Household Stock Investment and Borrowing Both Hit Record Highs Last Year Amid Debt Investment Boom

[Asia Economy Reporter Kim Eunbyeol] Due to the stock investment craze, the amount of money households circulated for stock investment last year reached a record high of 83 trillion won. At the same time, household borrowings from financial institutions also set an all-time record, suggesting that a significant portion of household stock investments were financed through loans, known as 'debt investment.'

According to the '2020 Financial Flow (Provisional)' statistics released by the Bank of Korea on the 8th, the net fund operation amount of households (including self-employed individuals) and non-profit organizations was recorded at 192.1 trillion won. This is 2.1 times the 92.2 trillion won in 2019 and surpasses the previous record of 95 trillion won set in 2015.

The net fund operation amount is the value obtained by subtracting the fund procurement amount from the fund operation amount of the economic entity. Typically, households supply surplus funds to other economic entities such as companies or the government through deposits or investments when this net fund operation amount is positive (+).

The reason the net fund operation amount of households reached an all-time high last year is that income increased due to disaster relief funds related to COVID-19 and transfer income from the government, but consumption decreased mainly in face-to-face services, resulting in an increase in household surplus funds. The total fund operation scale of households last year (365.6 trillion won), without considering procurement amounts, was also a record high.

Breaking down fund operations by sector, especially household equity securities and investment funds (76.7 trillion won) increased by 80.5 trillion won compared to 2019 (-3.8 trillion won), breaking records.

Excluding investment funds, households operated 83.3 trillion won in domestic and foreign stocks last year. They acquired 63.2 trillion won worth of resident-issued stocks and equity shares (domestic stocks) and 20.1 trillion won worth of foreign stocks, surpassing all previous records (domestic stocks 21.8 trillion won in 2018, foreign stocks 2.1 trillion won in 2019).

Household demand deposits also increased by a record 42.4 trillion won last year but did not keep pace with the rapid increase in stock investments. Accordingly, the proportion of stocks and investment funds within total household financial assets rose from 18.1% in 2019 to 21.8% in 2020. Looking at stocks alone, the proportion increased more significantly from 15.3% to 19.4%.

Not only did the fund operation amount of households reach an all-time high last year, but the fund procurement amount also set a record. Households procured 173.5 trillion won last year, of which borrowings from financial institutions amounted to 171.7 trillion won. Bang Jungkwon, head of the Financial Flow Team at the Bank of Korea's Economic Statistics Bureau, explained, "While the scale of household fund procurement such as loans expanded significantly, on the operation side, short-term funds like demand deposits accumulated, and funds moved to high-yield financial assets such as stocks."

For non-financial corporate enterprises, the net procurement scale last year was 88.3 trillion won, significantly higher than 61.1 trillion won in 2019. Companies generally have a negative net fund operation amount, meaning they are in a 'net fund procurement' state where fund procurement exceeds fund operation. Bang said, "Although operating profits improved mainly in the electronics sector, the demand for short-term working capital and long-term facility funds increased, expanding the net procurement scale."

Regarding the government sector, it shifted from a net fund operation state of 29.5 trillion won in 2019 to a net procurement state of 27.1 trillion won last year. This is the first time since the financial crisis in 2009 (15 trillion won net procurement) that the government recorded net procurement, meaning it borrowed more funds. Both the funds procured by the government through bond issuance (141.5 trillion won) and the funds operated (114.4 trillion won) were also record highs. Bang explained, "Government consumption and investment expanded, and transfer expenditures such as subsidies related to COVID-19 increased significantly, causing the government's fund status to shift from net operation to net procurement."

This content was produced with the assistance of AI translation services.