Gen X keeps spending as won weakens, but MZ generation pulls back — here's why

Households with more experience of sharp currency swings are less likely to cut spending when the won weakens, according to a new analysis. Generation X, which repeatedly weathered high exchange rates after the Asian financial crisis, barely trimmed consumption during recent won depreciation — while the MZ generation pulled back considerably more.

Choi Young-jun, a deputy director at the Bank of Korea's Economic Research Institute, published a report Thursday titled "Analysis of the Relationship Between Exchange Rate Surge Experience and Household Consumption," arguing that "the more experience a household has with sharp exchange rate increases, the more limited the negative impact on consumption tends to be."

Breaking the findings down by generation, Gen X — those born between 1965 and 1979 — did not significantly reduce household spending even when the exchange rate surged, while the MZ generation, born between 1980 and 1995, cut consumption by a comparatively larger margin.

Choi attributed the difference to adaptive behavior formed over time. "Generation X repeatedly encountered relatively high exchange rate levels while entering the labor market and building assets after the 1997 Asian financial crisis," he said, "and may have developed adaptive consumption patterns in response to elevated exchange rates as a result."

For the MZ generation, he said, "the period of direct exposure to large-scale exchange rate increases has been comparatively short, which likely limited their opportunity to learn and adapt their spending behavior to periods of high exchange rates."

The report also found that households with relatively fewer assets or higher debt service ratios did not significantly reduce spending during exchange rate surges either.

Choi said "the exchange rate recently climbed to the 1,500-won range, yet household consumption has not contracted sharply," again citing household adaptation as the reason.

"These findings show that households can adapt to a changing economic environment through repeated exposure to sharp exchange rate increases," he said. "There is a need to support household adaptation by improving the predictability of policy."

He added that "related policies should be pursued in a way that takes into account changes in household consumption behavior and consumption gaps between different income groups."