By Kim Tae-gyu
Staff Reporter
The conventional wisdom is that people should save for a rainy day. However, they tend to rack up their savings rates only when it has already started raining.
Experts point out this tendency takes place in a full-fledged manner in a host of advanced countries including the United States and it prevents their economies from rebounding.
A similar worry has yet to surface in Korea. But the possibility that high-rising savings rates could plague the country remains one of the ticking time bombs in Asia's fourth-largest economy.
``Have a look at Japan's Lost Decade in the 1990s. The nation's high savings rate weighed on the economy so that it struggled over 10 years,'' Prof. Lee Joon-koo at Seoul National University said.
``The rising savings rate may negatively affect world's economies in the short term as the paradox of thrift indicates although the debt-laden U.S. households seemingly have no choice but to de-leverage and save,'' he said.
The paradox of thrift refers to the irony that if people save more money over the economic slump, it will lead to a decrease in overall consumption and subsequently a slow recovery.
The hypothesis was formulated by British economist John Keynes, who laid groundwork for interventionist government policies against the laissez-fair philosophy of classic economics.
Should the paradox hold up, the U.S. will be in a trouble because the world's largest economy saw its savings rate soar to 6.9 percent this May, the highest in 15 years.
This chilled Wall Street hopes that the economy may recover soon and caused share prices to drop last Friday. Bearish sentiment also prevailed in the European bourses late last week.
In comparison, the savings rate does not spiral down in Korea for some reason.
The rate peaked at 23.2 percent in 1998 in the wake of the Asian currency crisis but headed south afterward to 4.7 percent in 2006 and 2.5 percent last year.
The overall savings amount continues to diminish into this year to reach 74.2 trillion won over the first three months of 2009, down 4 percent from the previous quarter.
Market watchers claim Korea's low savings rate is a double-edged sword ― it can save the economy out of the quagmire or it can be a prelude of future panic savings.
``If things get back on track without another dip, the savings rate would be all right. But if not, we might experience big troubles,'' said a Seoul analyst who declined to be named.
``For example, Koreans might indeed tighten their belts if another slump hits the country or the current recessions protract longer than expected. That would further slow down the recovery,'' he said.