By Lina Irawan 
South Korea has emerged as one of the most significant beneficiaries of the global Artificial Intelligence (AI) revolution, positioning itself at the very heart of the technological surge. This economic ascendance is largely powered by its formidable semiconductor industry, spearheaded by global giants Samsung Electronics and SK Hynix. These two companies are not merely players but titans, commanding a dominant share in the production of memory chips—critical components that fuel everything from smartphones and data centers to the sophisticated AI accelerators driving the current boom. The burgeoning demand for High Bandwidth Memory (HBM) chips, specifically designed for AI applications, has translated into unprecedented prosperity within the sector.
The evidence of this windfall is stark. Reports from within the industry paint a picture of immense wealth generation, with chip workers reportedly flashing bonuses reaching astronomical figures, some as high as $400,000. This influx of capital and optimism has reverberated through the nation’s financial markets. The KOSPI, Korea’s benchmark stock index, has soared by almost 60% for the year so far, reflecting robust investor confidence and the substantial growth prospects tied to the AI sector. The nation’s export figures and factory investments have also seen a significant surge, underscoring the profound impact of global chip demand on Korea’s industrial output and trade balance.
However, beneath this veneer of economic triumph lies a troubling paradox. A recent report from investment banking giant Goldman Sachs suggests that the vast wealth generated by this AI boom might not be reaching the broader populace, raising concerns about the equitable distribution of prosperity. Despite the booming corporate balance sheets and surging exports, retail sales figures remain stubbornly close to their 2019 levels, indicating a disconnect between macroeconomic indicators and everyday consumer spending. Goldman Sachs aptly terms this phenomenon a "K-shaped cycle," where corporate entities and a select few thrive at the top, while private consumption and the financial well-being of ordinary households languish at the bottom.
Goldman Sachs’ economists offer a compelling, albeit sobering, explanation for this divergence: South Korea is aging at an alarming and unprecedented rate. The East Asian nation holds the unenviable distinction of having one of the world’s lowest fertility rates, a demographic crisis that threatens to undermine its long-term economic stability. Last year, the country reported a mere 0.8 births per woman, a figure drastically below the 2.1 rate generally considered necessary to maintain a stable population level. To put this into perspective, the United States, by comparison, recorded 1.6 births per woman, still below replacement but significantly higher than Korea. This precipitous decline in births means that a shrinking pool of younger generations will soon be tasked with supporting an ever-growing elderly population.
The demographic shift is not a distant threat but a present reality. Currently, a substantial 20% of Korea’s population is already over the age of 65. This cohort includes the nation’s postwar baby boomers, who are now entering retirement en masse. Their exit from the workforce coincides with a persistently low fertility rate, exacerbating the imbalance between the working-age population and dependents. The United Nations projections paint an even starker picture, forecasting that Korea’s "dependency ratio"—the ratio of children and elderly individuals to the working-age population—will increase by 1.5 percentage points annually over the next decade. This is the fastest projected pace among the 70 large and mid-sized economies analyzed by Goldman Sachs, even surpassing the intense period of aging experienced by Japan from 2000 to 2015, a country often cited as the global exemplar of an aging society.
The demographic crisis is compounded by a peculiar characteristic of older Koreans: their savings behavior. Unlike their counterparts in Japan, Taiwan, and the United States, where retirees typically begin to draw down their savings to support their consumption needs, elderly Koreans exhibit an unusual propensity to save. Goldman Sachs’ research reveals that Koreans in their sixties save more than any other age group, retaining a remarkable 37% of their income. Even those in their seventies continue to save at rates comparable to individuals in their forties, defying conventional economic patterns of retirement spending.
This ingrained saving habit is further complicated by the composition of wealth among elderly Koreans, which makes it difficult to translate into disposable income for consumption. More than 60% of Korean household net worth is concentrated in non-financial assets, primarily real estate. This is the highest proportion among the advanced economies studied by Goldman Sachs, reflecting a cultural emphasis on property ownership as a primary form of wealth accumulation. In stark contrast, financial assets held by Korean households amount to only 100% of the country’s 2024 GDP, marking the lowest level within Goldman’s sample.
The consequence of this asset distribution is that many Korean retirees are "asset-rich but cash-poor." Despite owning significant property, they lack the liquid financial assets necessary to cover their daily expenses comfortably. Goldman researchers noted, "Even among elderly households that have accumulated retirement savings, fewer than one-fourth could cover consumption needs with financial assets." When faced with declining incomes in retirement, older Koreans are more inclined to reduce their spending or seek additional work rather than liquidate their valuable, but illiquid, assets. This reluctance stems from a combination of factors, including a strong cultural desire to preserve real estate as an inheritance for their heirs and a lack of robust financial mechanisms to easily convert property wealth into spendable cash.
Efforts to unlock this housing wealth, such as reverse mortgages, have seen limited adoption. Reverse mortgages, which allow homeowners to convert a portion of their home equity into cash, cover a meager 1.8% of homeowners older than 75 in Korea. This low uptake is attributed not only to the desire to pass on property but also to a potential lack of public trust in such financial products and insufficient awareness or accessibility. The absence of effective pathways to monetize real estate wealth forces retirees into a difficult position, where their accumulated assets provide little immediate relief for their consumption needs.
A comparison with Taiwan, another major winner in the AI boom, highlights Korea’s unique challenge. Despite facing equally severe aging pressures—Taiwan’s government projects its population could halve by 2075—the island nation exhibits stronger consumption patterns among its older citizens. This divergence is attributed to Taiwanese households possessing a much larger financial cushion. Net financial assets in Taiwan total five times its GDP, a stark contrast to Korea’s mere one times GDP. This greater liquidity provides Taiwanese retirees with the flexibility to draw down their savings for consumption, thereby mitigating the economic drag of an aging population on domestic demand. The difference suggests that a more developed and diversified financial market, alongside different cultural attitudes towards wealth management and inheritance, could play a significant role in how aging populations impact consumption.
As the proportion of elderly Koreans continues to grow, this ingrained propensity to save rather than spend is projected to become an increasingly potent drag on overall economic activity. Goldman Sachs’ analysis indicates that among the major economies studied, a one percentage point increase in the dependency ratio typically reduces real private consumption growth by approximately 3 basis points per year. However, in South Korea, the impact is far more severe, with the hit to growth ranging between 10 and 17 basis points. This amplified effect underscores the unique challenges posed by Korea’s demographic structure and its elderly population’s distinct financial behavior.
One of Goldman Sachs’ models suggests that Korea’s rapidly aging population could shave as much as 25 basis points from annual consumption growth over the next decade. Looking further ahead, the long-term modeling paints an even bleaker picture: even if Korea manages to maintain a respectable 2% economic growth rate over the next two decades, consumption growth is projected to gradually weaken and eventually turn negative. This scenario poses a fundamental threat to the nation’s economic vitality, as domestic demand is a critical engine for sustained growth and innovation beyond the export-driven tech sector. A persistent weakness in consumption can stifle local businesses, discourage investment in non-export industries, and ultimately lead to a stagnant or contracting economy.
Korean officials are acutely aware of the demographic time bomb and have implemented a variety of national and local-level initiatives aimed at reversing the alarming decline in birth rates. The national government, for instance, recently announced a "marriage support grant" of up to 1 million won (approximately $725) for newly married couples, alongside an additional 20 million won (around $14,500) for each newborn. Local governments have also stepped in, organizing matchmaking events for Korean singles and even dangling monetary rewards for couples who marry after meeting at these events. While these efforts have led to a very slight increase in birth rates in some areas, the fundamental societal and economic pressures contributing to low fertility—such as high costs of living, intense educational and career competition, and gender inequality—remain deeply entrenched.
Even a radical increase in fertility rates today would not provide an immediate solution to Korea’s economic challenges, as any babies born now would not enter the working-age population for at least two decades. Therefore, Goldman Sachs economists advocate for more immediate and actionable solutions. These include policies aimed at helping elderly Koreans unlock their substantial housing wealth, perhaps through more attractive and trustworthy reverse mortgage schemes or by developing new financial instruments that facilitate the conversion of illiquid assets into spendable income without requiring a complete liquidation of the family home. Furthermore, they suggest strategies for better distributing the significant financial windfall generated by the country’s super-profitable tech firms to ensure that the benefits of the AI boom are more broadly shared across society, thereby boosting private consumption and stimulating domestic demand. This could involve targeted social welfare programs, pension reforms, or incentives for companies to invest more in domestic labor and services.
In conclusion, South Korea finds itself at a critical juncture, navigating the dazzling heights of the AI boom while simultaneously grappling with the profound challenges of a rapidly aging population and unique consumption patterns among its elderly. The "K-shaped cycle" described by Goldman Sachs underscores a stark reality: corporate prosperity, however impressive, cannot sustainably power an economy if private consumption remains weak. Unless comprehensive and effective strategies are implemented to address both the demographic crisis and the structural issues hindering wealth distribution and elderly spending, the nation risks undermining the long-term benefits of its technological prowess, transforming a period of unprecedented opportunity into one of deepening societal and economic disparity. The path forward demands not just technological innovation, but also bold social and economic reforms to ensure that the AI boom truly benefits all Koreans.
