Curse of population aging

Nation should not waste time in minimizing ill effects

The low birthrate and rapidly aging population have combined to pull down the nation's real interest rate significantly. According to a report released by the Bank of Korea, Monday, the real interest rate ― nominal interest rate minus inflation ― plunged from 9 percent in 1995 to 0.4 percent in 2018. The report noted that one-third of the fall was due to the plunging birthrate and the graying of society.

The finding is hardly news. Everyone knows population aging pulls down consumption and interest rates. A case in point is Japan trapped in deflation marked by low inflation and low growth. An average Korean is expected to live 20 years more after retiring at 60. The loose social safety net forces them to tighten their belt. Increasing savings and declining consumption lower the value of money, i.e., the interest rate. The number of Koreans aged 65 or older totaled about 8.2 million last year, accounting for 15.5 percent of the population, or one in every six Koreans.

The adverse effects of population aging are everywhere. According to a report by Mirae Asset last November, 51.4 percent of "inheritors" were people over 80 years of age, causing the problem of "inheritance from the old to the old." That makes inherited assets mainly stay with the older generations, which, in turn, results in the fall of consumption and inefficient asset management because of issues such as dementia. Japan is experiencing a similar problem. A recent news report there said that financial assets owned by patients with dementia would account for more than 10 percent of total household assets by 2030.

Korea can find a solution from Japan. The Japanese government grants tax incentives if elderly people bequeath their assets in advance. Seoul needs to benchmark this system. Last year, consumer prices rose a mere 0.4 percent from 2018, the lowest gain since the government began to compile related data. The administration should find ways to sever the vicious cycle of low interest rates, low inflation and low economic growth. Koreans' average age rose to 42.6 years in 2019. All this points to one thing ― the government's policies to cope with population aging should take on a far greater urgency.