Despite a slight rebound in 2015, the economy has not recovered to its previous level even after a long fall, unlike past patterns that saw recovery after a short-term fall during a recession. (Yonhap)
SEOUL, Feb. 25 (Korea Bizwire) — A recent study has found that South Koreans in their 50s and older have cut spending due to anxiety over their income in their retirement years, contributing to the overall decline in the country’s propensity to consume.
In a report released Monday, the Bank of Korea (BOK) analyzed the factors that caused local households to change their propensity to consume based on statistical data from household finance and welfare surveys.
The propensity to consume represents the ratio of consumer spending to disposable income. According to the report, the propensity to consume, which had remained steady in the 2000s, has declined since 2012.
Despite a slight rebound in 2015, the economy has not recovered to its previous level even after a long fall, unlike past patterns that saw recovery after a short-term fall during a recession.
The decline was mainly driven by households in their 50s and older and high-income households, according to the analysis.
In addition, it was analyzed that the essential expenditure items related to food and beverage rather than durable goods led to the overall decline in propensity to consume.
The report determined that the change in future expected income for individuals in their 50s or older is behind this trend.
The report said that “although aging is processing rapidly, many households in their 50s or older are worried about their future income as their sources of retirement income are not stable.”
“It is estimated that such concern has had a significant impact on the decline on propensity to consume since 2012,” the report continued.
Economic theory typically posits that when the value of real estate or financial assets rises, there is a tendency to increase spending, known as the asset effect.
The BOK’s report suggested, however, that the such effects are shown even in low income and aged households in South Korea.
“The recent changes in propensity to consume are largely affected by the structural factor of our economy, which is an aging population, so a return to the same level of propensity to consume as in the early and mid-2000s is unlikely to occur,” the report said.
The BOK went on to explain that “since households with members in their 50s and older are sensitive to changes in expected income, there is a need to be careful not to see any sudden changes in expectations of future income when pursuing future policies.”
D. M. Park (dmpark@koreabizwire.com)
