The Impact of Population Ageing, Economic Growth on Private Savings in Vietnam

Abstract

In recent decades, population ageing is recognized as a significant issue of most countries in the world. It has happened in almost developed countries and now spreads to less developed ones. Vietnam has entered the so-called “ageing phase” of the population since 2017 and now is facing a remarkable increase in the proportion of the elderly population, which is estimated to rise from 8.7 percent in 2010 to 11.6 percent in 2020 and to 24.8 percent in 2049 (General Statistics Office of Vietnam, 2011). This fast ageing process in Vietnam resulted from a rapid decline in fertility rate, an increase in the elderly dependency ratio and a higher life expectancy and will be a huge economic burden for the Vietnam’s economic growth as well as affect the private savings. According to the Life Cycle Hypothesis (LCH) of Modigliani and Brumberg (1954), the individuals attempt to smooth consumption over their lifetime. People tend to save more when they are young and their incomes are high, and spend when they are old and retired. Their savings are highest during their working life, and will gradually reduce during their retirement and old age in order to maintain their normal standard of living, thus leading to a decrease in private savings.