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ED Record-high household debt

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  • Updated KST

Pre-emptive steps needed to ensure soft landing

Korea's household debt reached 1,765 trillion won ($1.58 trillion) in the first quarter, renewing the record. The figure showed a 9.5 percent increase from the same period of last year, far exceeding the 8 percent target set by the Financial Services Commission and marking the steepest year-to-year rise in three and a half years. The soaring household debt was due to working families' financial distress amid the protracted COVID-19 pandemic, as well as increases in mortgages and lending for stock investments.

According to the Bank of Korea's provisional credit statistics for the first quarter, outstanding household debt rose by 139.4 trillion won from a year earlier. It was the biggest increase the central bank has seen in its time compiling related data, which began in 2003. In the first three months, mortgages amounted to 931 trillion won and unsecured loans 735 trillion won, up 8.5 percent and 10.8 percent respectively year on year. Credit purchases stood at 99 trillion won as of March 31, an increase of 3.1 trillion won.

Central bankers attributed the surge of household debt to families' struggles to cover living expenses amid dwindling income due to the pandemic. Demand for loans also rose among individuals, including young people, to buy homes and invest in assets such as stocks and cryptocurrencies. Especially worrying is the sharp increase in debts owed by these younger generations. Debts extended to people in their 20s and 30s totaled 440 trillion won as of Dec. 31, an increase of 17.5 percent from 2019, nearly doubling the overall household debt growth rate.

The financial authorities plan to curb the household debt increase to the pre-coronavirus level of 4 percent, a target hard to hit. Now is the time for the monetary authorities to come up with elaborate steps to ensure the soft landing of debt problems. Abrupt and excessive lending controls could lead to mass personal bankruptcies. Officials should instead make it easier to borrow money for maintaining livelihoods while curbing credit card loans and micromanaging heavy, multiple debtors pre-emptively. No less important is to work out steps to minimize the effects the impending U.S. monetary tightening will have on the domestic asset markets.