[Outlook]Aging well

‘My dear friend, don’t be greedy with money. No matter how much you may have, you won’t bring it with you to your grave. If you leave too much money behind, your children will fight for it. Share it generously with other people while you are alive and thus achieve tremendous virtue!
“My dear friend, but that is just what we say outwardly. The truth is, you must not hold on to your money until you die. If you meet an old friend, treat him to drinks. If you see a poor person, give him some money. If your grandchild visits, give them some pocket money. Then, people will take care of you and respect you when you are old. It’s between us though ...
“Do not act stupid. Do not get sick. If you do, they will treat you badly. I wish you a long life.”
This is a quotation from “A Life of Middle-aged People,” which is attributed to the revered Buddhist monk, Venerable Beopjeong.
On July 12, reverse mortgage loans hit the market in Korea.
In a reverse mortgage, an older person offers his or her home as collateral and receives a monthly payment for life from a financial institution while living in the home. The purpose is to allow people to hold on to their homes as they grow older by using the value of the house as income until they pass away. A person who is 65 years or older, whose spouse is also 65 years or older and who owns a house worth 600 million won ($630,000) or less can subscribe to the scheme. People who own more than one house are not eligible.
A reverse mortgage does not guarantee a wealthy life after retirement, but it can certainly help. With this plan, an older homeowner can buy drinks for his friends and provide allowances for grandchildren, at least.
An aged person without any children could easily see this program as a way to have a more comfortable life after retirement.
But if he or she has children, things get a bit more complicated.
A reverse mortgage is certainly attractive because it allows home- owners to maintain their independence and not become a burden to their children. They do not have to worry about cash flow. But by taking out a reverse mortgage you will lose the opportunity to hand down the house to your children during a time of rising prices, when it is increasingly difficult for people to buy their own homes. As a result, some older home- owners may feel uncomfortable about taking out this kind of loan. So far, despite the availability of the loan, few seem to be subscribing to the plan.
Korean parents above 50 years old worked very hard during the industrialization era. They did everything they could to put their children through the best schools.
During the Asian financial crisis, many of them were fired from jobs they had been devoted to for years. Now all their assets are in their homes.
Some have given their houses, their only properties, to their children, who know that there is nothing more that they can get from the parents. In some cases, they treat the parents badly.
Frankly, it may be better to subscribe to a reverse mortgage than to take the suggestion of children who say, “Please provide us money for business by selling your house. We’ll take good care of you.” People tend to change when they go from being desperately in need to being satisfied. It is better to be coldhearted than stupid. That way, everybody can be happy.
In this respect, there are problems with a reverse mortgage. Children might feel that they don’t need to treat their parents well if they have no chance to inherit their house. It might be better if part of the home equity was paid like a pension, with the rest made available to pass down to the children. Then parents would feel less hesitant about taking out the loan and children would still treat their parents well. It could make more people take out reverse mortgages at an earlier date.
Meanwhile, low-income older citizens with no house might feel even more deprived than before because of the reverse mortgages.
Among these financially troubled citizens, only 8 percent receive aid from the government. The government plans to introduce a pension system for all senior citizens and to provide more support for the elderly, but this will be too far in the future to help the current elderly poor.
For a person who owns an expensive house or many houses, a reverse mortgage isn’t necessary. But these “haves” should be willing to share with the “have-nots.”
Korea is the world’s 12th-largest economy, but charitable donations are not common. If a rich person keeps one decent house to hand down to the children and donates the rest of his assets to society, he will become a person of virtue.
When the haves are not greedy, when they remember the words of Venerable Beopjeong, Korea will become a healthier society.

*The writer is a professor of economics at Chung-Ang University. Translation by the JoongAng Daily staff.

by Ahn Kook-shin