The volume of household debt is expected to break the 1,000-trillion-won level by the end of the year. (image: kobizmedia)
SEOUL, Korea, Feb 18 (Korea Bizwire) – Hyundai Economic Research Institute has published a report “Household Debt 1,000 Trillion Won and How to Address the Problem by income Group.” The following is an excerpt:
The volume of household debt is estimated at 992 trillion won as of the end of September 2013. It is expected to break the 1,000-trillion-won level by the end of the year. The share of household debt in total disposable income has been on a continuously rising trend since 2004, increasing the burden to the household while putting a damper on consumer spending.
Amid the situation of rising household debt level, the debt burden gets heavier on low-income families rather than high- and middle-income households. The debt service ratio for low-income families in 2013 was 56.6 percent, while those for middle- and high-income ones are 28.1 and 26.2 percent, respectively.
Korea’s household debt problem can be described as the following six features. First, household debt is rising for low-income families whose ability to pay back debt has deteriorated over the years. Their outstanding debt balance has increased by a large margin during the 2012-2013 period while their disposable income rather fell.
Second, low-income families tend to pay interest while high-income ones pay principal. As middle- and high-income households deleverage with an increasingly higher portion of principal payments, the share of their debt burden is expected to decline over time. Third, the job security of low-income families is precarious, while at the same time the income growth rate has been insignificant for the past few years.
Fourth, the main reason for overdue debt for high-income households is mismatch in money coming in and being paid out. Meanwhile, for low-income families, the main reason is simply the lack of money from less income than before. Fifth, the debt service burden for low-income families is higher than for those with high income. Finally, the reason for future debt rise differs by income group. For high-income earners, their debt level will rise largely because of real estate property purchases. For low-income families, however, it will be largely for making ends meet.
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