Dependency Ratio and its Implications
Dependency Ratio:
A measure showing the number of dependents (aged 0-14 and over the age of 65) to the
total population (aged 15-64). Also referred to as the "total dependency ratio".
Calculated by:
This indicator gives insight into the amount of people of non-working age compared to
the number of those of working age. A high ratio means those of working age - and the
overall economy - face a greater burden in supporting the aging population.
The young dependency ratio includes only under 15s, and the elderly dependency ratio
focuses on those over 64. For example, if in a population of 1,000 there are 250 people
under the age of 15 and 500 people between the ages of 15-64. The youth dependency
ratio would be 50% (250/500).
Dependant:
A person who relies on someone else for financial support. The taxpayer supporting the
dependent is allowed to claim dependency exemptions. This generally refers to people
who are under 14 and over 65.
Life Expectancy:
- The age until which a person is expected to live.
- The remaining number of years an individual is expected to live, based on IRS issued
life expectancy tables. The life expectancy, for required minimum distribution
(RMD) calculation purposes, is determined by the current age of the individual.
- Also referred to as the average life span. It is used mainly by insurance companies to
determine your premium.
- The IRS life expectancy tables are used to calculate the RMD for retirement account
owners and their beneficiaries.
Implications of the Dependency Ratio:
Large numbers of young and/or old people tend to burden the economy as the
consumption needs of economically non-productive members of the society reduce the
overall capacity for saving and investing. Countries with a large younger population
would have to spend more in terms of providing infrastructure for schools and paediatric
hospitals etc. Also funds will have to be spent on day-care facilities and education for
parents. Countries with a larger aging population will have to provide places like senior
homes etc.