Jang Hye-young: "Household Debt Exceeds Twice Last Year's Disposable Income"

Household Debt to Disposable Income Ratio Rises 8.6%p to 206.6%
Last Year Disposable Income Up 4%, Debt Growth Rate Up 9%

[Asia Economy Reporter Naju-seok] Last year, the household debt-to-disposable income ratio exceeded double.

[Image source=Yonhap News]

According to Jang Hye-young, a lawmaker of the Justice Party, the household debt-to-disposable income ratio (hereafter household debt ratio), which indicates households' debt repayment ability, recorded 206.6% last year. This is an increase of 8.6 percentage points compared to the previous year.

The household debt ratio is calculated by dividing household and nonprofit institution net disposable income from the national accounts by debt in the financial flow accounts, and it is used by the OECD for international comparisons of household debt. Previously, in 2020, the household debt ratio increased by 9.8 percentage points. Considering that the household debt growth rate was 3.2 percentage points in 2018 and 2019, it shows a sharp rise in the last two years.

Notably, last year, the disposable income growth rate was 4%, whereas the debt growth rate exceeded 9%.

Compared to other countries, South Korea’s household debt ratio showed a rapid increase. After the 2008 global financial crisis, major countries’ household debt ratios decreased. In the U.S., the household debt ratio, which was around 137% during the crisis, dropped to 101.1% in 2020; during the same period, the U.K. decreased from 165.8% to 147.7%, and Germany from 101.8% to 99.3%. In contrast, South Korea’s ratio increased from 138.5% to 206.6% in 2021, a rise of 68.1 percentage points.

Household debt surged amid the COVID-19 crisis and asset market boom. Lawmaker Jang said, "Compared to the 2020 baseline, it is the fifth highest level among OECD countries."

Jang added, "South Korea’s household debt ratio has increased without adjustment even after the global financial crisis and rose further during the COVID-19 situation. As repayment burdens rapidly increase due to interest rate hikes, it is necessary to improve rehabilitation and bankruptcy systems to prepare for potential crises."

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