By Kim Tong-hyung
Koreans appear to have lost their appetite for thrift, with their savings rates barely half that of the supposedly spend-happy Americans, according to a report Monday.
The Organization for Economic Cooperation and Development (OECD) study claims Korea’s household savings rate, or the ratio of savings to disposable income, was measured at 2.8 percent last year, far below the 6.1 percent average among the 20 OECD nations.
Korea was among the OECD nations with low savings rates, along with Denmark’s minus 1.2, the Czech Republic’s 1.3, Australia’s 2.2 and Japan’s 2.7 percent. In comparison, the savings rate of households in the United State was measured at 5.7 percent in 2010.
The sluggish economy over the past years has clearly left households with less money to take to the bank or forced them to dip into their savings to make ends meet. Policymakers suppressing interest rates to jolt the economy may have also been involved in eroding the savings glut.
The declining savings don’t inspire much confidence for the upside potential of the Korean economy as the country’s quickly aging population suggest that the savings rate will continue to slide in the years to come.
According to government data, household income grew by nearly 17 percent per annum during the 1980s, but dropped below 13 percent during the 1990s and has been averaging just over 6 percent since the start of the new millennium. This shows that the fruits of national economic growth have been elusive to the average Korean.
Families are coping with increased healthcare bills as their members grow older while also spending more on education, telecommunications services and leisure. The spending on non-consumption items, such as fixed health insurance fees and pension payments, accounted for 22.4 percent of household expenses last year, compared to 20.8 percent in 2008.
The depleting savings are coupled with historically high levels of household debt. At well over 800 trillion won (about $805 billion), the country’s household debt is approaching an amount equivalent to an entire year’s gross domestic product and looming as the biggest potential threat to the country’s financial stability.
The borrowing binge over the past decade has been driven in large by the speculative demand on the real estate market, with low interest rates urging Koreans to buy property at any imaginable price in blind faith that its value will appreciate forever. However, the property market has been deteriorating since the economic downturn of 2008.
“Low savings rates predict lower potential in consumer spending and investment, and may limit the scope of macro-economic policies,” said an official from the Strategy and Finance Ministry.
It’s hard to imagine that the savings rate of Koreans, previously known for their tight purse strings, stood at 24 percent just in 1987, which was easily the highest among OECD countries back then.
The country kept the top spot for 13 consecutive years, posting a record high of 25.9 percent in 1988, but the savings rate dropped to 0.4 percent in 2002 amid a full-blown credit card crisis that shook the country’s financial stability. The savings rate climbed back to 9.2 percent in 2004, but has hovered between 2 and 3 percent in recent years.