"Consumption Shrinks More Among MZ and BB Preceding Generations in Gyeonggi... Caution Needed Against Excessive Consumption Contraction"

Financial Literacy Education Needed for Healthy Income and Asset Formation

Minister of Employment and Labor Lee Jeong-sik is greeting attendees at the 'Employment Service Meeting with MZ' held on the 17th at Book Cafe Chaegro in Mapo-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Seo So-jeong] Amid sluggish household consumption since the global financial crisis, it has been found that the consumption of the MZ generation (Millennials + Generation Z, born 1980?1995) and the pre-Baby Boom generation (born 1941?1954) is smaller compared to other generations during economic contraction periods. As the MZ generation emerges as the main consumer group, it is analyzed that monitoring is necessary to ensure their consumption does not become excessively restrained for the consumption's economic buffering function to operate smoothly in the future.

On the 21st, the Bank of Korea stated in its report titled "Analysis of Changes in Household Consumption Patterns Since the Global Financial Crisis: Focusing on Consumption Patterns by Generation" that "the economic co-movement of household consumption observed during economic contractions mainly occurred due to the MZ and pre-Baby Boom generations."

According to the Bank of Korea, through the 1997 Asian financial crisis and the 2008 global financial crisis, the buffering role of consumption in South Korea's economy has weakened. Typically, consumption plays a role in stabilizing growth by smoothing fluctuations, but since the 2000s, amid continued consumption sluggishness, household consumption has contracted more sharply than gross domestic product (GDP) during economic downturns, showing economic co-movement.

Using data from the 4th (2001) to the 23rd (2020) Korean Labor Panel Survey, the Bank of Korea analyzed via Pooled OLS models and pseudo-panels, finding that regardless of the economic cycle, consumption by the pre-Baby Boom and MZ generations was smaller compared to other generations. The pseudo-panel estimation showed that after the global financial crisis, during economic contractions, consumption decreased most notably in the MZ generation followed by the pre-Baby Boom generation. The Bank of Korea added that these findings suggest the possibility of intensified economic co-movement of consumption during future economic contractions.

Choi Young-jun, a research fellow at the Micro-Institution Research Division of the Bank of Korea's Economic Research Institute, explained, "Since the global financial crisis, the MZ generation has reduced discretionary spending (such as dining out, vehicle maintenance, cultural and entertainment expenses, communication fees, and durable goods) during economic contractions due to vulnerabilities in income and asset bases and increased debt." He added, "The pre-Baby Boom generation appears to have reduced discretionary spending due to low financial asset accumulation and increased income uncertainty from retirement after the global financial crisis."

In particular, the MZ generation places greater importance on work-life balance than other generations, leading to a phenomenon of saving on essential consumption to allocate more for leisure and hobbies. In this context, if the economy contracts, it is explained that discretionary consumption, which has high income elasticity, is likely to decrease significantly, especially among the MZ generation, the main consumer group.

Choi emphasized, "To ensure the smooth operation of consumption's economic buffering function in the future, it is necessary to expand the income, asset, and social safety net bases so that consumption by the MZ and pre-Baby Boom generations does not become excessively restrained." He stressed, "Appropriate financial literacy education is needed for the healthy income and asset formation of the MZ generation, and the impact of structural changes in consumption, such as increases in discretionary spending, on consumption behavior and the economy must be actively monitored and addressed."

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