China must help elderly stay in financial health
Yang Tao says innovative products should supplement the state system
As China's population ages, finding ways to meet the needs of the increasing numbers of the elderly is becoming its greatest challenge. The usual measures would be to use fiscal and financial instruments. But in a country where the state financial system cannot adequately meet demands, more innovative financial services and products will be needed as a supplement.
A well-established financial system for the elderly should meet their demands for security, consumption and investment.
First, in terms of security, there is an urgent need to improve the various types of contractual savings institutions, including insurance and fund providers. Furthermore, new financial products need to be developed, such as reverse mortgages, where senior citizens can get loans from banks or other financial institutions by using their property as collateral.
Admittedly, considering the defects in the Chinese housing system, the real estate bubbles, as well as cultural factors such as the fact that houses are traditionally handed down to children, there are many practical difficulties in launching reverse mortgages in China. Still, the ageing population brings new opportunities for financial institutions, and governments and regulators should guide institutions and agencies to provide a wide range of banking and non-banking products.
Second, the "silver" economy will have a profound influence on worldwide consumption patterns and product structures. Given China's gradual shift to being more reliant on domestic demand for growth, consumption by senior citizens will become a focus for the real economy.
Consumer finance has always been a weakness of the Chinese financial system. For example, one kind of product, operated mainly by insurance companies that target older people, has proved controversial: it offers a "rebate" transferred into a person's pension fund when they buy it. However, the scheme can be confusing as not everyone realises they will receive the "refund" only after they retire. But as long as such products are reliable and regulated, they should be seen an innovative.