In this Fung Global Retail Technology report, the rapidly changing demographic makeup of South Korea, the implications an aging population has on its economy and the various policies the government has put in place to address this issue will be examined
- In 2016, the number of seniors (those aged 65 and over) in South Korea had reached 6.8 million, or 13 % of the total population, according to UN data.
- Some 46 % of seniors in the country were living in poverty in 2015, according to the OECD.
- The life expectancy rate in South Korea jumped to 82 years in 2015 from 62 years in 1970, while the fertility rate (i.e., the number of children born per woman) declined to 1.2 children from 4.5 children.
- Doubling nearly every 15 years, South Korea’s senior population is seeing the fast growth among the major global economies and emerging markets.
South Korea is one of the top economies in the world. Having experienced rapid growth over several decades placed it among the ranks of countries with the highest total GDP—it ranked 11th in 2016, according to World Bank data. In recent years, however, its global position is under threat as a result of a looming aging crisis.
South Korea is now the fastest-aging country in the world, with its senior population doubling in number nearly every fifteen years, based on analysis of the latest United Nations data. At this pace, it is set to seize Japan’s title of most aged country by 2060.
Nearly half of the country’s seniors were living in poverty in 2015, with one-quarter of them living on their own, according to 2016 data from the Organisation for Economic Co-operation and Development (OECD). Since the current state pension is insufficient to cover their expenses, many of these seniors are forced to work for a living, all while battling the physical and mental health conditions that accompany old age.
Newly elected in May this year, President Moon Jae-in has vowed to address the situation. He has proposed several reforms such as increasing pensions, providing more jobs for the elderly and building health facilities to help the country’s seniors. In the meantime, several not-for-profit associations and volunteer groups are also helping alleviate the problems facing this growing segment of the population by providing free food and shelter.
The Land of the Morning Calm, as South Korea is sometimes called, has had a profound impact on the world in many ways. From the country’s well-known electronics brands Samsung and LG and car brands KIA and Hyundai to influencing beauty (K-beauty) and culture trends (K-Pop), people around the world have come into contact with South Korea in some aspect of their daily lives.
In 2016, South Korea ranked 11th in the world by total GDP, according to the World Bank. Experiencing rapid growth over several decades since the Korean war in the early 1950s positioned it among the countries with the highest total GDP. In recent years, however, the country’s rapidly changing demographic composition is threatening its global standing as a powerful nation. South Korea is now considered the fastest-aging country in the world and is poised to usurp Japan’s title of most aged nation by 2060.
In this report, we examine the rapidly changing demographic makeup of South Korea, how it has affected the lives of seniors in the country, the implications the aging population has on the economy and the various policies the government has put in place to address this issue.
First, to better understand the magnitude of this phenomenon, we look at the severity of the country’s aging crisis, the proportion of seniors—whom we define as those aged 65 and over—in some of the major global economies and the pace at which the senior population is growing.
The poverty rate of Seniors in South Korea is among the highest in the world
Seniors in many developed countries, such as Germany, Sweden and Norway, have the luxury of looking forward to a comfortable retirement, with regular pension receipts, benefits provided by the government and surrounded by family or those closest to them. In South Korea, however, the situation is not so rosy.
- In 2016, the number of seniors in the country had reached 6.8 million, or 13 % of the total population, according to UN data.
- Some 46 % of South Koreans aged 66 and above (data available was for this age group) were living in poverty in 2015, according to the OECD. This is the highest rate among the OECD nations and only a slight improvement from the 49 % recorded in 2014. The OECD also noted that at least one-quarter of seniors live alone, and this has led to increasing loneliness and depression. South Korea has one of the highest elderly suicide rates among the OECD countries.
These gloomy socioeconomic indicators have taken their toll on the lives of South Korean seniors.
Earlier this year, Channel NewsAsia (CNA), a Singaporean English-language cable television news agency and news channel, published a series of articles on its website summarizing investigations carried out for its documentary on the lives of older people in South Korea. CNA’s findings reinforced the bleak picture of the lives of South Korean seniors:
- The country’s state pension system includes criteria that disqualifies seniors with children from receiving pensions. However, some families do not support parents in their later years and some seniors refuse to be dependent on their children. This has led to many older people working until their death to support themselves on the limited income and savings they might have.
- The basic state pension in South Korea is KRW200000 per month (about USD 182), which many find insufficient to pay for everyday necessities, including medical expenses, which tend to increase with age.
- As job opportunities are limited for older people, many resort to menial jobs such as collecting cardboard boxes to sell to junk depots, or even turn to prostitution, to support themselves.
South Korea’s aging crisis has been many years in the making, which has led to a significant proportion of the population living out their senior years under challenging conditions.
Rising life expectancy rates and declining birth rates exacerbate the Senior Boom
The twin factors responsible for spawning South Korea’s aging crisis—rising life expectancy rates and declining birth rates—began to take shape in the early 20th century.
The introduction of Western medical and healthcare facilities led to a dramatic rise in the life expectancy rate to 52 years during the period 1955–1960, from 37 years during 1925–1930, according to the Asia Society. Life expectancy rates continued to improve over the next several decades.
World Bank data indicates that the life expectancy rate in South Korea jumped to 82 years in 2015 from 62 years in 1970, the highest increase among the countries chosen for this report.
As the overall health of the population improved, people living longer and continuing to have large families put a strain on the economy, particularly after the Korean war, which took place between 1950 and 1953. During this time, the country was dealing with limited resources for its relatively large and growing population. To curb further growth, the government introduced a family planning campaign in 1962, leading to progressively smaller families over the following decades.
South Korea fell to having one of the lowest fertility rates (i.e., the number of children born per woman) among select countries, with 1.2 children born per woman in 2015, from having one of the highest, at 4.5 children in 1970, according to World Bank data.
Thus, the dual effect of an increase in the number of people living longer along with a reduction in family size and new births has cut South Korea’s demographic evolution at both ends, leading to drastic growth in the proportion of seniors in the total population.
South Korea—the Fastest-Aging Nation
Until 2000, South Korea had one of the lowest proportions of seniors (aged 65 and above) among the select countries in Figure 3, at 7 % of its total population, according to UN data, a figure similar to that of China. After 2000, the proportion of the South Korean population aged 65 and above began to climb dramatically, and is forecast to exceed that of the US (19 %) by 2025, and that of Japan (37 %) by 2060.
UN data also showed that from 1985 to 2000, the number of seniors in South Korea grew by 1.9 times compared to that of other nations in our group, of between 1.1 and 1.8 times. Between 2000 and 2016, the 65+ population in South Korea doubled in size to 6.8 million—the fastest pace among the countries in Figure 4. Rising life expectancy rates and declining birth rates have resulted in smaller families compared to previous generations, which has led to a skewing of the overall age profile of the country’s population.
Between 2016 and 2030, the senior population in South Korea is forecast to grow by 1.8 times, according to UN data, slower than in the previous 15 years, but still the fastest pace among the selected countries, with only China expected to see similar growth.
The number of seniors in South Korea jumped to 6.8 million, or 13 % of the population in 2016, from 1.6 million or 4 % of the population in 1980. By 2030, this figure is forecast to rise to 12.6 million, or 24 %, nearly one-quarter of the country’s population, based on UN projections.
While the increase in the senior population has certainly been dramatic, this has not necessarily been a good thing, as their quality of life has deteriorated.
South Korea’s aging crisis did not just happen overnight; it has developed over many years as a result of a combination of macro- and socioeconomic factors, and so any remedial actions will need to be of a similar magnitude.
Before we look at reforms introduced by the government and the steps taken at the grass-roots level by activists and non-profit organizations, we examine the structure of South Korean consumer spending to understand how seniors spend relative to other age groups.
Senior Consumers Under-Index in Nearly Every Category
Incomes and expenditures of senior households in South Korea are significantly lower than that of the average household. In fact, their spending under-indexes relative to the average in every major category except for healthcare. In our book Mining Silver: Identifying Opportunities in the Silver Boom, we examined senior consumers across the US, the UK and Japan, and consistently found that seniors over-index in terms of healthcare spend.
The data in the following table reiterate that households headed by senior consumers tend to be poorer than the average household or those headed by other age groups: for every dollar the average household earns, a senior household earns income of just 67 cents; for every dollar an average household spends, a senior household spends just 65 cents.
Below, we compare senior household spend in South Korea with that of households headed by other age groups. Seniors allocate a larger share of their spending to basics such as food (eaten at home), housing and utilities, health and household goods and services than the average household does. Reflecting their below-average incomes, senior households allocate a below-average share of their spending to discretionary categories such as restaurants and hotels, and entertainment and culture.
What Is being done to Address the Aging Crisis
The government and non-profit organizations alike have been aware of the drastic rise in the senior population and their deteriorating quality of life, and have taken steps to alleviate the problem.
President Moon Jae-in’s call to action
Moon Jae-in won the presidential election in May 2017, and addressing South Korea’s worrying demographic situation, insufficient pension and jobs for older people were key issues in his campaign.
President Moon Jae-in’s key pledges for the senior population, as reported by South Korean website Yonhap News Agency, were:
- To increase the monthly basic pension for seniors in the low-income group to KRW300000 (USD 275) from KRW 200000 (USD 183).
- To increase the number of government-provided jobs for older people to about 800000 from 2017’s level of 430000, and to double their wages to KRW400,000 (USD 367) by 2020 from the current KRW 220000 (USD 202).
- To support income through national and retirement pensions by encouraging more women and low-income individuals to apply for pensions, by launching a retirement pension fund system for smaller companies and by increasing the state’s role in the management of retirement pensions to increase profits.
- To subsidize treatment for dementia and open local assistance facilities and to build hospitals to treat dementia.
The government expects to implement reforms involving the basic pension and state-provided jobs after the 2018 budget, and to introduce the new health programs for seniors in stages from 2018 onwards.
Local Activists and Associations helping Seniors
To address this issue at the grassroots level, many local activists and altruists have set up organizations to help seniors unable to care for themselves. Many of these were outlined by CNA in its investigation of the lives of seniors in South Korea.
- Community suicide watch groups have been established to help seniors suffering from depression or those that have suicidal tendencies.
- Gyeonggi, a province in South Korea, has set up community houses to provide food and shelter for older people.
- Many volunteer groups throughout the country run soup kitchens and provide free warm meals and companionship to seniors.
From a practical viewpoint, President Moon Jae-in’s pledges appear to address the country’s immediate issues related to its aging population. It remains to be seen whether these reforms will indeed be passed as pledged during the campaign, or if they may get diluted as a result of political conflict.
While these reforms will address the many causes of the dire predicament seniors in South Korea are in, they may not help solve what many are experiencing currently. This is where the many charitable organizations in the country come in. They have better access to solve the immediate problems facing seniors, and receiving state support to augment these efforts may help ease the burden on both the organizations as well as the government.
The greying of society is not just an Asian problem or a Korean problem. Other large economies and emerging markets may one day experience a situation like South Korea’s, albeit to a lesser degree and at a slower pace. These countries should act proactively to implement reforms, build awareness and sensitize people while the country is still young or while the challenges to the economy are less acute. Countries that are less developed than South Korea is currently may be ill-equipped to handle a socioeconomic shift of such magnitude. Advance review of their national demographic changes will help these countries implement precautionary measures to prevent a similar crisis.