Low birth rate and aging population lead to ”a society that tightens its purse strings” - South Korean media

The number of self-employed people who declared business closure last year approached 1 million, a new record high. Average monthly income per household in the first quarter of this year increased 4.5% from a year ago, but real consumption expenditures increased by 0.
The decline was due not only to the sluggish domestic demand, but also to the changing demographics of Korean society, which is reducing consumption.
Some analysts say the reason for this is structural: A falling population due to a low birth rate means fewer people have money to spend, while the elderly population, which does not have enough money to spend, is growing.
According to a report titled "The Impact of Demographic Changes on Consumption Slowdown" released by the Bank of Korea on the 1st, private consumption over the past 10 years has
The year-on-year increase was 2%, down 1.6 percentage points from the 3.6% increase in the previous decade, with half of this, or 0.8%, due to changes in the demographic structure.
First, it is estimated that the decline in population and changes in the demographic structure have led to a decline in the medium- to long-term income environment, slowing consumption by 0.6%.
The population of people of working age (15 to 64 years old) began to decline in 2019. The total population is decreasing, leading to fewer consumers, and the working-age population is decreasing, weakening the income-generating ability of households.
Secondly, the increase in savings due to the increase in life expectancy and the increase in the proportion of the elderly lowered the average propensity to consume, slowing consumption by 0.2%.
This is because people are more likely to cut back on spending in preparation for retirement. In fact, household consumption among those in their 50s and 60s has fallen by about 9%. Over the past decade, South Korea's propensity to consume (the percentage of income spent on consumption) has
) fell overall from 76.5% to 70%, with roughly half of the 6.5% drop being due to a decline in the propensity to consume among the elderly (1.7%) and an expansion of the elderly population (1.6%).
"The rapid aging of society due to the declining birthrate and increased life expectancy, as well as the declining population, are all contributing to the population decline," said Park Dong-hyun, deputy director of the structural analysis team at the Bank of Korea Research Department, who wrote the report.
"The changes in the household income structure have worsened the medium- to long-term income conditions of households, lowering the propensity to consume and continuing to restrict consumption," the report said.
"From 2025 to 2030, the impact of demographic changes on consumption slowdown will reach an average of 1% and grow even larger."
The researchers argue that the decline in consumption due to demographic changes must be addressed through structural reform.
He emphasized that economic response policies are effective in dealing with a slowdown in consumption due to economic factors, but they cannot solve the phenomenon of a slowdown in consumption due to trends and structural factors.
As a concrete alternative to structural reform, he suggested the introduction of a post-retirement re-employment system. This would allow the second baby boom generation (born between 1964 and 1974) who are approaching retirement age to have stable, long-term employment.
The reasoning behind this is that creating conditions for people to work is expected to have the effect of increasing households' propensity to consume.
"This will help mitigate the decline in growth potential caused by a shrinking labor force," he said, adding that "this generation will have less uncertainty about their future incomes than they did when they over-entered self-employment.
"This will help mitigate the decline in consumption propensity caused by worries about retirement," he explained. Meanwhile, the South Korean government is expanding social security spending to deal with the low birth rate and aging population.
The report found that if the government were to adopt a new policy, private consumption would likely decline. The report also found that not only would government consumption partially replace private consumption, but taxes and social insurance contributions would increase, resulting in a rise in the current
They point out that this could discourage consumption by future generations.