Rich get richer: Generational wealth gap widens as baby boomers sit on assets

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Rich get richer: Generational wealth gap widens as baby boomers sit on assets

The generational wealth gap between Korea's baby boomers and the younger generation is widening. Pictured is a real estate agency in Seoul in April. [YONHAP]

The generational wealth gap between Korea's baby boomers and the younger generation is widening. Pictured is a real estate agency in Seoul in April. [YONHAP]

 
The generational wealth gap between Korean baby boomers and the younger generation is getting wider, with citizens aged 60 and older holding almost 40 percent of the nation’s wealth.
 
Korea’s first wave of baby boomers was born between 1955 and 1963, and the second from 1968 to 1974. With most of their wealth tied to nonfinancial assets — especially real estate — economists worry that the locked assets cut off money circulation, making investment and fund management on a national scale less efficient.
 
A 69-year-old retiree, identified only by his surname Kim, resigned from his public institution job of 31 years. He was introduced to his current “Korean Heritage Guardians” job through the Seoul Metropolitan Government’s Golden Job center. He now earns around one million won ($731) a month protecting cultural heritage sites from potential damage.
 
Kim isn’t desperate for the job, or the money. But he’s short on cash, with most of his assets tied up in real estate, including his one billion won home in Seoul.
 
“I thought about moving to the countryside after selling the house and putting the money toward daily expenses or giving it to my children, but the taxes are steep,” Kim said.
 
“I plan to hold on with odd jobs for the time being,” he added.
 
“It used to be that most people who looked for jobs were those financially struggling,” Kim Seul-gi, head of the Golden Job center, said.
 
“But nowadays there are a lot of elderly, who have a lot of wealth but no steady income, looking to be hired.”
 
People looking for income despite being asset-holders, like Kim, are becoming more common in Korea. The average income earned by those aged 65 and over — a mostly retired demographic, with public pensions starting at 62 — was 40.54 million won as of 2022, according to Statistics Korea.
 
This is around half the ordinary income earned by people in their 30s, who on average earn 72.41 million won. But people aged 65 and over had an average of 66.1 percent more in net assets compared to those in their 30s, with the two demographics owning an average of 453.64 million won and 273 million won, respectively.
 
The share of net assets belonging to the 60 and older demographic rose to 37.71 percent of the national wealth in 2022, compared to 32.2 percent in 2017. The 39 and under bracket’s share of the national net wealth decreased from 14.7 percent to 13.1 percent. [AHN DA-YOUNG]

The share of net assets belonging to the 60 and older demographic rose to 37.71 percent of the national wealth in 2022, compared to 32.2 percent in 2017. The 39 and under bracket’s share of the national net wealth decreased from 14.7 percent to 13.1 percent. [AHN DA-YOUNG]

 
Economists are concerned that an excessive concentration of wealth in the older generation will hinder economic vitality. Older citizens tend to pool their assets in real estate or in banks rather than buying goods or investing, like they did when they were younger or middle-aged. This means the trend of people locking their wealth in assets is intensifying.
 
The Bank of Korea analyzed that the aging of the population from 1995 to 2016 led to an average yearly decrease of 0.9 percent — or 18 percent overall — in total household spending in their report on changes in consumption patterns due to the aging society. On a national scale, nationwide investment and fund management is bound to become inefficient without money circulating.
 
And yet, the older generation’s share of the national net wealth is steadily increasing.
 
The total amount of net assets owned by heads of households aged 60 and over reached 3,744.73 trillion won in 2022, an almost 87.2 increase from 1,999.92 trillion won in 2017.
 
Meanwhile, during the same period, total net assets held by household heads aged 39 or younger only saw a 42.1 percent increase, from 914.62 trillion won to 1,301.61 trillion won.
 
This resulted in the share of net assets belonging to the 60 and older demographic rising to 37.7 percent of the national wealth in 2022, compared to 32.2 percent in 2017. The 39 and under bracket’s share of the national net wealth decreased from 14.7 percent to 13.1 percent. The data was calculated by multiplying the number of households by the average net assets of household heads for each age group.
 
The generational wealth gap is forecast to only get worse. The older population is getting larger and, unlike in the past, the number of rich older people loaded with assets is also increasing. This is because the first generation of baby boomers, who comparatively had more opportunities to accumulate wealth while living through Korea’s hyper growth period, have all entered their 60s.
 
The average ages of those in the fifth and second wealth quintiles decreased compared to those recorded in 2019. Those in the bottom 20 percent became younger, with the average age decreasing from 57.2 to 55.2.
 
The average ages of those in the fifth (top 20 percent) and second wealth quintiles decreased compared to those recorded in 2019. Those in the bottom 20 percent became younger, with the average age decreasing from 57.2 to 55.2. [AHN DA-YOUNG]

The average ages of those in the fifth (top 20 percent) and second wealth quintiles decreased compared to those recorded in 2019. Those in the bottom 20 percent became younger, with the average age decreasing from 57.2 to 55.2. [AHN DA-YOUNG]

 
The older generation is further enlarging the generational wealth gap by taking advantage of their head start to accumulate wealth. With interest rates remaining low globally for 10 years, the rise in asset prices has outpaced the rise in household income. The sudden jump in real estate prices, in particular, expedited the widening of the gap even more.
 
Around 41.2 percent of homeowners were aged 60 or over in 2022, according to Statistics Korea. On the other hand, only 11.9 percent of people below 40 owned houses. The term “overnight beggar” was newly coined among the youth to refer to people who suddenly became poor despite working hard. The trend will likely intensify as the second generation of baby boomers — those born between 1968 to 1974 — enter their 60s. The current bracket of people in their 50s is the largest demographic and owns the most net worth in Korea. The widening generational wealth gap may cause social conflict in the future.
 
The concentration of wealth in the older generation is also an obstacle in factors for economic growth such as consumption and investment.
 
“Non-financial assets including real estate make up 64 percent of the older Korean population’s wealth, while financial assets make up 63 percent of Japan’s — it is likely that the two will have different growth curves,” Boston Consulting Group said in its recent report submitted to the Financial Services Commission.
 
“Insurance and healthcare industries grew rapidly in Japan because the older Japanese population has the capacity to spend money, while growth remains unclear in Korea as the older Korean population does not.”
 
It’s not just consumption that’s lacking. The older generation’s wealth monopoly, centered around real estate, is harmful to the stock market as well. This is because older people’s tendency to avoid risk makes them unmotivated to invest in shares. Even the national pension needs to sell its held shares to pay out pensions, so a decline in demand for investment is inevitable.
 
The market capitalization for the benchmark Korea Composite Stock Price Index is estimated to amount to 618.2 trillion won, only one third of its current value, by 2070, according to Ehwa Womans University economics professor Kim Se-wan and Mirae Asset Securities adviser Kim Kyung-rok’s calculations using data from Statistics Korea.

BY KIM NAM-JUN [[email protected]]
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