The numbers emerging from South Korea’s technology sector paint a picture of unbridled success. Samsung Electronics and SK Hynix, two titans of memory chip manufacturing, are at the forefront of the global AI surge, driving record exports and factory investments. Bonuses for chip workers reportedly flash at around $400,000, and the KOSPI, Korea’s benchmark index, has climbed by almost 60% this year. Yet, beneath this veneer of prosperity, a different narrative unfolds, one that suggests the nation’s demographic realities might be undermining its economic triumphs.
A recent report from Goldman Sachs highlights a stark “K-shaped cycle” within the South Korean economy. While corporate balance sheets swell with the profits of the AI revolution, private consumption remains stubbornly flat, barely surpassing 2019 levels. This disconnect, according to Goldman Sachs economists, is largely attributable to the country’s rapidly aging population, a factor that threatens to temper the widespread benefits of its technological ascendancy. South Korea recorded a fertility rate of just 0.8 births per woman last year, a figure drastically below the 2.1 needed to maintain a stable population. Compounding this, a significant portion of its citizens, 20% of the population, are now over the age of 65.
The nation’s postwar baby boomers are now entering retirement, coinciding with a sustained period of below-replacement fertility rates. This demographic shift is creating a shrinking pool of working-age individuals tasked with supporting an expanding elderly population. The United Nations projects South Korea’s “dependency ratio”—the proportion of non-working age individuals relative to the working-age population—will increase by 1.5 percentage points annually over the next decade. This acceleration is faster than any other among the 70 large and mid-sized economies analyzed by Goldman, even surpassing Japan during its most intense period of aging between 2000 and 2015.
Adding another layer of complexity, elderly Koreans exhibit an unusual financial behavior: they tend not to spend their savings after retirement. Unlike their counterparts in Japan, Taiwan, or the United States, who typically draw down their accumulated wealth, Koreans in their sixties save more than any other age group, retaining 37% of their income. Even those in their seventies save at rates comparable to individuals in their forties. This propensity for saving, however, is often born out of necessity, as much of the wealth held by older Koreans is illiquid. More than 60% of Korean household net worth is tied up in non-financial assets, predominantly real estate, marking the highest share among advanced economies studied by Goldman Sachs. Financial assets, by contrast, amount to only 100% of the country’s 2024 GDP, the lowest in Goldman’s sample.
This dynamic leaves many Korean retirees “asset-rich but cash-poor.” Goldman researchers found that fewer than a quarter of elderly households could cover their consumption needs with financial assets alone. When faced with declining incomes, Koreans are more inclined to cut their spending or seek additional work rather than liquidate their assets. The reluctance to tap into housing wealth is also notable; reverse mortgages cover a mere 1.8% of homeowners over 75, partly reflecting a strong desire to preserve assets for heirs. This contrasts sharply with Taiwan, another beneficiary of the AI boom, where older consumers contribute more significantly to consumption despite similar aging pressures, largely due to a much larger financial cushion with net financial assets totaling five times GDP.
The implications of this demographic and financial landscape are substantial for the national economy. Goldman’s analysis indicates that for major economies, a one percentage point increase in the dependency ratio typically reduces real private consumption growth by about 3 basis points annually. In South Korea, however, this hit is far more severe, ranging between 10 and 17 basis points. One model suggests that the country’s rapid aging could shave as much as 25 basis points from annual consumption growth over the next decade. Even if South Korea maintains a 2% economic growth rate over the coming two decades, Goldman’s long-term modeling projects that consumption growth will gradually weaken and eventually turn negative. While national and local government initiatives, such as marriage support grants and incentives for newborns, aim to reverse falling birth rates, any potential impact on the workforce is decades away. Economists suggest more immediate solutions, including facilitating access to housing wealth for the elderly and ensuring a broader distribution of the tech sector’s substantial windfall.
