Debt Growth Rate 2.5 Times Income

Examining Average Annual Income and Debt Over 3 Years

Debt Increases by 3.86 Million KRW as Income Rises by 1.49 Million KRW

Debt Burden Likely to Grow with Interest Rate Hikes

[Asia Economy Reporter Kim Eunbyeol] The speed at which household debt is increasing in South Korea is 2.5 times faster than income growth. This means that the loans and interest that indebted households must repay are growing more than twice as fast as their income. With the Bank of Korea strongly indicating an interest rate hike within the year, the burden of principal and interest repayments is expected to increase further.

On the 21st, Asia Economy analyzed the '2020 Household Finance and Welfare Survey' and found that as of the end of March last year, the average household debt was 82.65 million KRW, increasing by about 3.86 million KRW annually over the previous three years. Household debt, which was around 70.99 million KRW at the end of March 2017, rose to 76.68 million KRW in 2018, 79.10 million KRW in 2019, and surpassed 80 million KRW for the first time last year.

In contrast, the average annual income increased by only about 1.49 million KRW per year over three years. The average household income, which was 54.78 million KRW in 2016, rose to 59.24 million KRW in 2019. The average income growth rate per household in 2019 was 1.7%, marking the lowest increase since Statistics Korea began compiling related statistics in 2012.

Among vulnerable groups (lowest 20% income bracket), average annual income increased by 510,000 KRW while debt rose by about 790,000 KRW. For the high-income group, the 5th quintile (top 20%), income increased by 3.27 million KRW annually, and debt rose by 10.47 million KRW annually. Although the absolute debt increase was higher among high-income groups, asset prices such as real estate and stocks also rose accordingly. Considering asset inequality, the interest burden on vulnerable groups is relatively greater.

Meanwhile, the Bank of Korea is preparing for an interest rate hike within the year. This is seen as an unavoidable choice to prevent excessive asset concentration based on overborrowing.

However, as the fourth wave of COVID-19 continues, there are calls for measures to prevent a sharp rise in delinquencies among self-employed individuals, low-income groups, and multiple debtors. The Ministry of Economy and Finance stated, "Interest rate hikes are expected to have a concentrated impact on vulnerable groups," and added, "We will develop related measures by mobilizing all policy tools, including debt restructuring."

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