EU financial and demographic security: interlinking aging population and institutional investors’ asset management trends

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EU financial and demographic security: interlinking aging population and institutional investors' asset management trends

V. Tokar, Doctor of Economic Sciences, Professor, Professor of the Department of Software Engineering and Cybersecurity, State University of Trade and Economics, K. Savchuk, PhD in Economics, Doctorate Student, European University

Demographic analysis, particularly through the lens of the aging coefficient, highlights the diverse challenges each EU country faces. Countries like Italy, with high aging coefficients, require urgent corrective actions, while others, like Austria and Belgium, demonstrate a more balanced age distribution, possibly due to factors like higher birth rates and effective immigration policies.

The study finds a negligible, statistically insignificant correlation between the aging coefficient and insurance penetration. This insight is pivotal for policymakers and financial regulators in developing strategies to address the impact of demographic changes on financial markets.

The prospects for future research could include determining the impact of demographic changes at the micro-level, conducting an international comparative analysis, highlighting potential technological and innovative solutions to the identified problems in demographic and financial security, and studying the role of sustainable development in asset management.

Keywords: aging population, asset management, demographic security, European Union, financial security, institutional investors.

В.В. Токар, д. е. н, професор, професор кафедри інженерії програмного забезпечення та кібербезпеки, Державний торговельно-економічний університет; К.Д. Савчук, к. е. н., докторант, Європейський університет

У дослідженні використано пороговий, порівняльний та кореляційний методи аналізу для вивчення проникнення страхування та коефіцієнта старіння населення в країнах-членах ЄС. Цей підхід спрямований на розуміння взаємозв'язку між фінансовою безпекою, яка вимірюється рівнем проникнення страхування, та демографічною безпекою, що відображається часткою населення похилого віку. У статті виявлено значні диспропорції у фінансовій безпеці в ЄС: деякі країни демонструють високі рівні проникнення страхування, тоді як інші стикаються з критичними проблемами.

За допомогою демографічного аналізу через призму коефіцієнта старіння населення висвітлено різноманітні виклики, з якими стикається кожна країна ЄС. З'ясовано, що окремі країни, наприклад, Італія, мають високий коефіцієнт старіння і потребують термінових корегувальних заходів, у той час як інші, такі як Австрія та Бельгія, демонструють більш збалансований віковий розподіл, імовірно, завдяки таким чинникам, як вища народжуваність та ефективна імміграційна політика.

Визначено, що перспективними напрямами для майбутніх досліджень є визначення впливу демографічних змін на мікрорівні, проведення міжнародного компаративного аналізу, висвітлення потенційних технологічних та інноваційних розв'язань виявлених проблем у демографічній та фінансовій безпеці, а також вивчення ролі сталого розвитку в управлінні активами.

Ключові слова: старіння населення, управління активами, демографічна безпека, Європейський Союз, фінансова безпека, інституційні інвестори.

General statement of the problem and its connection with important scientific or practical tasks

The aging population in the EU is not a new issue; it has been a growing concern for decades. With advancements in healthcare and living standards, the average life expectancy has significantly increased. This, combined with declining birth rates, leads to a demographic shift where a larger portion of the population is aged 65 and over, posing profound challenges for the EU, particularly in areas such as pension systems, healthcare, and labor markets. The financial implications are immense, as aging populations typically entail increased public expenditure on health and social care, coupled with reduced tax revenues due to a shrinking workforce. Consequently, understanding how these demographic changes influence and are influenced by the asset management strategies of institutional investors becomes pivotal.

Institutional investors, such as pension funds, insurance companies, and investment trusts, play a crucial role in the financial markets. They hold large pools of capital and are significant players in determining the flow of investments across various sectors and regions. In the context of an aging population, these investors are increasingly tasked with the responsibility of ensuring the long-term security and growth of retirement and pension funds. This responsibility requires a delicate balance between risk and return, necessitating a strategic re-evaluation of investment portfolios in light of demographic trends.

The connection between the aging population and the asset management trends of institutional investors is multifaceted. On one hand, the aging population impacts the types of investments that are attractive or necessary. There is likely to be increased demand for healthcare, pharmaceuticals, and age-related services, potentially steering investments towards these sectors. On the other hand, the need for stable, long-term returns to support an aging population compels institutional investors to reconsider their investment strategies, possibly leading to a greater emphasis on sustainable and socially responsible investments, which have shown resilience and long-term viability.

This scenario presents both scientific and practical tasks. Scientifically, it requires an in-depth analysis of demographic data, financial market trends, and investment strategies, combining insights from sociology, economics, and finance. Practically, it calls for the development of robust policy frameworks and investment strategies that can adapt to and capitalize on these demographic changes. Policymakers and institutional investors need to work collaboratively to ensure that the financial systems are resilient, sustainable, and aligned with the changing demographic landscape.

Analysis of recent studies and publications

The intersection of demographic shifts, particularly the aging population, and financial security within the European

Union has attracted substantial attention in academia and policy-making. Scholars have extensively explored how demographic changes influence institutional investors' asset management strategies, considering factors like risk management, portfolio diversification, and the need for stable returns in changing markets.

For instance, Novak, Pravdyvets, Chornyi, Sumbaieva, Akimova, and Akimov point out the varied approaches of EU member-states in regulating financial markets and the challenges faced during crises. They advocate for reforms in financial regulation and stress the importance of a unified European currency for financial integration [1, p. e0835]. Their optimistic outlook on the EU overcoming crises and implementing effective reforms may overlook potential challenges and limitations.

Kocanova, Kovac, Serzhanov, and Buleca focus on the aging population in EU member countries, analyzing health, labor market conditions, and financial security for those aged 55 and over. They use cluster analysis and regression to categorize countries, revealing both similarities and disparities among them [2, p. 60]. The study suggests policy improvements but lacks specific, actionable recommendations for policymakers.

Yuan, Puah, and Yau investigate how aging influences household participation in risky financial assets. Their study shows that aging leads to decreased investment in these assets, with financial literacy helping to moderate this effect [3, p. 15021]. They suggest enhancing financial literacy and social security systems to mitigate the negative impacts of aging on investment behavior, but the study does not explore other potential moderating factors.

Li examines the increase in long-term care insurance participation in China due to aging and the two-child policy. The study reveals that more children can lead to reduced demand for insurance in rural areas, suggesting the need for socializing eldercare and government incentives to promote universal insurance coverage [4, pp. 124-125]. However, the paper does not fully consider other family dynamics affecting eldercare decisions.

Ilychok, Karkovska, Dziurakh, and Mamulyak discuss demographic security in Ukraine, noting a significant population decline and an aging population [5, p. 357]. They recommend systemic measures to improve living standards and birth rates, but focus mainly on government-led initiatives, overlooking the role of other stakeholders.

Hrybinenko, Bulatova, and Zakharova analyze global demographic trends and their impact on economic security [6, p. 321]. They propose methodological tools for assessing demographic security but do not offer concrete policy solutions or consider individual country or regional circumstances.

Buha, Bychin, and Ozerna address the challenges and importance of regulations in the financial sector, emphasizing the role of technology and the threat of financial crimes [7, pp. 71-72]. They stress the need for effective state risk management but lack specific policy recommendations.

Yaremko, Voloshyn, Bilyk, Drapaliuk, and Say perform a bibliometric analysis on publications about financial security, identifying trends and key research areas [8, pp. 249-250]. They highlight the multidisciplinary nature of the topic but do not provide detailed guidance for different stakeholders.

Overall, abovementioned studies offer insights into the effects of aging populations on financial and demographic security but lack a focused examination of the interaction between aging trends and asset management in EU member-states.

Formulation of the objectives of the article (task statement)

Employing threshold, comparative, and correlation analyses to scrutinize the existing condition and tendencies of insurance penetration within EU member states, in relation to the trends of an aging population, the article aims to contrast the observed levels of insurance penetration and the proportion of the elderly in the overall population (referred to as the aging coefficient) against predetermined threshold values that signify a nation's financial security. Furthermore, the article intends to offer valuable insights and suggestions to policymakers and financial regulators for optimizing the contribution of institutional investors to bolstering the EU financial and demographic security.

Summary of the main research material

The metrics used to evaluate the financial and demographic stability of a country include two key indicators. First, the insurance penetration rate, which is calculated as insurance premiums as a proportion of GDP, is used to gauge financial stability. Second, the proportion of the elderly population (aged 65 and over) in the total population, known as the aging coefficient, is used to assess demographic stability in EU nations. Table 1 presents the value ranges for these indicators. For instance, a financial security level is deemed optimal when the insurance penetration rate reaches or exceeds 8% of GDP. Meanwhile, demographic security is considered optimal when the aging coefficient is between 18% and 20%, inclusive.

Table 2 exhibits the present insurance penetration rates, along with the progression of this measure and the typical levels of financial security for EU member-states spanning from 2020 to 2022.

Table 1. The insurance penetration rate and the aging coefficient within EU financial and demographic security

Table 2. Insurance penetration rates and average levels of financial security in EU member-states from 2020 to 2022.