[Financial Planning for the 100-Year Life] Child-Related Expenses and Retirement Preparation for Heads of Household in Their 50s

Excessive Education and Marriage Costs for Children Increase Retirement Burden
3.13 Million "Kangaroo Tribe" Dependents... Reducing Child-Related Risks Is Essential

"I am in my 50s, the head of a four-person household, and my monthly income after taxes is about 4 million won. I still have an outstanding apartment loan, and since my children are a university student and a high school student, there will be many expenses ahead. Although my wife helps with living expenses by working part-time, I feel uncertain about preparing for retirement. I would appreciate your advice."

This is a question I received at a lecture on retirement planning. People in their 50s today are different from those in the past. They still want to work actively, but many are forced into early retirement by their companies or lose their jobs and find it difficult to secure new employment.

According to the average figures, households in their 50s in Korea have total assets of 614 million won. After subtracting household debt of 103 million won and real estate such as residential property worth 427 million won, the available cash is only 84 million won (as of March 2024, Statistics Korea Household Finance and Welfare Survey).

Furthermore, if you retire from your main job in your early 50s, even if you find reemployment, your income usually drops to about half. It is not easy to earn even 2 million won a month after taxes in a new job. Meanwhile, spending on children's education and wedding expenses is rising, and you also have to cover nursing care and medical costs for elderly parents. If you are not careful, you risk falling into poverty in old age. Therefore, in addition to considering what kind of work to do after retirement, the questioner should prioritize 'reducing expenses related to children.'

One of the child-related expenses that makes retirement difficult is excessive education costs. Last year, CNN in the United States published a report comparing the ratio of total child-rearing costs (for ages 0 to 18) to gross domestic product (GDP) in major countries. Korea ranked first, followed by China and Italy. This means that Korea spends the highest proportion of income on child-rearing costs.

The next issue is wedding expenses. Earlier this year, I compared the average wedding costs in Korea and Japan. The total amount spent by both families for a wedding is about 360 million won in Korea (according to Duo, a marriage information company) and about 50 million won in Japan (according to a Sumitomo Financial Group survey, converted to won). Korea spends about 310 million won more than Japan. This is mainly due to the cost of deposits or funds for purchasing a home. Most newlyweds in Japan live in rental properties. Even when they buy a home, they do so on a 30- to 40-year installment plan based on their own credit, so there is no need for a large lump-sum payment.

From a parent's perspective, an even more serious problem is the difficulty children face in finding employment. Last year, the employment rate for university graduates in Japan was close to full employment at 98%, while in Korea it was only 70%. If you exclude those serving in the military or pursuing graduate studies, the rate would be even lower. There was also a media report that 680,000 people in their 20s and 30s are simply not working at all. In other words, they are not even looking for jobs. Overall, there are 3.13 million so-called "kangaroo tribe" adults who depend on their parents for living expenses. In reality, kangaroos drive their offspring out after just one year of protection. This means that even if you have billions of won saved for retirement, it is meaningless if you are exposed to "child risk."

During the era of high growth, there were many new job openings. It was possible to spend a lot on education to get into a good university and secure a job. However, in this era of low growth, new hiring is limited. The proportion of regular open recruitment among all hiring cases was already down to about 50% in 2019, and last year it dropped to 23%, less than half that. These days, it is rare to even see advertisements for new open recruitment. This shows how difficult it is for university graduates to find jobs.

So, what kind of employment strategy should children pursue in this era of low growth? First, they should consider starting at a small or medium-sized company and moving to better companies through a few job changes. When making such a move, what do hiring companies look for? Not academic background or credentials, but whether the applicant can perform the required work well-in other words, expertise. Another key factor is reputation. In short, they look at character. It is important for both parents and children to have the right attitude toward work that fits the current era.

Kang Changhee, President of the Happy 100-Year Asset Management Research Association