupling of you know, having kids inside marriage, again,
this is almost entirely outside the college educated class. It
(19:16):
reflects both changed social norms and changed economic realities, and
those two things accentuate and amplify each other. So you
see in places where like non marital childbearing or having
kids out, you know, raising kids outside a married parent home,
(19:36):
where that's more common. Even when there's an economic a
positive economic shock, right, you don't get the increase in marriage.
So I'll be very specific here. So you know, for
a long time I was of the view that it
was primarily an economic challenge and if we could only
improve the economic position of men without college degrees, we
would see a return to a higher level of marriage
(19:59):
and a reduction and the share of kids born outside marriage.
And then one thing happened actually in the early two
thousands that was actually good for the economic position of
non college educated men in both an absolute level and
relative to women. And that was the fracking boom. So
in a lot of communities where fracking was sort of
(20:19):
accessible because of the geology and all of that. So
what happened in these places, Let's say Texas, you get
an increase in fracking, and it's not just good for
fracking workers, but it leads to local economic booms. There's
just more jobs, and in particular, we see more jobs
for men without college degrees, so we can confirm that
(20:40):
that's great. And then it looks like people did have
more kids, and we actually have lots of evidence that
kids are what economists call normal goods, and you got
a positive income shock. One of the things people spend
money on is having kids. Okay, but to my surprise,
there was not an increase in marriage, and there wasn't
a reduction in the share of kids born outside marriage,
(21:00):
And so that surprised me, and so then we looked
back my co author Riley Wilson and I we looked
back at what happened during the coal boom of the
nineteen seventies and eighties, when similar communities and like rural
Appalachia were affected, and you saw the earnings of men
went up. What you saw then was an increase in
marriage and a reduction in the share of children born
outside marriage. Okay, this contrast is super interesting because it
(21:24):
suggests that a very similar economic shock had different effects
on family formation based on the new prevailing social paradigm.
And even in the modern context, when you saw, like
you know, in the fracking communities were non marital childbearing
was less common, then you did get more of an
(21:45):
increase in marital burst than non marital bursts. So I
think it's both. I think we've sort of normalized as
a society, and in some sense for good reason, because
in the past, single moms and their kids were ostracized
from the communities, and nobody wants to go back to that.
We should definitely want to go back to that. But
in some sense we've so normalized this idea of people
(22:07):
raising kids not together or not sharing you know, having
the commitment of a shared household that even now, if
the economic situation of these memore to improve and the
incentives for marriage were greater without a changing recognition or
changing social norms, I'm less confident that what we would
see are reversal of trends.
Speaker 1 (22:27):
I would think a basic response to maybe some of
your work would be, well, yeah, I mean, part of
the reason that two parent households are for better opportunities
for kids is because, especially in today's day and age,
both mom and dad are both partners, are working, right,
and so there's more money coming in. So of course, yeah,
(22:48):
those kids are going to be better off. But you
would say it's not all about the income, right, it
goes beyond just the amount of money coming into the household.
There's something about two parents stability.
Speaker 2 (23:02):
Right, Yeah, that's right. So it's we again, I'm basing
this on a lot of statistical evidence, so we can
see that a big part of the benefit for kids
of growing up in a household with two adults is
just that there's more income coming in. And so you know,
if you have more income coming in, you're more likely
to live in a good neighborhood with good schools and
(23:22):
have lots of these extra you know, great opportunities to advance,
to obtain higher levels of education. But even comparing families
with the same level of income in one versus two
parents in that household, kids who have two parents, especially
for all of their childhood, just have better outcomes in
the sense of being more likely to stay on track
(23:44):
in school, being more likely to get a four year degree,
being more likely to have higher earnings as an adult.
What are some of the mechanisms driving that. Well, anyone
who has kids knows that what parents do is more
than just provide for them. Provide shelter, pay for the things,
You supervise them, You help them with their homework, you know,
(24:05):
you try to teach them lessons. There's all sorts of
things that parents do that.
Speaker 1 (24:09):
Are helpful chauffeur regularly show for regularly.
Speaker 2 (24:12):
But that also really contributes to the activities. So you
see kids now who are growing up in single parent
homes or you know, lower resource homes, they don't even
have access to the same extracurricular activities. And here's where
to your point, like, you know, it's tricky to talk
about these things, but it's foolish to try and deny
(24:33):
that a parent trying to do all of this by
themselves is not at a disadvantage. And I say that
with full empathy, Like, even as a married mom, it's
really hard to feel like I have time to drive
my kids to all their practices or get dinner on
the table after work. It's that much harder if you
don't have another parent contributing reliably on a daily basis
(24:55):
to picking up some of the slack, running to the
grocery store, driving the kids around, helping one do the
homework while you're trying to make dinner, all the while
having to bring in enough money to pay all the bills.
Speaker 1 (25:06):
If my wife has gone for four or five days
on a trip with friends, like my level of patience declines,
my level of mental insanity increases. And I'm just I
it gives me a lot of empathy and respect for
people who are single parenting out there, because it's really tough.
Speaker 2 (25:22):
The emotion, like what you just mentioned is is what
I refer to in the book is emotional bandwidth. And
there's lots of evidence on that too, less from economics,
but more from psychology and sociology. People showing that just
you know, the level of cognitive bandwidth, emotional bandwidth, the
absence of measures of stress, those are all much higher
(25:44):
if there are chief parents in the households. We you know,
we can't get this far in the conversation without acknowledging
the fact that there are some couples that are toxic.
And of course when there's violence or abuse, nobody benefits
from the preservation or the formation of that kind of relation.
So let you know, I want to be exceptionally clear
that I am not talking about those situations.
Speaker 1 (26:06):
All right, we got so much more to talk about
with you, Melissa, including inequality. It's a hot topic these days.
But how's that impacting our society and how's that going
to impact our personal finances? We'll talk about that right
after this. Are back from the break, still talking about
(26:26):
demographics and your money with Melissa Karney. Melissa, inequality is
an issue that gets a ton of press these days.
I feel like he gets talked about all the time,
and rightly so in so many ways. How are maybe
like these family trends impacting arising inequality.
Speaker 2 (26:42):
I mean, it's very very mechanical and obvious on once
you see it. So let me put it this way,
over the past forty years, two things have happened to
people with college degrees. Their earnings have gone up, right beautifully.
We know this, like, earnings have gone up about sixty
percent for workers with a college degree. And you have
college educated workers marrying each other and raising kids in
(27:05):
a household together, so their household earnings have gone up
by like sixty percent, and they're really high, right because
you have two high earners pooling resources, pouring them into kids.
And then outside the college educated class, if you just
look at people with high school degrees, depending on how
you want to measure things, their earnings have sort of
(27:25):
stagnated or increased by a little bit, but they're much
more likely now to only have one adult in the household.
I mean, to be specific, they're twenty three percentage points
more likely to only have one adult in the household.
So if you take basically stagnant or just small increases
in earnings and you combine that with an increase in
(27:46):
the likelihood that you only have one adult rather than
two in the household, now you just made the economic
insecurity of the middle class that much worse, because even
if your earnings held constant, you just lost the second person,
and as compared to you know, thirty years ago, when
there would.
Speaker 1 (28:02):
Have been two of you, the economies of scale got worse.
Speaker 2 (28:04):
You just lost like fifty sixty seventy thousand dollars because
you're the only person there. And so yeah, so I
don't know why that doesn't get more attention when we
talk about sort of the economic insecurity of people without
college degrees, A lot of that is just reflective of
the fact that now they're trying to make ends meet
(28:25):
without the benefit of a second adult bringing resources into
the household, and so it's very mechanical. People often will
talk about assortative mating, meaning people marry people like themselves
in an economic sense. So college educated workers are likely,
college educated adults are likely to marry other college educated adults.
(28:45):
People without you know, college degrees are likely to marry
other people without college degrees. Just there's a lot of
reasons for that, in part because of the circles people
run in. But what people have shown is it's almost
less about the like marrying each other that has contributed
to widening inequality, and more about the highly educated marrying
(29:07):
each other and the less highly educated not even getting
married anymore.
Speaker 1 (29:11):
To talk to you just about inequality from an overall standpoint,
because when it's written about oftentimes it's it's made out
to be a terrible thing. Right, Any inequality is bad.
Equality in and of itself is a is a good thing.
But zero inequality doesn't seem like a great goal either, right, Like,
what leads to inequality? How much is okay? And how
(29:34):
much is actually maybe a good thing from an economic perspective.
Speaker 2 (29:37):
Okay, that is a very big question. Okay, the short answer,
unless we're going to have a society where people can't
keep the you know, the results of their efforts and earnings,
you're going to have some inequality, right, And so this
is the Agel debate of like Marxism versus cap Okay,
(30:00):
So let's set a fun you know, at a very
basic level, say that you need to have some inequality
to incentivize people to put in the effort to work
and to earn a lot. Now, do we have to
have so much inequality as we have in the US
to incentivize people to work. Probably not. But I am
an economist through and through, and you know, as a
(30:22):
labor economist, when I look at the data and look
at all of the studies that have been done on this,
it's pretty clear that when you have higher tax rates
at the top and more income transfers at the bottom,
there is a productivity loss. People will work less on
both sides. The normative question or value question or political
(30:44):
question becomes how much productivity gain are we willing to
give up to contribute to a more equal society. So
you're absolutely right, zero inequality should not be our goal,
just like frankly, zero police, you should should not be vehicle.
Yeah right, you take some of the negative consequences so
(31:05):
that there's some production in the economy. I am more concerned,
you know, with bringing up the lower part of the
distribution than I am with taking away income or wealth
from the very top. Not everybody shares that view, obviously,
some people, some prominent people, just find it morally repugnant
(31:28):
that some, you know, a few individuals have such a
high concentration of wealth when there are other people who
who are living in poverty. Again, I'm just more concerned
with making sure that we take care of and we
do a better job in society of meeting the material
needs of everybody than necessarily offended by high levels of
(31:50):
concentration at the top.
Speaker 1 (31:51):
Yeah, So I initially reached out to you because I
had a listener email me. His name's John. He was like,
I would love for you to dig deeper into demographic
impact on personal finances. And he's basically saying, well, how
should people be reacting given the fact that birth rates
are declining and the economic consequences that that's going to create.
(32:12):
And we can already see like what's happening in a
place like South Korea or Japan, and you can kind
of like predict some of our own future and what
we're going to encounter. So what are you seeing there?
And how are we going to be impacted as individual
economic units, which obviously we're human beings, but we're also
individual economic units, Like how are we going to be
(32:34):
impacted by some of those trends.
Speaker 2 (32:35):
Let's talk about declining birth rates, But just for the listeners,
I want to be very explicit in our segue here
to note that what we were talking about before, in
terms of the decline in marriage and the reduction and
the share of kids living in two parent households, the
share of kids living outside married parent households has happened
despite the fact that birth rates have been falling a lot, Okay,
(32:58):
And the reason I want to make that segue explicit
is because twenty years ago we were really worried about
the high number of teenage births in this country, and
teenage births are almost always outside marriage. What's been shocking
from the perspective of family structure is that teenage births
have plummeted, which is a good thing, and yet there
(33:21):
hasn't been a decrease in the share of kids living
with their moms, only because that previous trend we were
talking about is really reflective of the fact that the
decline in marriage and the sort of rise in single
mother households that sort of spread across the distribution away
from just the very disadvantage groups. Okay, so then when
we look at the birth rate, it is true that
(33:44):
birth rates in the US and around the world in
particular and high and middle income countries have been falling
quite steeply in recent decades, in a way that a
handful of demographers were noticing, but really, I think think
sort of just was not. It was really not widely
noticed until now. In many places like South Korea, they're
(34:08):
almost like an existential point of population decline.
Speaker 1 (34:12):
More strollers being sold for dogs than for kids for
them for base.
Speaker 2 (34:16):
That's so in the US, where are we well, in
the US our total fertility rate and let me define that.
But right now our total fertility rate is one point six.
This is the lowest it's ever been in the US.
The reason why this low level is gaining attention is
because this is substantially below the fertility rate we would
(34:42):
need for our population to naturally reproduce itself meeting without immigration. Okay,
So the total fertility rate, you can think of it
as an approximation of the number of children a woman
in the you know, in a particular country will have
over her lifetime based on current age profile of childbearing. Okay,
(35:03):
so it's not a perfect prediction of what's going to happen,
but we are on track for women on average to
have one point six children. You need people to have
about two point one children in order for the population
to naturally reproduce. So that's why this is so concerning
is because it really portends a decline in population growth
(35:25):
and ultimately a shrinking population, which is.
Speaker 1 (35:28):
The opposite problem of what a lot of people were
predicting fifty years ago we were talking about overpopulation, and
now we're talking about not having enough kids right to
make our economy as vibrant as it's been.
Speaker 2 (35:42):
The lasting intellectual legacy or narrative legacy of the population
bomb warning of IRLIC in the late nineteen sixties is
really phenomenal. It's like, I mean, I grew up too
learning about the population bomb and there's too many people,
you know, I think ex post it's accurate to say
(36:06):
that was never an accurate prediction because what Eric missed
in those predictions is what Mauth has missed, you know,
back in the eighteenth century, which is that people innovate,
people are really amazing. People come up with great ideas
and they make advances in agriculture and technology in medicine,
(36:27):
so that we have you know, growing population actually has
always been associated with an improvement in living standards, and
you know, life expectancy has increased. We've managed to come
up with ways to fight disease, We've managed to come
up with ways to organize our societies democratically so more
(36:48):
people benefit. So the predictions that having too many people
was going to lead to widespread suffering I think was
never accurate. But what it did do was sort of
leave this very lasting view that too many people is
bad and in decline in the birth rate would be good.
And in fact, now we're faced with the decline in
(37:09):
the birth rate, and the way population grows and shrinks
is exponential, and so we are on track for global
population to decline. Declining population for both the country and
for the world actually pretends a lot of economic social challenges.
Speaker 1 (37:28):
Okay, talking about though, So I'm thinking of individuals. I'm
an investor, right and I'm investing in the S and
P five hundred or total stock Market Fund because man,
that's done really well in the United States over the
past one hundred plus years, investing in a diversified manner
like that. How does declining birth rates impact my investing strategy?
(37:50):
How's it going to impact social security and my ability
to get what's been promised to me by the government.
There are all sorts of ways that an individual could say,
they get extrapolated declining birth rate and say this doesn't
look good for my future.
Speaker 2 (38:04):
No it doesn't. But let me preface this with the
necessary caveat. I am not giving financial advice, yes, okay,
but here's let's start with the almost the most narrow
and let me focus on declining US fertility as opposed
to global for a moment. So declining global immediately, what
(38:25):
you're going to see is impacts on sectors that are
child centric. Right, So if I were to give financial advice,
I would probably say don't invest in pampers or maybe
adult depends. Right. But like we literally are we have
fewer babies, and where are we seeing this? We're seeing
this in school enrollment, declining. College enrollment is about to
(38:47):
decline because in the US birth started falling and they've
continued to decline since two thousand and seven. And so
now how old you know we've had just we have
fewer kids. So industries focused on kids goods, those are shrinking.
And we see this in the education sector. The sectors
that are growing are often those associated with an aging population.
(39:11):
The share of our population over age sixty five has
grown from eleven percent in nineteen eighty to about eighteen
percent now, right, So you've got this inverted population pyramid
where the aging popular. You know, we have more and
more elderly and fewer and fewer children. Okay, so that
(39:31):
just affects certain sectors and industries and by the way
certain parts of the country differently. So in places with
low birth rates, think California, think New England, their local
economies are affected in ways that we're just going to
see shrinking tax bass, et cetera. Okay, and then there's
(39:52):
other parts of the country where fertility is not declined
by as much. Those are going to be more dynamic communities.
So there's regional differences here too, and.
Speaker 1 (40:01):
That's going to impact even stuff like housing, right, I'm.
Speaker 2 (40:03):
Thinking about totally.
Speaker 1 (40:05):
In Japan, there are places where I think you can
get a house now for a song because the communities
have been decimated, and that is that going to be
the case here too. As like real estate investors, you've
got to pay much closer attention to what's happening in
regards to these sorts of trends for when you're thinking
(40:25):
about buying a property that you're going to own for
a long time.
Speaker 2 (40:28):
Yeah, I think that's I think that's right, and we
certainly see that. And you know, the population decline is
quite un event across across counties in the country. Okay,
Then let's think about the fiscal implications of this. You
mentioned social security. This is a really huge deal I
know people have been sort of trying to raise the
(40:50):
alarm on the fiscal unsustainability of Social Security for a
long time, but it is upon us, and it is
worse than the official projections suggest because the official projections
of the Social Security Administration they actually for years they
were just assuming that women were going to go back
to having on average two kids per person. And when
(41:12):
you read the footnotes of that report as to like,
where are they getting that from, they basically said, because
us women just have historically had historically, meaning in the
past twenty years, have historically had that many kids, and
so we just sort of assume they'll go back to it.
Speaker 1 (41:26):
And the reason that's important, right, is because then those
kids grow up, get jobs and they're paying into the
Social Security system. As their parents get older and need
to take social Security, you have more workers putting into
the system to kind of keep it afloat.
Speaker 2 (41:39):
In the nineteen sixties, when social Security started, we had
more than four workers per beneficiary. That then fell to
about three, and now we're looking at we're coming up
on two workers per recipient. So the way, as you said,
the way social Security works is current, even though people
think of it as I contributed to the system and
(42:01):
then it pays me out. Really, the way it works
is current workers are taxed and that gives the revenue
that pays out current benefits. And so as you have
fewer people contributing and more people taking it, the scheme
just financially doesn't work anymore. What happens when social security
does not have enough money to pay out all the
(42:22):
benefits is not entirely clear. Some reading of the statute
suggests that it's just going to imply a twenty four
percent cut in everyone's benefits. So how policymakers eventually respond
to this crisis will determine what happens to the system.
But we see this in Europe, for example, because in
(42:43):
Europe birth rates fell below replacement level a couple decades
before they did in the US. We're actually sort of
lagging Europe in terms of these demographic challenges, and you
see that Europe is struggling with their social insurance systems
trying to figure out how to raise money. That also
(43:03):
heightens the conflict around immigration, because bringing in prime age
workers now is an immediate way to shore up your
workforce and your contributions to these systems. But if with
the population aging, with native birth falling, and with political
(43:24):
backlash to immigration, Countries like ours and those in Europe
have a real tough time dealing with these issues.
Speaker 1 (43:31):
It does seem like a country like ours has a
particular ability, unlike most other nations, to allow certain types
of immigration to actually counteract some of these negative birth
rate trends. But it's something we're not taking advantage of
the fact we're going the opposite path. But we could
tell me if I'm wrong, in an economic sense, kind
(43:53):
of make some hay on the immigration front in order
to counterbalance some of the decline in birth rates.
Speaker 2 (44:00):
I mean, that is in some sense the easiest way
to deal with this challenge in the immediate future. I
do want to note, though, immigration is only a partial
solution because birth rates are falling essentially everywhere. The fertility
rate in Mexico is actually now lower than in the US,
which surprises a lot of people. So even a lot
(44:21):
of these sending countries are experiencing decline in birth rates.
That just means going forward, there's likely to be a
smaller supply of potential immigrants than there is right now.
But that's a difference between the long term and now
the other thing. Okay, So we talked about like immediate
challenges to certain sectors or communities from declining birth rates.
(44:44):
We talked about the fiscal challenges. A shrinking population and
an aging population poses demographic headwinds, and we've seen this
in South Korea too. Now Here, I want to acknowledge destination.
Demograp doesn't have to be destiny, and we could take
efforts to counteract these trends. But let me just articulate
(45:08):
what the headwinds are. We have evidence again from really
nice academic studies, showing that older firms tend to be
less innovative, older workforces tend to be less dynamic. What
does that mean? It means you could think of it
as people create ideas, and so the more people is
(45:33):
how we get more good ideas that are non rival
So like you just needed one person to come up
with a vaccine and millions of people don't get sick. Right,
you just need one person to come up with some
fabulous managerial breakthrough, and all firms can be more productive.
But beyond that, the evidence suggests that younger workers tend
(45:54):
to be more dynamic, they start more businesses, and so
as you're we're facing not just a shrinking workforce, but
also an aging workforce, and that potentially means less innovation,
which is not good for living standards. So this is
the opposite of the prediction that more people is bad
for living standards. This is fewer people, and fewer young
(46:16):
people in particular, threatens living standards, or it threatens to
have slower rates of innovation. No, that doesn't have to
be the case. We could invest in making sure that
every person has higher human capital. We can make a
lot of educational investments, we can invest in technology, we
(46:38):
can figure out how to leverage AI. But we should
be clear eyed about the fact that the demographic trends
we're experiencing do pose headwinds and we should take them
head on.
Speaker 1 (46:49):
Okay, got a few more questions. I want to get
to with you, Melissa, and specifically I want to talk
about you have three kids, Well, how are you these trends?
How's that impacting the advice you give them. We'll talk
about that and more right after this. Okay, we're back,
(47:12):
still talking about demographics in your dollars with Professor Melissa Karney.
We list say, I don't want to know what's in
your portfolio. I don't want to know exactly how you're investing.
But you have kids too, and you see these trends coming,
and you have an idea, especially when you look to
other countries that are already experiencing some of these things,
of what maybe some of the outcomes could look like.
(47:32):
How are you talking to your kids about the coming
economic reality of some of these these trends and maybe
how they should react to them.
Speaker 2 (47:43):
I have two in college and one in high school,
So I think the thing that's most immediately on my mind,
to be honest, is they're facing very uncertain job markets
in the sense of we don't know what jobs are
going to look like in ten years. Yeah, and so
that's a different brand investment strategy. That's what kind of
skills do they invest in being mindful of the uncertainties
(48:06):
of where the labor market is going. But we certainly
try to teach them the value of saving and compound
interest and all that. I don't think they should at
all be sanguine about social security being around for them,
that's for sure. So I think that would be silly
(48:28):
to think, Okay, you're just going to work and you'll
the government will be there to take care of you
in your old age. I mean, this is another thing.
It's not even just the finances of social security. With
so many adults not having children and so many adults
not getting married, there is a very immediate question of
(48:50):
who is going to take care of the elderly in
this country. And this we see in Japan too.
Speaker 1 (48:55):
I mean robots, right, apparently, I guess.
Speaker 2 (48:58):
I mean this is like one of those how do
you say the word the raw schow test or whatever.
Some people are like robots will take care of them
and that makes them feel better. That to me is
like a terrifying dystopian image.
Speaker 1 (49:10):
It doesn't sound good to me, but it does appear
to where we're headed, you know, yeah, yeah, okay, if
strengthening families kind of going back to the earliest parts
of our conversation, if that's if that's crucial to general
well being an economic progress, how should individuals who are
listening to this respond. Should people be like, I wasn't
planning on getting married, but now that I heard Melissa
(49:31):
talk about how important it is to our overall economic prosperity,
I'm gonna jump on. I don't even know what website
people use to meet people anymore or do they just
go to the local bar and find somebody. Yeah, what
would you tell somebody who's listening, Like, what can I
do to participate in? Uh in what's good for myself
and for our society?
Speaker 2 (49:50):
Yes, this, I do get this question a lot, especially
from you know, college age kids who I spend a
lot of my time with. It always makes me uncomfortable,
isn't it con missed? But I will take the bait
with the caveat that now. My answer in part reflects
my own values. I think we have become too agnostic
(50:11):
about the way we talk about marriage in the sense
of especially when there's kids involved, and so, you know, again,
there are some couples that should not be together, and
it would be bad for everybody to the extent that
there are couples who were sort of indifferent about being together.
I think it would be for everybody's benefit to just
(50:33):
be a little bit more clear eyed about the benefits,
the documented benefits of marriage for both adult and child wellbeing,
and just have that inform people's decisions about, you know,
one of the most important decisions they will make for
themselves and their and their kids. There's also some really
interesting evidence suggesting that when there are cool off periods
(50:56):
for divorce. You know, this is an area that needs
more staff. But when there's cool off periods, a bunch
of people actually wind up not getting divorced. And so
that suggests too that like maybe being I don't know,
slower about that process could ultimately lead to greater both
adult and child well being. Related more to the fertility question,
(51:21):
I you know, I mentioned the reasons why I worry
about a declining birth rate from an economic position, one
of the things I actually worry about. If you look
in the data, many more people say they would like
to have children. People are still inclined to say a
two child family is the ideal than are actually realizing
(51:44):
those those levels of child bearing. So, for you know,
fifty percent of thirty year old women in the US
are now childless, but if you look at surveys, it's
nothing like fifty percent of thirty year old women say
they want to ultimately be childless. That makes me more
worried that we've created a society or a set of
expectations where people are putting off or forgoing having children
(52:07):
who ultimately will wish that they did have kids. And
I think that's something that we need to again be
cognizant of and be attuned to.
Speaker 1 (52:17):
Yeah, okay, last question for you, given the college degree
gap that we've discussed too, is part of the problem
getting more young people to pursue a college degree because
that's something else that's become fairly or far less affordable.
And we still see the income gap overall, right over
the many decades people that graduate with a college degree
(52:38):
and then people that don't. But there's because of the
soaring cost of college, and it does seem like more
people are, especially gen z ers, are saying, yeah, I
don't know if that's the right move for me. I
don't want to graduate with one hundred and fifty thousand
dollars in debt and not have the job that's going
to earn me that greater lifetime income at the end
of the day. So is I don't know, it's a
(53:00):
complicated question, but to getting more college degrees, is that
an answer to this problem, or at least part of
the answer.
Speaker 2 (53:06):
A college degree is still in general worth it, right,
We just know that a college degree confers so many
advantages in the labor market and leads to higher earnings.
A lot I mean, we have very high share of
high school graduates or going to college. It's less about
accessing college or starting college. A lot of students don't
(53:28):
finish college, and those are the ones you really worry
about because they take on some debt and then don't
even get the benefits of the degree. But I also
will say that, you know, as someone in the higher
education sector, I think the reckoning that's been brought upon
the higher education sector is a good thing. And given
the costs, universities and colleges need to make sure that
(53:52):
they are delivering a valuable product. And so while on
average a college degree is still a very good investment,
not all colleges and not all degrees yield the same benefits,
and so there's room for improvement on the sector side too,
to convince the public that a degree is valuable, but
(54:12):
also to make sure that every college and degree that
is charging students or charging the government on behalf of
students is actually delivering a high quality education and degree.
Speaker 1 (54:23):
Melissa Karney, this has been an excellent conversation. Thank you
so much for joining me work in how to money
listeners find out more about you, what you're up to,
and your wildly successful book.
Speaker 2 (54:33):
Oh thank you, So, I guess the easiest place is
my website, Melissa Karney dot com. You can also find
me on the economics department page at the University of
Notre Dame.
Speaker 1 (54:42):
Awesome, thank you again, thanks for having me. All Right,
that was such a fun conversation and a unique conversation
here on how to money. Definitely a departure from the
kind of meat and potatoes personal finance content we so
often talk about. But when listener John sent me that
email basically saying, Hey, why don't you talk about demographics
(55:04):
and how it's going to impact our personal finances? I
was like, you know what, He's got a point, And
I remember remembered Melissa's book coming out a couple of
years ago, and I was like, I don't know that
that makes sense for a conversation on this show in particular.
And then the more I thought about John's email, I
was like, actually, she's probably the perfect person to talk to,
and I think she was. I think this was this
was a really enlightening conversation for me, just to kind
(55:27):
of cement home some of the trends that are happening
around the world, and specifically here in the United States
and in ways that we should be reacting to those trends.
So like, does this mean you should stop investing because
the economy is going to implode because the birth rate
is declining. No, I don't think so. I don't think
that's what she was saying, and I don't think that's
(55:49):
where things are heading. But even something like I don't know,
Maybe my big takeaway is something like social security factoring
it into your plans, yes than you previously were. And
we've talked about with other guests on the show, the
political will to keep Social Security as is and how
(56:09):
the voting public is particularly skews older, and those older
people are going to vote for people to keep their
Social Security around. But at the same time, you can't.
You have to find the money somewhere. And if there
aren't enough young people paying into the system, what's going
to happen to that system. That's a good question. And
I don't think any of us is going to experience
like zero social Security payout, because again, I do think
(56:32):
it's politically popular, but I will think I can't imagine
they're not being adjustments to the system at some point
moving forward, And I think this is just a. It's
also just some fascinating stuff that Melissa covered in depth
in her book. If you're into statistics and you're into
kind of the economic realities of life and family and
(56:57):
child bearing and rearing, and even just touching on the
economic realities of marriage was to me super fun because
it's stuff that Auten doesn't get discussed. So thank you
as always for joining me in my endeavors and humoring
me when we pivot a little bit and go in
a different direction, and we'll put links to Melissa's work.
(57:21):
She's doing a lot of great work when it comes
to the economic realities of strengthening families right now at
the University of Notre Dame. We'll put links to that
into her book up on our website at how to Money.
But until next time, best friend Out.
Welcome to How to Money. I'm Joel and today I'm
talking the demographic dilemma and your dollars with Melissa Karney. Yeah,
(00:26):
demographics or destiny. We've all heard that phrase, right. Looking
at current trends can offer insights into what the future
might hold. Declining birth rates, rising inequality, and the upting
uptick of single parent households is having a profound impact
on our society and it's impacting the economy as a whole.
We're side stepping the culture war battles on these topics today,
(00:48):
but I do want to discuss how current trends and
demographic realities are going to affect our society, are going
to affect our economic vibrancy and the money choices that
we should be making now as individuals. So Melissa Karney
is an economist known for her extensive work on social policy, poverty, inequality,
and the economics of families and fertility. So a lot
(01:10):
to dive into here. She's a pressor of economics at
Notre Dame. Melissa, thank you so much for joining me
today on the show.
Speaker 2 (01:16):
Thanks so much for having me.
Speaker 1 (01:17):
Okay, first question that I ask everybody who comes on
is what's your craft beer equivalent. That just means that
I like to splurge on fancy craft beer from time
to time, but I'm not doing it at the expense
of my financial future. Do you have something like that
in your life that people might think is a little offbeat,
But you're spending quite a bit of money on in
the here and now.
Speaker 2 (01:34):
Okay, maybe not offbeat, but definitely indulgent and probably a
little embarrassing. And when my husband looks at our family
app he's always a little horrified how much I spend
at the hair salon. So I'm just gonna admit it, Okay,
cause a lot of money to keep my hair from
getting gray. I want to be the person who's okay
with it, but I spend a lot of money at
the hair salon.
Speaker 1 (01:53):
No shame in that game, you know, I'm a little
bit of shamed. I'm not judging. I'm not judging. Okay.
That's fascinating, and you know it's amazing some people the
grays come in and they look incredible women and men,
and you're just like, how how does how do we
pull off the gray like that?
Speaker 2 (02:11):
And I want to be that person, but but I'm
not it.
Speaker 1 (02:15):
Sometimes, right, Okay, let's let's get to the meat of
the topic. Like you, you're avoiding the culture war stuff
in your book that came out a couple of years ago,
And I appreciate that you're you're really not trying to
castigate anyone, You're not trying to throw anybody under the
bus here. But what drove you specifically into touching on
some of these really tough economic topics that maybe send
(02:38):
people into a tailspin when they start kind of thinking
about them.
Speaker 2 (02:42):
Yeah, so I've so the book you're referring to, the
two parent privilege I wrote a couple of years ago,
really to call attention to what's happened to families and
marriage in the US over the past forty years as
an economic matter, Right, So you're right, there's plenty of
culture wars about marriage, and as an economist, I have
nothing to say about whether somebody should or should not
(03:03):
get married. But what I have a lot to say about,
and what the data has a lot to say about,
is how the decline in marriage in the US over
the past forty years has impacted economic security and inequality.
And so you know, as somebody who's spent my career
studying poverty and inequality. It got to the point where
(03:24):
I wrote this book because this is such you know,
how we choose to form our families and whether or
not we choose to get marriage has really profound implications
for our economic security and that of children.
Speaker 1 (03:35):
So basically became like an unavoidable topic, like the elephant
in the room.
Speaker 2 (03:39):
One hundred percent. It was always the elephant in the
room in academic and policy conversations about inequality in particular
and social mobility, which obviously there's been a lot of
attention to in recent years for good reason. But it
was despite mounds of academic, rigorous evidence showing how predictive
(04:00):
family structure was at both an individual and community level,
these conversations, it just was somewhat easier and more tractable
to talk about the problems of schools or holes in
the government safety net. And so, as you said, it
was the elephant in the room. And so that's why
that's why I wrote the book.
Speaker 1 (04:18):
And most people were saying, I'm not going to touch
it with a ten foot poll, and you were like,
let me at it. I'm going to get in there,
I'm going to write the book on it, and I'm
going to take all the flag for it too.
Speaker 2 (04:26):
I don't know. I wasn't naive going in. I knew
it would be I mean, I knew a little bit
that I was, you know, walking on land mines. But
I was hopeful enough that there was a way to
talk about the issue with empathy, talk about the issue
that was not sort of tinged with the judgmental, really
(04:49):
ugly ways that sort of the conversation has sometimes happened
in the past. Yeah, and felt like, Okay, we can
do this, we can have a you know, a civil,
evidence based conversation. And I will say, for the most part,
I've been really pleased with how that went. Like, yeah, sure,
there were plenty people who didn't like the book before
they read it, or we'll never read it, but wrote
(05:10):
some scathing essay based on the title of premise alone.
But for the most part, I felt like the reception
I got made me think, gosh, really, this was a
conversation America wanted to have. People were having this around
their dinner tables. A lot of teachers and pediatricians wrote
to me saying, yeah, this is what we're seeing. Thanks
(05:31):
for like sort of launching the national conversation. So so
I actually was pretty pleased.
Speaker 1 (05:35):
Yeah, it was a conversation that needed to be had,
and I feel like you sparked it in so many ways,
And I want to dig into that topic in particular,
but I want to get into some other stuff with
you as well. But one thing I'm curious about, based
on the research that you're doing, I feel like the
world is inundated with bad news. We're going to cover
some bad news and some bad trends right now, but
before we go too far down that path, are there
(05:57):
any good trends that you've been researching lately that are
worth highlighting that you seeing on the economic front where
you're like, dang, that kind of surprised me in a
positive way.
Speaker 2 (06:04):
We are, Yes, there's actually a lot of good news
and it gets buried. I mean, you know, we should
always be looking for ways to improve society and make
life better for people. So I think as researchers or
people who focus on policy problems, there's a tendency to
focus on the bad news. There's lots of good news.
I mean, Americans are sort of crazy rich compared to
(06:26):
previous generations and to countries around the world. I mean,
media and household income is in the US is so
much higher than in Europe. It's so much higher than
it was twenty years ago. Even at the bottom of
the distribution, workers are making higher wages than in the past.
I think that gets lost a lot. But fundamentally Americans
(06:48):
are in very good position when it comes to income, wages,
household wealth, you know, living standards. Of course, medical advances
and technologlogies are incredible. Again, there's always I can't help myself.
I am a scholar, so I put a footnote on everything.
(07:09):
There are class divides in all of this. People without
college degrees are falling behind people with college degrees. But
in general, across the distribution, Americans are in quite good shape.
Speaker 1 (07:21):
Why do you think there's so much pessimism? Individual pessimism,
like cultural pessimism. It does seem like when you look
at some of the trial I think inflation was one
of those things. It just got people riled up, right,
and they were like, my eggs cost more, and I
get it. Like I was at the grocery store just
this past weekend and beef prices we're insane. I was like,
I need to just cut steak out of my diet completely.
(07:43):
It's too expensive. But why do you think there is
so much pessimism given kind of the data reflecting overall
solid trends.
Speaker 2 (07:52):
I mean, this is now we can all conjecture as
well as the next person as to why there's so
much pessimism. I think part because we are accustomed in
this country to things just sort of getting better, and
people get used to things being good, right, so there
are things like what behavioral economists would call loss a version.
(08:15):
We get very upset when you know, if beef might
have been more expensive in the past, but when we
were used to paying lower prices for it and all
of a sudden it becomes more expensive. Now we're particularly upset.
So there is some of that that we just have
grown accustomed to things constantly getting better, and so things
that set us off that course have sort of outsized
(08:36):
impact on our psyche. I can't help but speculate, and
this is not my era of expertise, but we are
inundated with social media and messages that just bombard us
with the bad news that it's easy to lose sight
of the good news. And you know, one sort of
(08:57):
survey finding that I think always emphasizes that is when
you see surveys of how happy people are with their
own lives versus how they think things are going in
the country. People generally tend to be happier with their
own lives, and so it's almost like, well, things are
pretty well, going pretty well for me, but I see
all these stories that make me think it's not going
(09:19):
well for other people in the country.
Speaker 1 (09:20):
Yeah, it's kind of like, oh, I love my congress person,
but the rest of them, we're terrible. It should all
be thrown out. Yeah, and I agree, those are fascinating
things to see. It's like, I think I'm actually doing okay,
but everyone else out there is having a tough time,
and it makes you feel like just there's doom and
gloom around you, when maybe it's not nearly the extent
that you might think.
Speaker 2 (09:39):
But can I say one thing on this, because one
of the demographic issues that I've been thinking and writing
and studying a lot about in the past few years,
aside from the decline in marriage and the rise in
single parent families, is just the decline in fertility. And
I am always amazed when I'm talking to young people,
college age people about what's going on with the birth rates,
(10:00):
how low they are Inevitably they tell me how worried
they are about the future, and then I'm like the
old lady, being like, you guys have it so good,
but it is sort of remarkable in a worrying sense,
why this generation of young adults in particular seems to
(10:20):
be pessimistic when really their future is quite right.
Speaker 1 (10:25):
Yeah, yeah, I think we need a reminder every now
and again. I was talking to an immigrant from Cuba
recently and just to hear his experience growing up and
living in Cuba, and then what it's been like these
past four years since his family has been in the
United States, and it hasn't been like easy, right, but
just the access he has to be able to start
a business or live life in the way he wants
(10:46):
is completely different, and I think maybe hearing more of
those stories would benefit all of us. Okay, let's talk
about families for a little bit. I'm curious, based on
your research and just kind of the trends you've seen,
how much have family structures change over the last couple
of generations, And do you have an idea of why
the family structure has changed so significantly overall?
Speaker 2 (11:08):
So let me focus on kids and their living arrangements.
So since nineteen eighty there's been a decline in the
share of kids living in married parent homes, falling from
about eighty percent to about sixty three percent. So now
at a point in time, only about sixty three percent
of kids live with married parents. It's not that so
(11:33):
many of them are living instead in sort of cohabiting parents.
Only about eight percent of kids live with one of
their biological parents and their parents partner. Meant often that's
not actually their second biological parent, but rather we have
about one in five kids in the US lives with
an unpartnered mother, meaning a mom with no other spouse
(11:55):
or significant other in the home. That's often a very
economically vulnerable situation, which is why this is relevant to
issues of poverty and inequality. This is a sea change
in the way kids are being raised in the US right.
The fact that just over sixty percent of kids are
living in married parent homes is really most of the
(12:16):
change happened in the eighties, nineties, early two thousands, but
that's where we are now, which is very different than
where we were forty fifty years ago. The other really
important facet of this trend is that this has happened
almost entirely outside the college educated class. So the decline
and the share of kids living with married parents for
(12:39):
those who are born to moms with a four year
college degree has only fallen from ninety percent to eighty
six percent, like a tiny decrease, even as more and
more moms are getting college So that's like a less
selective group. But outside the college educated class, kids born
to moms with a high school degree or less, or
maybe some college but not a four year degree, you know,
(13:02):
we're getting below sixty percent of them are living in
married parent homes. So there's this real college gap now
in the way kids are living being raised, and that
mirrors a college gap in marriage rates. So if you
think back to the sixties and seventies, when we had
the Cultural Revolution and a lot of institutional, legal, cultural changes,
(13:25):
marriage sort of fell for everybody regardless of education level.
But then going into the eighties, nineties, early two thousands,
it didn't. It's stabilized among college educated adults and continued
to plummet for people without college degrees. That starts to
give us a hint as to what caused this. So,
(13:45):
in very broad strokes, my read of all of The
evidence and literature is that we had these really dramatic
changes in the sixties and seventies that set us up
with new social norms. It was more acceptable to not
be married or have kids outside of marriage. And then
you go into the eighties and nineties when there's a
whole bunch of economic shocks that are pretty bad for
(14:09):
relatively bad for men without college degrees. So if you
take an economic view of marriage, a very non romantic view,
but essentially, we're making a contract with you know, long
term contract with someone to pool our resources. At the
same time as women now have more economic opportunities and autonomy,
and again among those without college degrees, the men are
(14:33):
sort of their their employment rates are falling, their earnings
both you know, relative to women is falling. They become
less desirable as economic partners. Some of them might feel
less ready or inclined to be an economic provider for
a family, and we just see a decoupling of marriage
and having kids in those in those affected populations.
Speaker 1 (14:53):
I know it's not a sexy topic to talk about
marriage as an economic reality, it is right.
Speaker 2 (15:01):
It has always been like from the beginning of time,
marriage has always been an economic arrangement, and I.
Speaker 1 (15:06):
Feel like we primarily view it through the lens of
love companionship, and those are wonderful things, but there's an
economic reality for the rest of your life present to
tying your life to the fate of someone else too.
Why do you think that doesn't get talked about enough?
And like, yeah, I don't know, can you put it
maybe into perspective for us, how big of an economic commitment?
Speaker 2 (15:26):
It is really a modern concept that people are getting
married out of, you know, primarily for love and their
own adult human flourishing. Again, I don't write about this
in the book because I just write about marriages through
an economic lens, but that really is a modern conception
of marriage. And so if you just strip marriage down
(15:50):
to its economic elements, and there's really no denying that
it is in large part in economic decision and commitment.
You have two people who are making a commitment to
share their resources, to pool their resources, and to jointly
contribute I'll use my boring economic language, but to like
producing a household, or if there's children, to raising children
(16:12):
and then jointly consuming things. And so you know, there's
a lot of benefits to this because now if you're
two people forming one household, there's economies of scale, of course, right,
we just need one household and all the things we
share in a household, so it's very beneficial from that.
Speaker 1 (16:27):
I remember being so excited when we got married to
go from having two apartments that were renting to living
under one roof and being like, wow, think about how
much more money we're going to have to surround other
stuff we care about.
Speaker 2 (16:39):
There's totally economies of scale. There's also when we you know,
think about this again from a very economic position, and
when kids are involved, there's specialization, so you can also
it's not even just that you're pooling the resources of
two people, but you're specializing. Okay, Like what does that mean.
It used to be that men would specialize in working
(17:02):
outside the home and women would specialize in household production
and childcare. Today, you know, the majority of women, the
majority of married women, the majority of mothers work and
so it's less about specialization let's say in and out
of the home. But even within the home, you can
imagine that. I mean, I'll be you know, terribly heteronormative
(17:23):
about this, but like my husband, you know, he will
take care of mowing the yard or bringing out the garbage,
or he also deals with dealing with all the health
insurance and car insurance and car repairs and that kind
of thing. And I will deal more with like meal
planning or grocery shopping. And every time you go to
the grocery store again, am I allowed to stereotech? How
many times do you see a guy on the aisle
(17:44):
calling someone back home, being like they don't have that kind?
What kind should I buy? Instead? And I think that's me.
Speaker 1 (17:50):
I'm the one who shops at the grocery store, but
I'm calling because I've got questions.
Speaker 2 (17:54):
Because you've specialized, and so when you have household specialization,
you also can do more things than two people so
separately just combined. But there's also a wonderful insurance component
of a married unit as an economic unit. If one
person loses their job or is injured or sick, there's
another person in the household who can pick up some work,
(18:17):
or pick up some hours, or do some more of
the resources. So there's also a resource insurance component there
when two people have pooled their resources in marriage.
Speaker 1 (18:26):
Do you think the decline in marriage and the subsequent
impact on kids is this and families as a whole.
Is this like a preferences issue or is this like
a response to more economic constraints because you talked about
maybe some younger men not feeling like they could provide
for a family, like are the economic hurdles more significant?
(18:48):
And so people are saying, I'm just going to punt
on marriage for a while until i feel like I'm
economically ready to commit to that.
Speaker 2 (18:54):
It's this is a very thorny complicated question, but a
really important one. Again, my read of the evidence is
that what we're seeing in terms of the reduction in
marriage and the decoupling of you know, having kids inside marriage, again,
this is almost entirely outside the college educated class. It
(19:16):
reflects both changed social norms and changed economic realities, and
those two things accentuate and amplify each other. So you
see in places where like non marital childbearing or having
kids out, you know, raising kids outside a married parent home,
(19:36):
where that's more common. Even when there's an economic a
positive economic shock, right, you don't get the increase in marriage.
So I'll be very specific here. So you know, for
a long time I was of the view that it
was primarily an economic challenge and if we could only
improve the economic position of men without college degrees, we
would see a return to a higher level of marriage
(19:59):
and a reduction and the share of kids born outside marriage.
And then one thing happened actually in the early two
thousands that was actually good for the economic position of
non college educated men in both an absolute level and
relative to women. And that was the fracking boom. So
in a lot of communities where fracking was sort of
(20:19):
accessible because of the geology and all of that. So
what happened in these places, Let's say Texas, you get
an increase in fracking, and it's not just good for
fracking workers, but it leads to local economic booms. There's
just more jobs, and in particular, we see more jobs
for men without college degrees, so we can confirm that
(20:40):
that's great. And then it looks like people did have
more kids, and we actually have lots of evidence that
kids are what economists call normal goods, and you got
a positive income shock. One of the things people spend
money on is having kids. Okay, but to my surprise,
there was not an increase in marriage, and there wasn't
a reduction in the share of kids born outside marriage,
(21:00):
And so that surprised me, and so then we looked
back my co author Riley Wilson and I we looked
back at what happened during the coal boom of the
nineteen seventies and eighties, when similar communities and like rural
Appalachia were affected, and you saw the earnings of men
went up. What you saw then was an increase in
marriage and a reduction in the share of children born
outside marriage. Okay, this contrast is super interesting because it
(21:24):
suggests that a very similar economic shock had different effects
on family formation based on the new prevailing social paradigm.
And even in the modern context, when you saw, like
you know, in the fracking communities were non marital childbearing
was less common, then you did get more of an
(21:45):
increase in marital burst than non marital bursts. So I
think it's both. I think we've sort of normalized as
a society, and in some sense for good reason, because
in the past, single moms and their kids were ostracized
from the communities, and nobody wants to go back to that.
We should definitely want to go back to that. But
in some sense we've so normalized this idea of people
(22:07):
raising kids not together or not sharing you know, having
the commitment of a shared household that even now, if
the economic situation of these memore to improve and the
incentives for marriage were greater without a changing recognition or
changing social norms, I'm less confident that what we would
see are reversal of trends.
Speaker 1 (22:27):
I would think a basic response to maybe some of
your work would be, well, yeah, I mean, part of
the reason that two parent households are for better opportunities
for kids is because, especially in today's day and age,
both mom and dad are both partners, are working, right,
and so there's more money coming in. So of course, yeah,
(22:48):
those kids are going to be better off. But you
would say it's not all about the income, right, it
goes beyond just the amount of money coming into the household.
There's something about two parents stability.
Speaker 2 (23:02):
Right, Yeah, that's right. So it's we again, I'm basing
this on a lot of statistical evidence, so we can
see that a big part of the benefit for kids
of growing up in a household with two adults is
just that there's more income coming in. And so you know,
if you have more income coming in, you're more likely
to live in a good neighborhood with good schools and
(23:22):
have lots of these extra you know, great opportunities to advance,
to obtain higher levels of education. But even comparing families
with the same level of income in one versus two
parents in that household, kids who have two parents, especially
for all of their childhood, just have better outcomes in
the sense of being more likely to stay on track
(23:44):
in school, being more likely to get a four year degree,
being more likely to have higher earnings as an adult.
What are some of the mechanisms driving that. Well, anyone
who has kids knows that what parents do is more
than just provide for them. Provide shelter, pay for the things,
You supervise them, You help them with their homework, you know,
(24:05):
you try to teach them lessons. There's all sorts of
things that parents do that.
Speaker 1 (24:09):
Are helpful chauffeur regularly show for regularly.
Speaker 2 (24:12):
But that also really contributes to the activities. So you
see kids now who are growing up in single parent
homes or you know, lower resource homes, they don't even
have access to the same extracurricular activities. And here's where
to your point, like, you know, it's tricky to talk
about these things, but it's foolish to try and deny
(24:33):
that a parent trying to do all of this by
themselves is not at a disadvantage. And I say that
with full empathy, Like, even as a married mom, it's
really hard to feel like I have time to drive
my kids to all their practices or get dinner on
the table after work. It's that much harder if you
don't have another parent contributing reliably on a daily basis
(24:55):
to picking up some of the slack, running to the
grocery store, driving the kids around, helping one do the
homework while you're trying to make dinner, all the while
having to bring in enough money to pay all the bills.
Speaker 1 (25:06):
If my wife has gone for four or five days
on a trip with friends, like my level of patience declines,
my level of mental insanity increases. And I'm just I
it gives me a lot of empathy and respect for
people who are single parenting out there, because it's really tough.
Speaker 2 (25:22):
The emotion, like what you just mentioned is is what
I refer to in the book is emotional bandwidth. And
there's lots of evidence on that too, less from economics,
but more from psychology and sociology. People showing that just
you know, the level of cognitive bandwidth, emotional bandwidth, the
absence of measures of stress, those are all much higher
(25:44):
if there are chief parents in the households. We you know,
we can't get this far in the conversation without acknowledging
the fact that there are some couples that are toxic.
And of course when there's violence or abuse, nobody benefits
from the preservation or the formation of that kind of relation.
So let you know, I want to be exceptionally clear
that I am not talking about those situations.
Speaker 1 (26:06):
All right, we got so much more to talk about
with you, Melissa, including inequality. It's a hot topic these days.
But how's that impacting our society and how's that going
to impact our personal finances? We'll talk about that right
after this. Are back from the break, still talking about
(26:26):
demographics and your money with Melissa Karney. Melissa, inequality is
an issue that gets a ton of press these days.
I feel like he gets talked about all the time,
and rightly so in so many ways. How are maybe
like these family trends impacting arising inequality.
Speaker 2 (26:42):
I mean, it's very very mechanical and obvious on once
you see it. So let me put it this way,
over the past forty years, two things have happened to
people with college degrees. Their earnings have gone up, right beautifully.
We know this, like, earnings have gone up about sixty
percent for workers with a college degree. And you have
college educated workers marrying each other and raising kids in
(27:05):
a household together, so their household earnings have gone up
by like sixty percent, and they're really high, right because
you have two high earners pooling resources, pouring them into kids.
And then outside the college educated class, if you just
look at people with high school degrees, depending on how
you want to measure things, their earnings have sort of
(27:25):
stagnated or increased by a little bit, but they're much
more likely now to only have one adult in the household.
I mean, to be specific, they're twenty three percentage points
more likely to only have one adult in the household.
So if you take basically stagnant or just small increases
in earnings and you combine that with an increase in
(27:46):
the likelihood that you only have one adult rather than
two in the household, now you just made the economic
insecurity of the middle class that much worse, because even
if your earnings held constant, you just lost the second person,
and as compared to you know, thirty years ago, when
there would.
Speaker 1 (28:02):
Have been two of you, the economies of scale got worse.
Speaker 2 (28:04):
You just lost like fifty sixty seventy thousand dollars because
you're the only person there. And so yeah, so I
don't know why that doesn't get more attention when we
talk about sort of the economic insecurity of people without
college degrees, A lot of that is just reflective of
the fact that now they're trying to make ends meet
(28:25):
without the benefit of a second adult bringing resources into
the household, and so it's very mechanical. People often will
talk about assortative mating, meaning people marry people like themselves
in an economic sense. So college educated workers are likely,
college educated adults are likely to marry other college educated adults.
(28:45):
People without you know, college degrees are likely to marry
other people without college degrees. Just there's a lot of
reasons for that, in part because of the circles people
run in. But what people have shown is it's almost
less about the like marrying each other that has contributed
to widening inequality, and more about the highly educated marrying
(29:07):
each other and the less highly educated not even getting
married anymore.
Speaker 1 (29:11):
To talk to you just about inequality from an overall standpoint,
because when it's written about oftentimes it's it's made out
to be a terrible thing. Right, Any inequality is bad.
Equality in and of itself is a is a good thing.
But zero inequality doesn't seem like a great goal either, right, Like,
what leads to inequality? How much is okay? And how
(29:34):
much is actually maybe a good thing from an economic perspective.
Speaker 2 (29:37):
Okay, that is a very big question. Okay, the short answer,
unless we're going to have a society where people can't
keep the you know, the results of their efforts and earnings,
you're going to have some inequality, right, And so this
is the Agel debate of like Marxism versus cap Okay,
(30:00):
So let's set a fun you know, at a very
basic level, say that you need to have some inequality
to incentivize people to put in the effort to work
and to earn a lot. Now, do we have to
have so much inequality as we have in the US
to incentivize people to work. Probably not. But I am
an economist through and through, and you know, as a
(30:22):
labor economist, when I look at the data and look
at all of the studies that have been done on this,
it's pretty clear that when you have higher tax rates
at the top and more income transfers at the bottom,
there is a productivity loss. People will work less on
both sides. The normative question or value question or political
(30:44):
question becomes how much productivity gain are we willing to
give up to contribute to a more equal society. So
you're absolutely right, zero inequality should not be our goal,
just like frankly, zero police, you should should not be vehicle.
Yeah right, you take some of the negative consequences so
(31:05):
that there's some production in the economy. I am more concerned,
you know, with bringing up the lower part of the
distribution than I am with taking away income or wealth
from the very top. Not everybody shares that view, obviously,
some people, some prominent people, just find it morally repugnant
(31:28):
that some, you know, a few individuals have such a
high concentration of wealth when there are other people who
who are living in poverty. Again, I'm just more concerned
with making sure that we take care of and we
do a better job in society of meeting the material
needs of everybody than necessarily offended by high levels of
(31:50):
concentration at the top.
Speaker 1 (31:51):
Yeah, So I initially reached out to you because I
had a listener email me. His name's John. He was like,
I would love for you to dig deeper into demographic
impact on personal finances. And he's basically saying, well, how
should people be reacting given the fact that birth rates
are declining and the economic consequences that that's going to create.
(32:12):
And we can already see like what's happening in a
place like South Korea or Japan, and you can kind
of like predict some of our own future and what
we're going to encounter. So what are you seeing there?
And how are we going to be impacted as individual
economic units, which obviously we're human beings, but we're also
individual economic units, Like how are we going to be
(32:34):
impacted by some of those trends.
Speaker 2 (32:35):
Let's talk about declining birth rates, But just for the listeners,
I want to be very explicit in our segue here
to note that what we were talking about before, in
terms of the decline in marriage and the reduction and
the share of kids living in two parent households, the
share of kids living outside married parent households has happened
despite the fact that birth rates have been falling a lot, Okay,
(32:58):
And the reason I want to make that segue explicit
is because twenty years ago we were really worried about
the high number of teenage births in this country, and
teenage births are almost always outside marriage. What's been shocking
from the perspective of family structure is that teenage births
have plummeted, which is a good thing, and yet there
(33:21):
hasn't been a decrease in the share of kids living
with their moms, only because that previous trend we were
talking about is really reflective of the fact that the
decline in marriage and the sort of rise in single
mother households that sort of spread across the distribution away
from just the very disadvantage groups. Okay, so then when
we look at the birth rate, it is true that
(33:44):
birth rates in the US and around the world in
particular and high and middle income countries have been falling
quite steeply in recent decades, in a way that a
handful of demographers were noticing, but really, I think think
sort of just was not. It was really not widely
noticed until now. In many places like South Korea, they're
(34:08):
almost like an existential point of population decline.
Speaker 1 (34:12):
More strollers being sold for dogs than for kids for
them for base.
Speaker 2 (34:16):
That's so in the US, where are we well, in
the US our total fertility rate and let me define that.
But right now our total fertility rate is one point six.
This is the lowest it's ever been in the US.
The reason why this low level is gaining attention is
because this is substantially below the fertility rate we would
(34:42):
need for our population to naturally reproduce itself meeting without immigration. Okay,
So the total fertility rate, you can think of it
as an approximation of the number of children a woman
in the you know, in a particular country will have
over her lifetime based on current age profile of childbearing. Okay,
(35:03):
so it's not a perfect prediction of what's going to happen,
but we are on track for women on average to
have one point six children. You need people to have
about two point one children in order for the population
to naturally reproduce. So that's why this is so concerning
is because it really portends a decline in population growth
(35:25):
and ultimately a shrinking population, which is.
Speaker 1 (35:28):
The opposite problem of what a lot of people were
predicting fifty years ago we were talking about overpopulation, and
now we're talking about not having enough kids right to
make our economy as vibrant as it's been.
Speaker 2 (35:42):
The lasting intellectual legacy or narrative legacy of the population
bomb warning of IRLIC in the late nineteen sixties is
really phenomenal. It's like, I mean, I grew up too
learning about the population bomb and there's too many people,
you know, I think ex post it's accurate to say
(36:06):
that was never an accurate prediction because what Eric missed
in those predictions is what Mauth has missed, you know,
back in the eighteenth century, which is that people innovate,
people are really amazing. People come up with great ideas
and they make advances in agriculture and technology in medicine,
(36:27):
so that we have you know, growing population actually has
always been associated with an improvement in living standards, and
you know, life expectancy has increased. We've managed to come
up with ways to fight disease, We've managed to come
up with ways to organize our societies democratically so more
(36:48):
people benefit. So the predictions that having too many people
was going to lead to widespread suffering I think was
never accurate. But what it did do was sort of
leave this very lasting view that too many people is
bad and in decline in the birth rate would be good.
And in fact, now we're faced with the decline in
(37:09):
the birth rate, and the way population grows and shrinks
is exponential, and so we are on track for global
population to decline. Declining population for both the country and
for the world actually pretends a lot of economic social challenges.
Speaker 1 (37:28):
Okay, talking about though, So I'm thinking of individuals. I'm
an investor, right and I'm investing in the S and
P five hundred or total stock Market Fund because man,
that's done really well in the United States over the
past one hundred plus years, investing in a diversified manner
like that. How does declining birth rates impact my investing strategy?
(37:50):
How's it going to impact social security and my ability
to get what's been promised to me by the government.
There are all sorts of ways that an individual could say,
they get extrapolated declining birth rate and say this doesn't
look good for my future.
Speaker 2 (38:04):
No it doesn't. But let me preface this with the
necessary caveat. I am not giving financial advice, yes, okay,
but here's let's start with the almost the most narrow
and let me focus on declining US fertility as opposed
to global for a moment. So declining global immediately, what
(38:25):
you're going to see is impacts on sectors that are
child centric. Right, So if I were to give financial advice,
I would probably say don't invest in pampers or maybe
adult depends. Right. But like we literally are we have
fewer babies, and where are we seeing this? We're seeing
this in school enrollment, declining. College enrollment is about to
(38:47):
decline because in the US birth started falling and they've
continued to decline since two thousand and seven. And so
now how old you know we've had just we have
fewer kids. So industries focused on kids goods, those are shrinking.
And we see this in the education sector. The sectors
that are growing are often those associated with an aging population.
(39:11):
The share of our population over age sixty five has
grown from eleven percent in nineteen eighty to about eighteen
percent now, right, So you've got this inverted population pyramid
where the aging popular. You know, we have more and
more elderly and fewer and fewer children. Okay, so that
(39:31):
just affects certain sectors and industries and by the way
certain parts of the country differently. So in places with
low birth rates, think California, think New England, their local
economies are affected in ways that we're just going to
see shrinking tax bass, et cetera. Okay, and then there's
(39:52):
other parts of the country where fertility is not declined
by as much. Those are going to be more dynamic communities.
So there's regional differences here too, and.
Speaker 1 (40:01):
That's going to impact even stuff like housing, right, I'm.
Speaker 2 (40:03):
Thinking about totally.
Speaker 1 (40:05):
In Japan, there are places where I think you can
get a house now for a song because the communities
have been decimated, and that is that going to be
the case here too. As like real estate investors, you've
got to pay much closer attention to what's happening in
regards to these sorts of trends for when you're thinking
(40:25):
about buying a property that you're going to own for
a long time.
Speaker 2 (40:28):
Yeah, I think that's I think that's right, and we
certainly see that. And you know, the population decline is
quite un event across across counties in the country. Okay,
Then let's think about the fiscal implications of this. You
mentioned social security. This is a really huge deal I
know people have been sort of trying to raise the
(40:50):
alarm on the fiscal unsustainability of Social Security for a
long time, but it is upon us, and it is
worse than the official projections suggest because the official projections
of the Social Security Administration they actually for years they
were just assuming that women were going to go back
to having on average two kids per person. And when
(41:12):
you read the footnotes of that report as to like,
where are they getting that from, they basically said, because
us women just have historically had historically, meaning in the
past twenty years, have historically had that many kids, and
so we just sort of assume they'll go back to it.
Speaker 1 (41:26):
And the reason that's important, right, is because then those
kids grow up, get jobs and they're paying into the
Social Security system. As their parents get older and need
to take social Security, you have more workers putting into
the system to kind of keep it afloat.
Speaker 2 (41:39):
In the nineteen sixties, when social Security started, we had
more than four workers per beneficiary. That then fell to
about three, and now we're looking at we're coming up
on two workers per recipient. So the way, as you said,
the way social Security works is current, even though people
think of it as I contributed to the system and
(42:01):
then it pays me out. Really, the way it works
is current workers are taxed and that gives the revenue
that pays out current benefits. And so as you have
fewer people contributing and more people taking it, the scheme
just financially doesn't work anymore. What happens when social security
does not have enough money to pay out all the
(42:22):
benefits is not entirely clear. Some reading of the statute
suggests that it's just going to imply a twenty four
percent cut in everyone's benefits. So how policymakers eventually respond
to this crisis will determine what happens to the system.
But we see this in Europe, for example, because in
(42:43):
Europe birth rates fell below replacement level a couple decades
before they did in the US. We're actually sort of
lagging Europe in terms of these demographic challenges, and you
see that Europe is struggling with their social insurance systems
trying to figure out how to raise money. That also
(43:03):
heightens the conflict around immigration, because bringing in prime age
workers now is an immediate way to shore up your
workforce and your contributions to these systems. But if with
the population aging, with native birth falling, and with political
(43:24):
backlash to immigration, Countries like ours and those in Europe
have a real tough time dealing with these issues.
Speaker 1 (43:31):
It does seem like a country like ours has a
particular ability, unlike most other nations, to allow certain types
of immigration to actually counteract some of these negative birth
rate trends. But it's something we're not taking advantage of
the fact we're going the opposite path. But we could
tell me if I'm wrong, in an economic sense, kind
(43:53):
of make some hay on the immigration front in order
to counterbalance some of the decline in birth rates.
Speaker 2 (44:00):
I mean, that is in some sense the easiest way
to deal with this challenge in the immediate future. I
do want to note, though, immigration is only a partial
solution because birth rates are falling essentially everywhere. The fertility
rate in Mexico is actually now lower than in the US,
which surprises a lot of people. So even a lot
(44:21):
of these sending countries are experiencing decline in birth rates.
That just means going forward, there's likely to be a
smaller supply of potential immigrants than there is right now.
But that's a difference between the long term and now
the other thing. Okay, So we talked about like immediate
challenges to certain sectors or communities from declining birth rates.
(44:44):
We talked about the fiscal challenges. A shrinking population and
an aging population poses demographic headwinds, and we've seen this
in South Korea too. Now Here, I want to acknowledge destination.
Demograp doesn't have to be destiny, and we could take
efforts to counteract these trends. But let me just articulate
(45:08):
what the headwinds are. We have evidence again from really
nice academic studies, showing that older firms tend to be
less innovative, older workforces tend to be less dynamic. What
does that mean? It means you could think of it
as people create ideas, and so the more people is
(45:33):
how we get more good ideas that are non rival
So like you just needed one person to come up
with a vaccine and millions of people don't get sick. Right,
you just need one person to come up with some
fabulous managerial breakthrough, and all firms can be more productive.
But beyond that, the evidence suggests that younger workers tend
(45:54):
to be more dynamic, they start more businesses, and so
as you're we're facing not just a shrinking workforce, but
also an aging workforce, and that potentially means less innovation,
which is not good for living standards. So this is
the opposite of the prediction that more people is bad
for living standards. This is fewer people, and fewer young
(46:16):
people in particular, threatens living standards, or it threatens to
have slower rates of innovation. No, that doesn't have to
be the case. We could invest in making sure that
every person has higher human capital. We can make a
lot of educational investments, we can invest in technology, we
(46:38):
can figure out how to leverage AI. But we should
be clear eyed about the fact that the demographic trends
we're experiencing do pose headwinds and we should take them
head on.
Speaker 1 (46:49):
Okay, got a few more questions. I want to get
to with you, Melissa, and specifically I want to talk
about you have three kids, Well, how are you these trends?
How's that impacting the advice you give them. We'll talk
about that and more right after this. Okay, we're back,
(47:12):
still talking about demographics in your dollars with Professor Melissa Karney.
We list say, I don't want to know what's in
your portfolio. I don't want to know exactly how you're investing.
But you have kids too, and you see these trends coming,
and you have an idea, especially when you look to
other countries that are already experiencing some of these things,
of what maybe some of the outcomes could look like.
(47:32):
How are you talking to your kids about the coming
economic reality of some of these these trends and maybe
how they should react to them.
Speaker 2 (47:43):
I have two in college and one in high school,
So I think the thing that's most immediately on my mind,
to be honest, is they're facing very uncertain job markets
in the sense of we don't know what jobs are
going to look like in ten years. Yeah, and so
that's a different brand investment strategy. That's what kind of
skills do they invest in being mindful of the uncertainties
(48:06):
of where the labor market is going. But we certainly
try to teach them the value of saving and compound
interest and all that. I don't think they should at
all be sanguine about social security being around for them,
that's for sure. So I think that would be silly
(48:28):
to think, Okay, you're just going to work and you'll
the government will be there to take care of you
in your old age. I mean, this is another thing.
It's not even just the finances of social security. With
so many adults not having children and so many adults
not getting married, there is a very immediate question of
(48:50):
who is going to take care of the elderly in
this country. And this we see in Japan too.
Speaker 1 (48:55):
I mean robots, right, apparently, I guess.
Speaker 2 (48:58):
I mean this is like one of those how do
you say the word the raw schow test or whatever.
Some people are like robots will take care of them
and that makes them feel better. That to me is
like a terrifying dystopian image.
Speaker 1 (49:10):
It doesn't sound good to me, but it does appear
to where we're headed, you know, yeah, yeah, okay, if
strengthening families kind of going back to the earliest parts
of our conversation, if that's if that's crucial to general
well being an economic progress, how should individuals who are
listening to this respond. Should people be like, I wasn't
planning on getting married, but now that I heard Melissa
(49:31):
talk about how important it is to our overall economic prosperity,
I'm gonna jump on. I don't even know what website
people use to meet people anymore or do they just
go to the local bar and find somebody. Yeah, what
would you tell somebody who's listening, Like, what can I
do to participate in? Uh in what's good for myself
and for our society?
Speaker 2 (49:50):
Yes, this, I do get this question a lot, especially
from you know, college age kids who I spend a
lot of my time with. It always makes me uncomfortable,
isn't it con missed? But I will take the bait
with the caveat that now. My answer in part reflects
my own values. I think we have become too agnostic
(50:11):
about the way we talk about marriage in the sense
of especially when there's kids involved, and so, you know, again,
there are some couples that should not be together, and
it would be bad for everybody to the extent that
there are couples who were sort of indifferent about being together.
I think it would be for everybody's benefit to just
(50:33):
be a little bit more clear eyed about the benefits,
the documented benefits of marriage for both adult and child wellbeing,
and just have that inform people's decisions about, you know,
one of the most important decisions they will make for
themselves and their and their kids. There's also some really
interesting evidence suggesting that when there are cool off periods
(50:56):
for divorce. You know, this is an area that needs
more staff. But when there's cool off periods, a bunch
of people actually wind up not getting divorced. And so
that suggests too that like maybe being I don't know,
slower about that process could ultimately lead to greater both
adult and child well being. Related more to the fertility question,
(51:21):
I you know, I mentioned the reasons why I worry
about a declining birth rate from an economic position, one
of the things I actually worry about. If you look
in the data, many more people say they would like
to have children. People are still inclined to say a
two child family is the ideal than are actually realizing
(51:44):
those those levels of child bearing. So, for you know,
fifty percent of thirty year old women in the US
are now childless, but if you look at surveys, it's
nothing like fifty percent of thirty year old women say
they want to ultimately be childless. That makes me more
worried that we've created a society or a set of
expectations where people are putting off or forgoing having children
(52:07):
who ultimately will wish that they did have kids. And
I think that's something that we need to again be
cognizant of and be attuned to.
Speaker 1 (52:17):
Yeah, okay, last question for you, given the college degree
gap that we've discussed too, is part of the problem
getting more young people to pursue a college degree because
that's something else that's become fairly or far less affordable.
And we still see the income gap overall, right over
the many decades people that graduate with a college degree
(52:38):
and then people that don't. But there's because of the
soaring cost of college, and it does seem like more
people are, especially gen z ers, are saying, yeah, I
don't know if that's the right move for me. I
don't want to graduate with one hundred and fifty thousand
dollars in debt and not have the job that's going
to earn me that greater lifetime income at the end
of the day. So is I don't know, it's a
(53:00):
complicated question, but to getting more college degrees, is that
an answer to this problem, or at least part of
the answer.
Speaker 2 (53:06):
A college degree is still in general worth it, right,
We just know that a college degree confers so many
advantages in the labor market and leads to higher earnings.
A lot I mean, we have very high share of
high school graduates or going to college. It's less about
accessing college or starting college. A lot of students don't
(53:28):
finish college, and those are the ones you really worry
about because they take on some debt and then don't
even get the benefits of the degree. But I also
will say that, you know, as someone in the higher
education sector, I think the reckoning that's been brought upon
the higher education sector is a good thing. And given
the costs, universities and colleges need to make sure that
(53:52):
they are delivering a valuable product. And so while on
average a college degree is still a very good investment,
not all colleges and not all degrees yield the same benefits,
and so there's room for improvement on the sector side too,
to convince the public that a degree is valuable, but
(54:12):
also to make sure that every college and degree that
is charging students or charging the government on behalf of
students is actually delivering a high quality education and degree.
Speaker 1 (54:23):
Melissa Karney, this has been an excellent conversation. Thank you
so much for joining me work in how to money
listeners find out more about you, what you're up to,
and your wildly successful book.
Speaker 2 (54:33):
Oh thank you, So, I guess the easiest place is
my website, Melissa Karney dot com. You can also find
me on the economics department page at the University of
Notre Dame.
Speaker 1 (54:42):
Awesome, thank you again, thanks for having me. All Right,
that was such a fun conversation and a unique conversation
here on how to money. Definitely a departure from the
kind of meat and potatoes personal finance content we so
often talk about. But when listener John sent me that
email basically saying, Hey, why don't you talk about demographics
(55:04):
and how it's going to impact our personal finances? I
was like, you know what, He's got a point, And
I remember remembered Melissa's book coming out a couple of
years ago, and I was like, I don't know that
that makes sense for a conversation on this show in particular.
And then the more I thought about John's email, I
was like, actually, she's probably the perfect person to talk to,
and I think she was. I think this was this
was a really enlightening conversation for me, just to kind
(55:27):
of cement home some of the trends that are happening
around the world, and specifically here in the United States
and in ways that we should be reacting to those trends.
So like, does this mean you should stop investing because
the economy is going to implode because the birth rate
is declining. No, I don't think so. I don't think
that's what she was saying, and I don't think that's
(55:49):
where things are heading. But even something like I don't know,
Maybe my big takeaway is something like social security factoring
it into your plans, yes than you previously were. And
we've talked about with other guests on the show, the
political will to keep Social Security as is and how
(56:09):
the voting public is particularly skews older, and those older
people are going to vote for people to keep their
Social Security around. But at the same time, you can't.
You have to find the money somewhere. And if there
aren't enough young people paying into the system, what's going
to happen to that system. That's a good question. And
I don't think any of us is going to experience
like zero social Security payout, because again, I do think
(56:32):
it's politically popular, but I will think I can't imagine
they're not being adjustments to the system at some point
moving forward, And I think this is just a. It's
also just some fascinating stuff that Melissa covered in depth
in her book. If you're into statistics and you're into
kind of the economic realities of life and family and
(56:57):
child bearing and rearing, and even just touching on the
economic realities of marriage was to me super fun because
it's stuff that Auten doesn't get discussed. So thank you
as always for joining me in my endeavors and humoring
me when we pivot a little bit and go in
a different direction, and we'll put links to Melissa's work.
(57:21):
She's doing a lot of great work when it comes
to the economic realities of strengthening families right now at
the University of Notre Dame. We'll put links to that
into her book up on our website at how to Money.
But until next time, best friend Out.
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Joel Larsgaard
Matthew Altmix
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