Boosting consumption more complicated task in aged society

By Kim Kyung-ho

A recent string of figures showed the country’s households tightening their purse strings with their income increasing, though at a modest pace.
The net savings rate -- the ratio of savings to disposable income -- of households and nonprofit organizations was up 1.4 percentage points from a year earlier to 7.7 percent last year, the highest in 15 years, according to data from the Bank of Korea. The corresponding figure stood at 8.4 percent in 2000.
The net amount of financial assets held by local households and NPOs also increased by 5.7 trillion won ($4.9 billion) from a year earlier to 99.2 trillion won last year, the largest since 2009 when the central bank began compiling data in the current way.
The increase in the net savings rate and financial assets came as Korea saw its per capita gross national income rise by 4.6 percent from 29,565,000 won in 2014 to 30,935,000 won in 2015.
Figures from Statistics Korea showed the average household consumption propensity -- the proportion of consumption spending in disposable income -- remained at a record low of 71.9 percent last year. The ratio of private consumption to gross domestic product also fell by 0.8 percentage point from the previous year to 49.5 percent in 2015, the lowest since 1988 when the comparable figure was 48.3 percent.
The sluggish household spending reflects increasing concerns Koreans have on a prolonged economic downturn and growing uncertainties over their future. This anxiety has been amplified by the rapid aging of the country’s population.
“Households tightening the purse strings will lead to weakening domestic demand and decelerating growth,” said Lee Geun-tae, a researcher at the LG Economic Research Institute.
Boosting domestic consumption is set to assume an increasingly important role in shoring up Korea’s economic growth and vitality as its exporters are struggling with declining global demand and mounting challenges from foreign competitors.
Economists here note the country needs to consider the implications of the rapidly aging population in working out measures to promote and sustain domestic spending.
According to a report released by the U.S. Census Bureau last week, Korea is projected to have the world’s second-largest proportion of people aged over 65 at 35.9 percent, following Japan’s 40.1 percent, by 2050. In 2015, the proportion remained at 13 percent in Korea.
The country saw the number of employees aged in their 50s and above exceed that of those in their 20s and 30s for the first time last year. According to recent data from Statistics Korea, 50-something and older employees numbered 9.65 million, about 37.2 percent of the total, in 2015, compared with 9.36 million in their 20s and 30s.
The number of aged workers is expected to continue to rise sharply as a growing portion of baby boomers born between 1955 and 1963 are hoping to find another job after retirement.
The problem with aged workers in the country is that most of them are employed on an irregular and temporary basis. Among waged workers aged 60 and above, the number of irregular laborers is more than double that of regular employees.
In Korea, income inequality is more severe among aged people. The ratio of elderly persons living below poverty line in the country remains at 49 percent, the highest among the 34 member states of the Organization for Economic Cooperation and Development. By contrast, many affluent senior citizens are pushing up sales of luxury goods in department stores and making frequent overseas travels.
Given these demographic features, it will be a key part of the efforts to maintain vitality of Asia’s fourth-largest economy to encourage affluent senior citizens to spend more and increase earnings for low-income elderly people.
Kim Kyung-rok, director of the Mirae Asset Retirement Institute, suggested the country’s taxation scheme needs to be changed to help prompt the transfer of wealth from the affluent elderly to their children and grandchildren. He also raised the need to upgrade work-training programs in keeping with future trends to provide retirees with more opportunities to find new well-paying jobs.
The government is focusing on inducing more elderly house owners to use reverse mortgage loans to reduce the debt burden weighing on many of them and secure livelihoods in their later years.
Kim noted building a minimum safety net for post-retirement life will be crucial to sustain consumption in the aged society in the long run.
(khkim@heraldcorp.com)