A penny saved is a penny earnedThere was a very poor home in a rural village in India. Three generations lived crammed together in a single-roomed shabby home. But the extreme poverty did not ruin the family’s happiness and benevolence. The family always kept a portion of their paltry food aside to share with guests that may come by. No one actually ever dropped by their humble house, so food reserves tended to pile up. The family would take the food stock to the market before it was ruined and exchange it for money. Years later, the family came to have a handsome savings. The villagers emulated the family’s habit and the village in the end became richer than others.
The story has a simple morale — pennies make dimes and dimes make dollars. Koreans are far better off than Indians. The per capita gross domestic products of the two nations greatly differ. Korea is envied by other Asians as a wealthy nation. Yet the country is poorly prepared against old age. Half of the graying population is poor. The ratio is the highest among the countries of the Organization for Economic Cooperation and Development. Considering the ratio was in the 20 percent range for Japan, where aging accelerated much earlier, Korea’s poverty rate among senior citizens is quite serious.
Koreans are planning poorly for old age because they say they simply cannot afford to save. Hefty expenditure on private education that takes up a large portion of monthly household spending is the biggest reason why Korean adults cannot save for their future. Koreans, known to be obsessively eager in educating their children, spend on average about 300 million won ($271,591) to get a single child through college. Most go to the pockets of private teachers or institutions. The problem is an ancient one, but fails to get any better. Reckless spending to keep up appearance also interferes with planning for retirement. So the cause is not the affordability, but poor awareness, planning, and training. Saving money does not simply guarantee comfort in old age. One needs to learn, practice, and have a philosophy on money.
The education system requires a radical makeover. Despite high education standards, there are no teachings on money. The world is rapidly changing, but Korea’s education system is back-peddling. Koreans are pouring their post-retirement funds into an uncompetitive education system. If their children were happy, the money would be well spent. But Korean students are collectively stressed out and depressed from pointless slaving under a uniform education system that hinges on the college entrance exam. Young Koreans have become cynical. Parents must throw away the vain belief and myth that college is the sole end and solution for their children. It may have worked in the past, but that is no longer the case today.
I would like to introduce retirement planning, which is common for Americans. First of all, preparations should start immediately. The faster, the better. Second, instead of over-spending, people need to invest. Koreans should put up some of the share that goes to private education for their children on their own future. Like the Indian family in the story above, about 10 percent of household income should be set aside for old age.
Third, one must invest for the long term. In order to secure funds for older age, one must place regular investments on long-term basis regardless of market volatility. One must not fret over principal security and short-term returns.
In the United States there is a pension scheme dubbed the 401(k), a tax-qualified contribution pension that takes out 10 percent of the monthly paycheck for retirement savings. The policy has helped many Americans prepare for their post-retirement days. Similar policies exist in Korea.
Many employers have pension plans for their employees. There are also private pension funds that have more merits than shortcomings. People need to make use of these opportunities. They should first change their mind and practice. Old age must be well prepared to make each individual happy and the nation healthy. Readiness for the senior age is not an issue for a certain generation. People in their 20s and 30s will all become old. Financial preparedness is a good habit. And good habits can start from self-awareness.
JoongAng Ilbo, Sept. 29, B8
*The author is the chief executive of Mertiz Asset Management.