Forget the Pandemic; What about Population Collapse?

How would a population collapse alter banking as we know it?

Elon Musk and Jack Ma have both publicly stated that their biggest concern for the future is not over-population, but rather under-population. Many thought leaders have raised similar concerns, noting that our current societal structures are ill-equipped to handle such a scenario. Consider the following potential outcomes:

• Declining age dependency ratios (population pyramid shape changes to a very tall and narrow shape)
• Decreasing potential for economic growth and development; less consumption of goods, services which could lead to increasing inflation.
• Higher government expenditures on welfare programs
• Lower productivity
• Potential for social unrest between groups with different values due to a changing cultural landscape

The world has struggled with population declines in the past, but not at this magnitude, pace, or ubiquity (Africa is the only continent projected to deliver continued growth). The ultimate consequences of population collapse will include dramatic demographic rebalancing in size and wealth accumulation, societies unable to care for their elderly, and the erosion of work ethic as smaller populations are called upon to support idle hands.

What no one seems to be discussing is how population collapse would alter the financial services landscape. Facing an ever-shrinking addressable market with shifting financial needs, banks will undoubtedly be forced to change.

In an optimistic scenario, FIs will become more cooperative, scaling back in size and complexity in order to survive. They might even realign their focus to serve the communities rather than institutions. While this is a hopeful vision, it is also naïve and unlikely to play out.

Banks may indeed shrink amid population decline but I doubt they’d dramatically scale back their mission. Even amid population decline, the demand for money will remain constant- or conceivably increase, as a greater share of the population becomes net spenders as opposed to savers. There is no historical precedent for a civilization declining without money being at the root of the issue.

A more likely scenario has commercial banks altering their features and services to address changes in socioeconomic dynamics. With profit generation as their primary goal, they will only reduce their footprints if forced by competition. Their adjustments may ultimately advance the greater good but if so it will be a happy accident rather than their driving factor.

So how can a credit union incorporate the very real possibility of population collapse into its long range planning? The best way may be to consider the possible causes of the population decline and devise business strategies to mitigate their impact. If climate change is the likely driver, for instance, perhaps credit unions should brainstorm ways to fund sustainable energy sources or to make their own lending practices more environmentally friendly. Credit unions are presumably socially responsible institutions anyway, so it shouldn’t be a stretch to pivot to play a role in saving the planet.

Credit unions will also need to diversify their loan portfolios and adjust their products/ services portfolios to address the changing generational dynamics. Under current models, credit unions may have difficulty extending loans to members who are too old to work, or who lack real estate or property as collateral. In a worst-case scenario, there could simply no longer enough working-age people to whom to lend and fund operations- while at the same time a new batch of financial needs of older members go unaddressed.

Another byproduct of population collapse is that less people means less consumption of goods and services- which in turn means fewer jobs. Fewer workers lead to less taxpayer revenue, leaving less money for the government to fund social programs for an increasingly aging population presumably in need of more assistance. This prompts an unsavory choice between raising taxes on the remaining workforce, more heavily taxing accumulated wealth, or reducing funding to programs like Medicare, Medicaid, and other social safety nets.

Credit Unions can take action now to mitigate this problem by designing financial services that are less dependent on traditional employment models. Given rapid growth in the Gig Economy and the unique needs of its participants, such strategic thinking should deliver immediate benefits- not just prepare credit unions for a future state. I discuss these possibilities in greater detail with Glen Sarvady on our recent BIGCast: https://www.big-fintech.com/Media/BIGcast/ArticleID/749/Credit-Union-To-Do

Bill Gates once said humans tend to overestimate short-term impacts but underestimate long-term ones. Our incentive systems almost always encourage short-term planning, leading many to neglect the long term. Population collapse is certainly not something I have heard discussed in any credit union boardroom recently. Let BIG help your CU plan ahead for the coming New Normal so that it can continue to provide essential services to its community in the face of economic uncertainty.