With the aged population growing rapidly in the country, it is becoming an increasingly urgent policy task to increase spending by elderly households while preventing them from falling below the poverty line.
According to a study by the Hyundai Research Institute, a private think tank, the proportion of householders aged 60 and older is projected to rise from 28.1 percent in 2014 to 35.2 percent in 2020 and 46.9 percent in 2030. In contrast, the corresponding figure for those in their 30s-50s is forecast to decline from 64.5 percent to 57.4 percent and 47.8 percent over the cited years.
It is perceived that consumption by Koreans falls steeply when they become senior citizens due to a tumble in their income.
A report released by the National Pension Research Institute last week suggested data to back up this perception. Consumption spending by Koreans aged 65 and older amounted to 63.3 percent of the country’s average household consumption expenditure in 2014, down from 68.9 percent in 2005. The figure was far lower than 81.5 percent in the U.S. and 86.8 percent in Japan.
The report attributed the sharp drop in Korean seniors’ spending to their low income. The average income of elderly people in the country remained at 63.9 percent of the median for all Koreans, much lower than 71.7 percent in the U.S. and 81.5 percent in Japan.
Korea’s elderly poverty rate -- the proportion of households that earn 50 percent or less of median household disposable income -- is the highest among the 34 member states of the Organization for Economic Cooperation and Development. According to a study by the Korea Labor Institute, the poverty rate for senior Koreans stood at 47.2 percent in 2014.
The NPRI report said that Korean seniors’ consumption focused on food, homes and health, while younger Koreans and elderly people in the U.S. and Japan spent more on entertainment and cultural activities.
Findings in the report, however, may seem unmatched with a growing number of senior shoppers crowding department stores in Seoul and other large cities across the country.
According to industry sources, people aged 60 and above account for more than 10 percent of customers of the country’s three major department stores, with their purchases growing at a faster pace than those by other age groups. Senior customers now spend money to satisfy their own needs rather than buy items for their grandchildren as was often the case in the past.
According to data from the national statistical office, the average monthly consumption expenditure by households composed of people aged 60 and older increased from 1.48 million won in 2010 to 1.67 million won in the first three quarters of 2015. Their monthly disposable income on average also gained from 1.97 million won to 2.42 million won over the cited period, with the increase rate of 23 percent exceeding the overall growth pace of 21 percent.
In the January-September period of last year, elderly households’ consumption propensity -- the ratio of net consumption to disposable income -- stood at 71.4 percent, higher than the numbers for other households except those with 40-something householders.
Analysts indicate the pattern of spending by elderly people is becoming increasingly divergent in a reflection of growing income inequality among them and more active economic activities by those entering their 60s lately.
Recent data from Statistics Korea showed the number of employees aged 60 and over increased by 172,000 last year, compared to 149,000 for those in their 50s and 68,000 for 20-somethings. The figure for 30-somethings was down by 38,000, falling for the ninth consecutive year.
“The growing number of elderly households is one of key factors that will bring changes to domestic consumption markets,” said Kim Cheon-koo, a researcher at the Hyundai institute. He said aging-friendly industries can and should be nurtured as new growth engines for the country’s economy that is increasingly looking to domestic demand for growth amid a prolonged slump in exports.
The Korea Health Industry Development Institute estimates markets targeting silver generations -- including leisure, beauty, eatery and health care -- will grow to be worth 125 trillion won ($103 billion) by 2020.
Economists indicate that the government needs to implement more effective and substantial policies to induce rich elderly people to increase consumption on one hand and bolster income for less affluent seniors on the other.
In their briefing to President Park Geun-hye last week, economic policymakers said they would come up with a set of measures in the second quarter to encourage more retired householders to use reverse mortgages. Expanding the scheme may be instrumental in increasing disposable income of many debt-ridden households in a country where real estate properties account for nearly 80 percent of assets held by householders aged 55-74.
As of the end of last year, only 1 percent of the country’s homeowners aged 60 and above subscribed to the reverse mortgage program, showing they regard their houses as an asset that should be handed to their children. It may be a matter of time, however, that changing demographic structure and lifestyle will alter this attitude.
By Kim Kyung-ho (firstname.lastname@example.org