Generation Gap

Different groups within a society have different interests. Because sometimes one group wants something different from the other, Conflict is coming up. One of these conflicts is the generation conflict.

The reason for that is: it concerns the interests of young people, on the one hand, and those of the elderly on the other side. As with many issues, it is mostly about mo2013-11-18 06.46.32ney, how local or national governments spend the taxes we paid. Looked down into towns and cities there are often hot discussions if school buildings or structures for the elderly like the day care centers gives more advantage for the one or the other group

Since the population is aging, there are always more non-employed people who receive for what they have done during the active life and who have contributed to retirement funds an allowance or a pension.

The problem is that an ever-smaller percentage of the total population only does work and, therefore, has to pay into the funds that are getting distributed.

This form of taking care for the elder is commonly called the generation contract.

The generation contract is not a single legal paper like contracts between individuals or businesses. The generation contract is the represented by the summary of actual legislation concerning the two parties of the elder and the younger.

In reality, there are three parties. Children and adolescents not yet in the workforce are forming a separate group of non-contributors who are receiving indirect funding from Government in for kindergartens and schools and other forms of education and promotion. These minors are also part of this generation contract. However, this group is on its way to being active members of the workforces soon. The spending for them is mostly questioned only by the other receiving part of seniors, as they fear these funds spent are at the end reducing their benefits.

The active workforce who is paying for this third party with their taxes is not opposing as much as spending for children and adolescents at the end is easing the contribution load. Children and adolescents usually are living in their households, so money spent for them is relieving at the end the expenses of the paying party of the workforce. In many societies, minors in a family are also the reason for often-hefty tax deductions or direct payments for each child or direct support for kindergarten and school fees.

For the sake of clarity, we will leave out this third group as a conflicting party as it is filling later the ranks of the active contributors by themselves.

The Generation contract in more detail:

In every society, there is a working part, and there are those who do not do paid work. Most people between 15 (except the majority of students who join the labor force later) and 65 years are in their professional lives. All who are younger, and almost all who are older, do no paid work. To provide for those who are are no longer in the work life, there is the generational contract. Those people who have a job, pay with a part of their salaries generate the funds paid to pensioners and adolescents.

In the western industrialized we have a lifespan of approx.79 years in the US to 83 years in Japan (this is only a rough estimate, but precise enough for this paper. Also, more and more centenarians are counted now meaning they need financial support for up to 35 years after the leave the workforce. For they leaving university with above 30 years, the time being retired and paid through the generation contract is becoming more or less even.

An ever-smaller percentage of the total population is employed as fewer children were born to the ones receiving now the funds, so the number of contributors is getting diminished.

So less money is earned, and support is necessary for those who are not in employment.

Increasing the retirement age is one solution but dependent on national societies discussed the controversy. While in Germany now the retirement age is getting increased step by step from 65 to 67 other nations like France, or Greece oppose the increase of retirement age heftily as low as 60 years.

Various retirement rules create a separate conflict in the European Union as lower retirement ages by itself generate higher transfer cost. But this we also do not want to discuss in more detail as we see more individual handling of the issue.

Only one point I wish to mention which for myself I was always have been asking my parents or teachers in school.

Where is all the money we paid to the pension funds? Would it not be enough if invested carefully to pay us now from the own money we paid.

Here is the crux. There is nothing like a big savings investment account where all our money was saved and invested?.

The answer comes clear and quick. From the money we paid, our parents were subsidized. After the 2nd, World War  Germany was bankrupt. Additionally from the money our parents and we paid into pension funds there were war reparations due to the allies, and therefore nothing left for the Pensioners and those coming home from war physically challenged.

So as the money paid into pension funds was spent the moment it was received. A few times in the postwar period, the pension funds had some surplus. But the government needed this money for other tasks and promised to pay it back. The administration is doing that by balancing the pension payments with significant contributions. But who pays for these contributions. It’s the workforce and industry tax contribution. However, these means are missing for whatever investments need attention.

How much the war affects the pension payouts is shown when comparing Switzerland, which did not participate in the WWII.

Even this is not the only reason that the Swiss pensions are the highest in Europe, but it shows that Switzerland had the time to build a pension system without the burden of cost generated by a war.

In all fairness must be said that living in Switzerland is also very expensive, so a part of their better pension the Swiss need to balance their higher living cost.

The pension system in the United States has a very different structure. Those depending only on the public pension funds receive very meager payouts.

Americans do not trust their government when it tries to rule their money matters. Well-paid pensioners receive the majority of their pension payouts from private investments in stock market instruments and real estate. But also it must be said that a great portion of Americans lives from minimal payouts near the poverty lines.

All above said the generation conflict is existent no matter if the pension level of a state is high or not. It is more a distribution conflict that always is on the horizon when the government spends money on the one or the other group.

This blog is trying to develop ideas how the conflict between the Workforce Generation and the elderly,

It is not so impossible as it looks like at a first glance. It needs more than money to make a pensioner and people from the workforce happy. When the one party realizes that the other one is not selfishly isolating itself and is fighting only for better conditions of the peer group. When it is showing empathy, the money gap can become leveled, and both parties can live in better harmony.

The solution is not as far as it may look.







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