While political parties are engrossed in a debate on economic democratization, Korea has reached a profound demographic tipping point.

A recent Bank of Korea report says Korea’s working-age population ― those between 15 and 64 years of age ― will peak in 2016 before starting to decline rapidly for the next half a century.

Yet the report draws attention to an important demographic shift that is already taking place: The share of the working-age population in the total population reaches a peak this year. It notes that the United States and Japan experienced severe financial instability around the time their working-age population as a share of the total population began to drop.

The BOK report analyzes the impact that the shrinking share of the working-age population would have on the nation’s economy in general and the financial sector in particular.

According to its analysis, a decline in the proportion of productive people would slow economic growth by reducing labor input, which in turn would slow per capita income growth.

At the same time, it will shrink consumption as elderly citizens consume less than younger people. This would lead to downward pressures on prices.

The demographic change will also bring down the savings rate, as the burden of working-age people to support the elderly increases. It will also reduce corporate demand for investment funds as capital productivity falls due to the drop in the labor to capital ratio.

The drop in corporate demand for funds would put downward pressures on real interest rates. At the same time it will intensify competition among financial companies to secure customers, thus narrowing their interest margins.

On the asset front, the demographic shift has particularly serious implications. As elderly citizens need to dispose of their assets to finance consumption, asset supply will increase amid falling demand. This could trigger a sharp drop in real asset prices as properties account for about 90 percent of household assets in Korea.

The report notes that all these repercussions from a declining share of the working-age population will ultimately result in a drop in the profitability and soundness of financial institutions. Hence the need for financial companies to address their risk factors in advance.

One priority would be stabilizing the housing market by helping the financially strapped “house-poor.” If these people are forced to sell off their homes due to their inability to finance their mortgages, housing prices would tumble even before elderly people begin to dispose of their assets. Therefore, banks as well as the government should hurry to address this problem.