Bank of Korea: "Household consumption declines due to aging population... 0.7% decrease annually until 2035"

Household Consumption Declined by 0.9% Annually Due to Aging from 1995 to 2016
"Caution Needed to Prevent Consumption Slowdown from Factors Other Than Aging"

Myeongdong street scene. Photo by Hyunmin Kim kimhyun81@

It has been found that households tend to reduce current consumption clearly due to population aging. The Bank of Korea forecasted that household consumption will decrease by 0.7% annually until 2035.

According to the data titled "Changes in Lifecycle Consumption of Economic Agents Due to Population Aging" released by the Bank of Korea on the 1st, population aging from 1995 to 2016 over about 20 years has lowered household consumption by an average of approximately 0.9% per year (18% cumulatively).

To analyze the impact of population aging on household consumption choices, the Bank of Korea used quarterly Household Trend Survey data from 1990 to 2016 for household consumption and utilized age-specific mortality rates from Statistics Korea as the population aging indicator.

The analysis showed that population aging particularly reduces lifecycle consumption significantly after the age of 50.

Jung Dong-jae, head of the Monetary and Credit Research Team at the Bank of Korea, explained, "This suggests that the 'intertemporal substitution of consumption,' where economic agents reduce current consumption in response to increased life expectancy, is occurring in earnest from the age of 50, just before retirement."

There are two pathways through which aging affects household consumption. One is the 'intertemporal substitution (micro-level pathway)' effect, where people reduce consumption and increase savings to prepare for old age due to extended life expectancy, and the other is the 'population distribution change' effect caused by changes in the age structure of the population.

Jung said, "It is expected that the micro-level pathway will act as a factor reducing consumption, while the population distribution change pathway will act as a factor increasing consumption. However, the consumption reduction effect from the micro-level pathway is greater than the consumption increase effect from the population distribution pathway, so the advancement of aging is analyzed to slow down consumption."

Between 2020 and 2035, aging is estimated to reduce average household consumption by about 0.7% annually.

Since South Korea is aging faster than other major countries, it is analyzed that attention is needed to ensure that consumption does not further slow down due to factors other than aging, so that the flow of private consumption does not weaken significantly.

Jung explained, "In order for policymakers to minimize the negative ripple effects of aging and prepare policies that can compensate for them, it is judged that broad related research should continue to be conducted in the future."

This content was produced with the assistance of AI translation services.