Executive Summary
The world is undergoing an unprecedented demographic transition. By 2030, the United Nations projects that 1.4 billion people — 17% of the global population — will be aged 60 or over, rising to 2.1 billion (22%) by 2050. In advanced economies, the demographic shift is even more pronounced: Japan's over-65 population already exceeds 29%, and by 2040, over a quarter of the EU's population will be 65 or older. Simultaneously, digital transformation is accelerating across every domain of economic and social life — government services, healthcare, banking, retail, and social interaction are migrating online at a pace that the COVID-19 pandemic dramatically accelerated.
This report analyses the intersection of demographic ageing and digital transformation through the lens of market failure and welfare economics. We argue that the "demographic digital divide" — the systematic exclusion of older adults from digital services and economic participation — constitutes a market failure with three dimensions: information asymmetries (older adults underestimate the benefits of digital engagement), negative externalities (digital exclusion of older adults reduces productivity and increases public service costs), and merit good characteristics (digital literacy is a capability whose value exceeds individuals' willingness to invest in it). The economic costs are substantial: the OECD estimates that digital exclusion of workers aged 55–74 reduces potential GDP by 1.2–2.4% in advanced economies, equivalent to approximately $1.5 trillion annually across the OECD.
The Demographic Digital Divide: Scale and Scope
The digital divide is conventionally understood as a gap between connected and unconnected populations — a divide that is narrowing rapidly as internet penetration approaches saturation in advanced economies. However, the demographic digital divide is a more subtle phenomenon: it measures not connectivity but capability — the ability to use digital technologies effectively for economic participation, social engagement, and access to services.
ITU data from 2025 reveals the scale of the capability gap. While 95% of individuals aged 15–24 in OECD countries use the internet daily, only 68% of those aged 65–74 and 41% of those over 75 do so. More revealingly, among older internet users, only 34% can perform complex digital tasks (such as online banking, digital government services, or video consultations) compared to 82% of younger users. The European Commission's Digital Economy and Society Index (DESI) classifies 42% of EU citizens aged 65–74 as having "below basic" digital skills.
The capability gap has direct economic consequences. As governments digitise public services — 87% of OECD countries now offer online tax filing, 72% provide digital healthcare portals, and 65% have implemented digital identity systems — older adults who cannot navigate these systems face exclusion from services they are entitled to. The UK's Age UK charity estimates that 2.7 million people over 65 in the UK have never used the internet, and a further 4 million lack the skills to complete essential online tasks. As physical alternatives (bank branches, government offices, postal services) are reduced, digital exclusion becomes functional exclusion from economic and civic life.
Market Failure Analysis: Why Markets Underinvest in Age-Inclusive Design
Three distinct market failures drive the demographic digital divide:
1. Information asymmetries and present bias. Older adults systematically underestimate the benefits of digital skill acquisition. Behavioural economics research documents that present bias — the tendency to overweight current costs (time, effort, frustration of learning) relative to future benefits (access to services, social connection, economic participation) — is more pronounced among older adults due to shorter perceived time horizons. This creates an underinvestment in digital skills relative to the socially optimal level.
2. Negative externalities of exclusion. Digital exclusion of older adults imposes costs on the broader economy and public finances that the excluded individuals do not bear. Non-digital healthcare interactions cost 3–7 times more than digital equivalents; in-person government service delivery costs 15–40 times more than online provision; and employers who cannot retain older workers due to digital skill gaps lose experienced human capital. The OECD estimates that addressing the digital skills gap among workers aged 55–64 could extend productive working lives by an average of 1.8 years — a significant contribution to fiscal sustainability in ageing societies with shrinking working-age populations.
3. Merit good characteristics. Digital literacy is a capability that enhances individual welfare beyond what individuals themselves recognise — a merit good in Richard Musgrave's formulation. Just as education is provided publicly because individuals would underinvest based on private calculation, digital literacy for older adults has characteristics that justify public provision. The social connections enabled by digital technologies, for instance, have documented health benefits: a 2024 Lancet meta-analysis found that social isolation increases all-cause mortality risk by 26% among older adults, and digital social engagement reduces isolation by 30–40%.
The Silver Economy: Digital Inclusion as Economic Opportunity
The demographic digital divide is not only a welfare concern but an economic opportunity cost. The "silver economy" — goods and services consumed by people over 60 — is valued at approximately $8.6 trillion in the EU alone, according to the European Commission. Globally, the World Bank estimates the silver economy at $15 trillion and growing at 5% annually, outpacing overall GDP growth.
Digital inclusion of older adults would expand the addressable market for digital services substantially. E-commerce penetration among over-65s remains at 45% in OECD countries compared to 88% among 25–44 year olds. Digital health adoption (telemedicine, health monitoring apps, medication management) among over-65s is 28% compared to 65% among younger age groups. Each percentage point increase in older adult digital engagement represents billions in additional economic activity and, critically, more efficient healthcare delivery.
The labour market dimension is equally significant. As working-age populations shrink, extending productive working lives is a fiscal necessity. Japan's experience is instructive: the country's labour force participation rate among 65–69 year olds has risen to 52%, the highest in the OECD, enabled in part by digital reskilling programmes that allow older workers to remain productive in increasingly digital workplaces. The OECD estimates that raising digital literacy among 55–74 year olds to the level of 35–54 year olds would add 0.5–0.8 percentage points to annual GDP growth in advanced economies — a transformative effect for countries facing demographic headwinds.
Comparative Policy Analysis: Five Approaches
Singapore: SkillsFuture for Seniors. Singapore's programme provides subsidised digital skills training specifically designed for older adults, with courses offered in community centres, libraries, and senior activity centres. The programme covers smartphone basics through to more complex skills such as digital banking and telehealth. Over 180,000 seniors participated in 2024, with pre/post assessments showing a 60% improvement in digital task completion. The programme's success reflects Singapore's centralised governance capacity and high investment per participant ($450 average).
South Korea: Digital Competency Education. South Korea's nationwide programme targets the "digitally excluded elderly" with a three-tier curriculum: basic (device operation), intermediate (government and financial services), and advanced (content creation, community participation). The programme leverages the country's dense network of community learning centres and has trained over 2 million seniors since 2020.
Estonia: Age-Inclusive Digital Government. Estonia's approach focuses on the supply side — designing digital government services that are accessible by default. The country's X-Road infrastructure includes mandatory accessibility requirements, and the digital identity system (ID-card and Mobile-ID) was designed with older user testing from inception. Estonia's over-65 digital government usage rate of 78% is the highest in the EU, demonstrating that accessible design can significantly narrow the demographic divide.
UK: Age-Friendly Digital Standards. The UK's Centre for Ageing Better has developed voluntary "age-friendly" design standards for digital services, complemented by the NHS's Digital Inclusion Programme for healthcare technology. However, the voluntary nature of the standards limits adoption, and the UK's digital exclusion rate among over-75s remains among the highest in Western Europe.
Japan: Society 5.0 and Super Smart Society. Japan's Society 5.0 vision explicitly addresses the intersection of ageing and digitalisation, with robotics and AI positioned as tools for supporting independent living among older adults. Smart home technologies, AI-powered health monitoring, and autonomous mobility solutions are being deployed at scale in super-aged communities, with the government providing subsidies for adoption by low-income seniors.
Policy Recommendations
Drawing on the market failure analysis and comparative evidence, we propose five policy priorities for digital inclusion in ageing societies:
- Mandatory accessibility standards for essential digital services: Government services, banking, healthcare, and utilities that offer digital channels should be required to meet age-inclusive design standards, shifting the burden from users to service providers.
- Subsidised digital skills programmes with community delivery: Digital literacy training for older adults should be publicly funded, delivered through trusted community institutions (libraries, community centres, faith organisations), and designed with behavioural insights to address present bias and learning anxiety.
- Digital-physical hybrid service models: Essential services should maintain non-digital access pathways alongside digital channels during the transition period, with explicit sunset dates tied to measured digital adoption thresholds rather than arbitrary timelines.
- Age-inclusive technology R&D incentives: Tax credits and research funding should incentivise the development of technologies designed for older users — simplified interfaces, voice-first interaction, assistive technologies — creating a commercially viable "age-tech" sector.
- Intergenerational digital mentoring: Programmes pairing younger digital natives with older adults for skills transfer serve dual purposes: building digital capability among seniors while combating intergenerational social isolation.
Implications for GDEF's Finance & Economy Working Group
The intersection of demographic ageing and digital transformation is one of the defining economic challenges of the coming decades. Countries that successfully include their ageing populations in the digital economy will benefit from extended productive working lives, more efficient public services, and a larger consumer base for digital innovation. Those that fail will face growing fiscal pressures, social exclusion, and foregone economic potential. GDEF's Finance & Economy Working Group will advance digital inclusion policy frameworks in its programme on Inclusive Digital Transformation, with particular attention to the fiscal sustainability implications of the demographic digital divide.
References & Sources
- United Nations, World Population Prospects 2024. Department of Economic and Social Affairs. population.un.org/wpp
- OECD, Ageing and Employment Policies: Working Better with Age, 2025. oecd.org/ageing-employment
- ITU, Measuring Digital Development: Facts and Figures 2025. itu.int/statistics
- European Commission, Digital Economy and Society Index (DESI) 2025. ec.europa.eu/desi
- World Bank, The Silver Economy: Opportunities and Challenges of Ageing Populations, 2024. worldbank.org
- Musgrave, R.A. (1959). The Theory of Public Finance. New York: McGraw-Hill. doi.org/10.2307/j.ctt1bmzmsm
- Lancet Commission on the Value of Death, Social Isolation, Loneliness, and Mortality: An Updated Meta-Analysis, 2024. thelancet.com
- Age UK, Digital Inclusion and Older People, 2025. ageuk.org.uk