SEOUL, Nov. 28 (Korea Bizwire) – Households with members in their 60s have been more hesitant to open their wallets this year than during the financial crisis period in South Korea. Their propensity to consume (the ratio of total consumption to total disposable income) in the third quarter this year was equivalent to 66.6 percent, slightly lower than the 66.7 percent recorded in the third quarter of 1997, and the lowest since 1990.
City dwellers in their 60s who live with more than one family member do not want to spend money, since real estate values, which often make up a large portion of their assets, have plummeted. In addition, interest rates remain low, resulting in decreased consumption for individuals preparing for retirement.
According to the National Statistical Office, the propensity to consume for individuals of all walks of life stood at 72.5 percent. In terms of age, those in their 40s spent the most, at 77.1 percent, while people younger than 40 came in at 74.0 percent and citizens in their 50s at 68.6 percent.
Only 14 years ago, people in their 60s spent more than they earned, showing a consumption propensity of 101.4 percent. It continues to decrease, however. Experts believe that the trend is the result of increased life expectancies combined with losses in the real estate market.
A report about household finance and welfare in 2014 jointly conducted by the Bank of Korea and the statistical office showed that for those in their 60s, 78.9 percent of their total assets were in real estate, much higher than the average of 67.8 percent. As the likelihood of an imminent jump in house prices has decreased, they have started to save more cash.
Low interest rates also push them to be more frugal than ever. Individuals relying on interest income have been hit hard with interest rates stuck between 1 and 2 percent. In addition, many save money to repay debt. Their debt on average decreased 2.8 percent to 42.01 million won this year from 43.23 million won last year.
This period of reduced consumption is expected to last longer. In Japan, senior citizens have been saving their cash for more than ten years after the collapse of the ”bubble economy.”
“The decreasing propensity to consume refers to the fact that Korean senior citizens haven’t prepared enough for their later lives. The shrink is expected to last longer. Therefore, the government should devise measures to maintain continuous consumption by supporting their economic activities,” said Lee Jun-hyup, a researcher at the Hyundai Research Institute.
By Veronica Huh (email@example.com)