Household debt grows much faster than income

By Lee Kyung-min

Household debt grew almost three times as fast as income over the past year in Korea, indicating that Korean households have become more vulnerable to external shocks, government data showed Tuesday.

The renewed concern is highlighted by people increasingly seeking windfall gains from real-estate speculation with cheap borrowing costs amid low interest.

Experts say the short-term capital gain seekers severely hurt the economy as they divert most of the ample liquidity in the market away from corporate investment and technological innovations, the key drivers of economic growth.

Data from Statistics Korea showed household debt averaged 79 million won ($67,700) in March 2019, up 3.2 percent from a year earlier.

This is much faster than household disposable income that averaged 47.2 million won in March, only up 1.2 percent from the year before.

Disposable income ― the money people can actually spend ― is income minus non-consumption expenditures such as tax and state-run health insurance premiums.

“People seeking greater leverage means higher vulnerability in times of economic crisis,” said Ju Won, economy deputy director of Hyundai Research Institute (HRI).

“It may not pose an immediate concern. But when times get tough, it may become a major factor triggering a full-blown crisis, causing many households to suffer.”

The households had an average of 352.8 million won in net assets, up 2.7 percent from a year earlier.

Yet the top 10 percent asset holders held nearly half, or 43.3 percent of the total, followed by those between the top 11 percent and 20 percent holding 18.2 percent and those between the top 21 percent and 30 percent holding 12.4 percent.

Asset increase was mostly due to a 6.2 percent spike in housing prices, the data said.

The net assets of the bottom 10 percent income earners dropped 3.1 percent from the year before, while that of the top 10 percent jumped 3.5 percent and those between the top 11 percent and 20 percent rose 4 percent.

Net assets are assets including financial assets and real assets minus debt including financial debt and deposit for rent.

Korean households had an average of 105.7 million won in financial assets, 326 million won in real assets while their financial debt was 57.5 million won and deposit for rent 21.5 million won.

The average income for the bottom 10 percent increased to 11 million won, up 4.4 percent from the year before, mostly thanks to government spending on tax benefits for the low-income earners.

The data showed the Gini coefficient for disposable income dropped slightly to 0.345 in 2018, down from 0.354 in 2017. A commonly used measure of income inequality, the coefficient gauges the entire income distribution for a country on a scale of zero to one. The higher the number, the greater the degree of income inequality.

By age, the figure for those aged between 18 and 65 fell to 0.325 from 0.337 the year before, while that for those aged over 65 fell to 0.406 from 0.419.