Why the Government Should Invest More In Kids and Less in Old People

So for most developed countries if you look at their budgets they spend the majority of their budget money on old people’s healthcare, pensions and other related expenses. Yet they spend very little on future generations and children. Why is is this? Is this wise?

The answer is no! Here is why. From a return on investment perspective investing in old people is a money loser. They are not the future taxpayer, whereas future generations are the future taxpayer. ROI. The old are the past taxpayer.

Think about it this way. Child A grows up to become a future taxpayer making $100k per year. He/she is taxed at a rate of 35% yielding $35K in tax revenue per year for the next 40 years. That amounts to $1.4M in tax revenue. Not bad at all.

Let’s look at this in a bit more detail. Paying for preschool, public education and public college makes sense as there is return on investment. Also, if the government does not help families raise children there will be less families having children and less children per family. These are all future taxpayers.

What happens if there is less investment?

• More adults on the dole as they don’t have job related skills. These folks are not paying taxes. Cost $30K per year.
• More adults in jail as they commit crimes. Jail is expensive and costs around $50K per year per person. This is very expensive. More need to hire police and attorneys too. This is a waste.
• A less trained work force and lower GDP for the country.
• Less workers to support all those retirees.

Why investing too much in old people services is bad. This isn’t to say we should not invest in retirees and healthcare.

• Old people and retirees will die soon. They are not the future taxpayer but the past taxpayer. They have been milked.
• Most of the medical spending happens in the last year or life trying to keep them alive. Does it make sense to put a new hip in an 80 year old or pay for some expensive drugs?
• The focus needs to be on preventative care not extending the lives of people who are 90 and don’t know their own name.
• Older people have retirement savings such as 401Ks, IRAs, pensions. If they didn’t save and enjoyed themselves instead should we bail them out?

So yes we should invest in older people of course but also encourage people to save for themselves and focus on preventive care. If we don’t invest in the young there will be nobody to pay for the pensions and health of older people. Right now the population pyramid is upside down. In the past there were lots of workers for few retirees. Now we have few workers for lots of retirees. That is not going to work. Countries should also not try to get out of this trap via increased immigration.

What can be done?

1. Allow older folks to work part time without impacting pensions and taxes. This is a good workforce that can do work and we need workers.
2. Encourage people to have their own savings too via automatic enrollment to 401k, IRA, Roth IRA, ISA. People will need to start covering a larger portion of costs.
3. Redeploy some of that money from the old to future taxpayers so that there will be future taxpayers to get that return.
4. Spend more on preventive medical care to head off diseases before they start, not treating the symptoms. For example higher cigarette and booze taxes, ban cancer and dementia causing agents in foods, mandate healthier food and calorie counts, maybe high fat food tax.
5. Look at what people have put into the system when determining what to pay out. Folks will say I paid into the system. Yes, they did but usually less than what they are taking out given that people are living longer and using more pension and healthcare as a result. In the past these pension type systems worked as retirees did not live long and there were few of them. Now people live much longer and there are far more retirees.
6. Raise the retirement age for occupations if needed. Appreciate experience and allow part time usage of that experience.
7. Perhaps encourage relocation of the elderly to the countryside where there is plentiful low cost housing, lower cost food and so that younger families can have access to the housing that is closer to the jobs. This in turn would create more caregiving jobs in more economically challenged areas. The elderly get lower costs to make their money go further and the young get access to housing. Win win.