Luminor Bank’s Chief Economist Lenno Uuskula said Estonia’s declining birth rates would bring economic problems in the future, for example, in healthcare and paying pensions.
In November, 721 children were born in Estonia. In total, 8,442 children were born in the first 11 months of this year.
Uuskula said that while discussion about economic cycles was important, it took a back seat to birth rates, which would lead to several problems.
The economist first pointed to the collapse of the pension system.
“The issue is the ratio of working people to retirees. If that declines, there simply will not be enough people working to pay for pensions, and our pension system is built on that model. Working people pay pensions to retirees out of their wages. If there are a third fewer children, then there are a third fewer workers, and the pension will essentially be a third smaller,” Uuskula said.
He warned that encouraging people to focus solely on saving money was not a solution.
“If you first tell people that they need to save money to live in old age, then people will start saving money, not having children,” he remarked.
“Savings are not the solution, at least not from a global perspective,” he added. “Because if there are no young people, then all the things we have accumulated are not worth much anyway. Apartments will not be either. If every Estonian were to have a second apartment for retirement, but people are living in pairs, then three out of four apartments would be empty.”
Low birth rates also disrupt the healthcare system.
“Our current healthcare system is tied to wage income, not wealth or overall income. Business income does not count toward funding healthcare in our system. We have narrowed the scope and made healthcare funding more difficult for ourselves,” the economist said.
Uuskula sees long-term care as a major problem that has been neglected.
“Even the second or third pension pillar will not help, because we are talking about the final years of life, when all the pension money has already been used and the need is greatest. What is needed here is more of an insurance-type product that provides services to those who need them, and everyone else must contribute to society,” he said.
Commenting on possible government policy, Uuskula stressed that children were expensive, especially when considering the expectations placed on a child’s success.
“What matters is not how many children you have, but how successful they are or how well they manage in life. If expectations for parents are very high, then the challenge becomes much greater, and if we place those expectations, maybe we should also provide the means,” he said.
Uuskula also criticized childcare services and public space.
He said it was difficult to find care for children aged 1.5 to 3 years, and kindergarten groups were too large, which led to the spread of illness. Streets are also not child-friendly: “Even in the city center, sidewalks are so narrow and cluttered with poles that getting through with a stroller is quite difficult.”
Uuskula was asked how Estonians could be made to feel more at ease.
“Estonians lack a bit of self-confidence,” Uuskula replied. “I get the sense that people are very afraid of what’s coming and believe that whatever happens is inevitable. This is a deterministic worldview, where we think we cannot do anything ourselves. If you take more control of your own life and think, “I’m doing this, I’m choosing”, then that already makes things a bit easier.”
Commenting on the constant stream of war news, Uuskula said that in his view, it was not necessary to talk every day about the need to increase defense spending under the assumption that war was about to start.
“Maybe the rhetoric could go like this: we have an unpleasant neighbor who has attacked Ukraine, we ourselves are not under direct threat, but we are showing solidarity, we are showing strength, we want to demonstrate that we have no problem raising defense spending,” he said. (ERR)