South Korea Isn’t Making Enough Babies For The Economy

South Korea Isn’t Making Enough Babies For The Economy
Theodora Lee Joseph, CFA

over 1 year ago1 min

South Korea has a baby problem: it’s just broken its own record for the world’s lowest fertility rate and has become the world’s fastest-aging country. And the economic implications are anything but small.

The chart above shows how the fertility rate in South Korea, measured by the number of babies per woman, has fallen since 2015. Korean women are having an average of just 0.81 children over their lifetimes, way below the replacement level of 2.1. That’s the level necessary for a population to replace itself from one generation to the next, absent migration. While global fertility rates have seen a steady decline for the past 50 years, South Korea’s drop has been notably sharp. The country might now see its population of 51 million people more than halve by the end of 2100 if fertility levels don’t pick up. And that would mean more pressure on healthcare systems, and fewer people in the workforce supporting those on government support.

This can significantly change the way you invest – not just in South Korea, but also in other developed economies facing the same issue. For one thing, the older people get, the less willing they are to invest in more risky assets. Plus, many people sell their investments when they hit retirement age. Those two factors suggest that equities might take a hard knock over time. If you are investing now, consider assets in sectors where long-term growth is likely, such as healthcare. And keep in mind: rising welfare spending and a shrinking workforce will result in tighter government budgets, so you’ll want to make use of tax-advantaged accounts when you invest, to protect you against the risks of higher taxes in the future.

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