Baby boomers going bust
Plight of Koreans over 50 poses serious threat to financial stability
By Kim Tong-hyung
The Korean story of decaying family finances is beginning to resemble an old wedding saying: There’s something old and something new, definitely something borrowed and all is blue.
As the country faces a disastrous vortex of historically high household debt, crippling unemployment and a workforce aging in dog years, much have been made of the struggles of school leavers and graduates and concerns about an entire generation lost to joblessness.
But while these are clearly difficult times for young people, life has been just as depressing for older workers, who now brace for an acute squeeze on their living standards after walking blindly into retirement poverty.
There has been rapid growth in the number of people in their 50s and 60s experiencing severe financial hardship after failing to make adequate provision for retirement. Many of them are toiling away as bottom feeders of Korea’s ever-expanding self-employed population and the country’s excuse for a social safety net isn’t providing much relief.
A damning report by the Bank of Korea (BOK) suggests that the intersection between the country’s low-income earners, people over 50 and the self-employed group is becoming more profound day by day. That place will likely be ground zero should the country ever experience a massive blow-up in financial stability, experts say.
``The majority of people over 50 shifting to self-employment is because they simply need money and couldn’t get a job anywhere else _ ambitions for success or fulfilling old dreams rarely come into play,’’ said Kang Seon-gu, an economist from LG Economic Research Institute (LEGRI).
``So most of these people commit to low-margin businesses like supermarkets, restaurants and trucking, which make them more vulnerable in dismal economic times like this. Government statistics show that the majority of people over 50 in self-employment is failing, which is a concern as most of them wouldn’t be getting a second chance.’’
The growth in the number of people heading toward poverty in later life is an alarming development for the country, where people collectively owe more money than what the economy generates in a year.
The BOK puts the household debt mountain at 912.9 trillion won ($807 billion) based on data from savings institutions and other financial companies. Experts say the total has way passed one quadrillion won, which is about an entire year’s gross domestic product (GDP), when combining the borrowing by self-employed people, non-profit organizations and measurements in non-interest paying debt.
While the public’s borrowing binge was fueled by speculative demand for property in the past decade, policymakers are concerned that personal indebtedness is now driven more by poor families struggling to cope with stagnant income and higher costs of living.
About 40 percent of the household debt growth measured in the fourth quarter of last year came from families earning less than 30 million won a year, according to recent BOK analysis. This shows that an increasing number of families in the lower-income brackets are being forced to borrow to support their day-to-day living.
And many of these desperate borrowers seem to be baby boomers, or those born in the era of fecundity that was the 1950s and ‘60s. Debt attached to those over 50 accounted for 46.4 percent of all household liabilities in 2011, representing an increase of 13.2 points since 2003, the BOK report said.
The proportion of people over 50 in the population grew by 8 percent during the same period, showing that indebtedness among older people is growing at an even faster pace than the country is aging.
``With the retirement of the baby-boomer generation now getting into full gear, an increasing number of retirees are taking out home-backed loans to acquire the money to start their own businesses. The proportion of people over 50 in the country’s self-employed population increased from 47.1 percent in 2008 to 53.9 percent in 2011, and the bank loans issued to over-50 customers have rose dramatically as well,’’ the BOK authors said.
Official figures show there are more than 3 million over-50 Koreans trying out their luck in independent businesses. After declining for more than five years, Korea’s self-employed increased for the seventh consecutive month in February due to the rapid influx of people over-50, Statistics Korea officials said recently. Too bad the journey in self-employment often ends in a destination called poverty.
``Self-employed people over 50 are mostly dependent on businesses that they can open with small capital, like neighborhood supermarkets, small restaurants and barber shops. These are businesses that react more violently to trends in economic activity and consumer spending. Bankruptcies and business closures are frequent and they could be decisive blows the owners never recover from,’’ said Kang.
Korea’s official unemployment rate was 3.7 percent for March but the realities of the job market are even worse as the figure was softened by the outrageous size of the population squeezed into the economically inactive category.
There were 1.07 million people listed as unemployed, but a staggering 16.2 million labeled as economically inactive, which means they have either chosen not to work or given up looking for a job. To put it bluntly, more than 42 percent of Korea’s working-age population over 15 remains sidelined form the labor market.
Statistics Korea not only includes self-employed people and students in the economically-inactive group, but also first-time jobseekers and those taking public exams.
Despite the disturbing numbers, policymakers like Strategy and Finance Minister Bahk Jae-wan have been pointing to the relatively modest official jobless rate in claiming they have unemployment under control.
After The Korea Times published a column criticizing government officials for misleading job market realities and questioned whether they are suppressing the headline jobless rate by artificially inflating the economically inactive group, Statistics Korea published a two-page press release accusing the newspaper of undermining its ``international credibility.’’
However, the agency’s response that Korea’s economically-inactive population is significantly larger than that of other similar-sized economies because there are so many more self-employed people sounded more like a confession than an explanation.