Consumer reactions to the same won-dollar surge differed across generations
An analysis has found that consumer responses to the same surge in the exchange rate diverged by generation. In a report released on the 1st, the Bank of Korea's Institute for Monetary and Economic Research found that households absorb exchange rate shocks to varying degrees depending on how much they experienced past exchange rate swings. The study, conducted by Choi Young-jun, senior economist (deputy director-general) at the BOK's Macrofinance Research Team, analyzed household consumption behavior from 1998 to 2024 using household consumption survey data from the Korea Labor Institute (Korea Labor and Income Panel Study). According to the report, the more experience households had with sharp exchange rate increases, the more limited the negative impact of a rising exchange rate on their consumption. The exchange rate is the rate at which the won converts to foreign currency; when it rises, import prices go up, which can dampen consumption.
Generation X (born 1965–1979) did not significantly cut back on consumption even when the exchange rate surged, while the MZ generation (born 1980–1995) reduced their consumption relatively more, the analysis found. Differences in generational experience lie behind this. Choi suggested that "Generation X likely developed adaptive consumption behavior in response to high exchange rate levels, as they repeatedly experienced relatively high rates in the labor market and asset-building process following the 1997 foreign exchange crisis." As for the MZ generation, he explained that "their relatively short period of directly experiencing large exchange rate rises left them with limited opportunities to learn and adapt their consumption behavior to periods of high exchange rates."
It was not just about generation. The less wealth a household had, the more pronounced its adaptive consumption behavior based on exchange rate surge experience, while no statistically significant effect was confirmed among the top asset tiers. Households with high debt service ratios (DSR) also showed stronger adaptive consumption behavior. This adaptive behavior was more evident in discretionary goods than in basic necessities, and was particularly pronounced in communications spending.
"Although the exchange rate recently climbed to the 1,500-won range, household consumption has not contracted significantly," said Choi, citing household adaptation as the reason. "This shows that households can adapt to a changing economic environment as they experience repeated sharp increases in the exchange rate," he said. The report suggested that policymakers need to enhance policy predictability to support household adaptation and take into account consumption gaps across wealth tiers.
