Impact of Demographic Changes on Consumption Slowdown – Bank of Korea(BOK)

 On June 1, the Bank of Korea released an analytical report examining the effects of demographic changes on Korea’s slowing consumption growth.

According to the report, the recent stagnation in private consumption is not only due to cyclical economic factors but also significantly influenced by structural changes, particularly rapid aging and population decline, which have been key contributors to the slowdown in consumption growth.

How Demographic Changes Affect Consumption

Demographic shifts impact consumption through various direct and indirect channels:

• Declining Population: A shrinking population reduces economic growth potential and weakens consumer demand, leading to limitations in household income and overall market size.

• Rising Elderly Population: As the proportion of older adults increases, the average propensity to consume decreases, while savings and investment tendencies grow. In Korea, the consumption rate of individuals aged 60 and older has seen the most significant decline across all age groups. With rising life expectancy and an increasing number of financially dependent adult children—the so-called “kangaroo kids”—household expenses continue to climb. Additionally, families tend to retain assets such as real estate rather than liquidating them, leading to ongoing loan repayments. As a result, overall consumption continues to decline.
  
  
  

• Expansion of Government Welfare Spending: In response to low birth rates and an aging population, Korea’s government has expanded social security expenditures, shifting a portion of household spending on healthcare and education to public-sector consumption instead.

• Growth in Single-Person Households: The number of single-person households has increased rapidly, causing the total household count to rise. However, given that single-person households tend to have lower income levels, a higher elderly population, and greater reliance on temporary employment, their overall contribution to consumption growth remains limited.
  

Consumption Slowdown Outlook & Solutions

Over the past decade, private consumption growth has declined by 1.6 percentage points, with demographic changes accounting for a 0.8 percentage-point slowdown. By 2025–2030, further population decline and intensifying aging trends are expected to widen the consumption slowdown impact to 1.0 percentage points.

Addressing Korea’s sluggish private consumption requires structural reforms. One key strategy is ensuring that the second baby boomer generation (born between 1964 and 1974) does not overly transition into self-employment upon retirement but instead continues working in stable jobs for longer periods. This would help reduce uncertainty regarding income and retirement while mitigating the decline in labor supply, which could weaken economic growth potential.

Low Birth Rates & Aging – A Looming Threat to Korea’s Future

While population aging and low birth rates are global concerns, Korea is experiencing one of the fastest rates of demographic decline, making the situation even more urgent. The burden on younger and future generations continues to grow.

If left unaddressed, these trends will not only slow economic growth but also jeopardize the sustainability of pension and welfare systems.
Furthermore, Korea’s workforce is overly concentrated in certain professions. STEM and research fields are often neglected, while medical schools and professional career paths dominate, leading to industry stagnation.

To navigate these challenges, Korea must implement effective policy reforms to boost birth rates, adjust economic structures to diversify career opportunities, and develop comprehensive strategies to ensure future generations can thrive in a stable environment.

Now is the time for fundamental action to tackle Korea’s demographic crisis head-on.