The 3040 Generation Who 'Yeongkkeul'ed Cuts Spending the Most Amid High Interest Rates

Bank of Korea Report
'Interest Rate Increase Loss Group' Identified

An analysis revealed that the 30s and 40s age group, which has a high proportion of 'Yeongkkeuljok' (those who borrow to the maximum limit), significantly reduced consumption following interest rate hikes.

On the 25th, Jeong Dong-jae, head of the Macroeconomic Analysis Team at the Bank of Korea, released a report titled “Reviewing the Impact of Interest Rate Increases on Consumption Considering Household Interest Rate Exposure” containing this analysis.

According to the report, compared to before the interest rate hikes, the nominal household loan interest rate rose by about 2 to 3 percentage points, and the real interest rate increased by around 1.5 percentage points, causing private consumption to fall substantially below the expected trend prior to the rate hikes.

The report evaluates this as an 'intertemporal substitution' effect, explaining that "regardless of consumption items and household characteristics, consumption is broadly sluggish, while the household net savings rate remains at a level higher than the historical average." This effect indicates a change in consumption choices where households increase savings and reduce current consumption in response to rising interest rates. The report also diagnoses that households have sharply increased their ratio of interest-bearing assets to liabilities by expanding interest-bearing assets such as deposits and bonds and reducing interest-bearing liabilities such as loans.

In particular, the households most affected by the consumption slowdown due to interest rate increases were those in their 30s and 40s with a high proportion of middle-to-upper income levels. According to the report, these households belong to the ‘interest rate hike loss group,’ characterized by having more short-term financial liabilities than short-term financial assets. They exhibit high levels of homeownership, residence in the Seoul metropolitan area, and debt, with a significant proportion of real estate-secured loans.

It is expected that if inflation stabilizes and interest rates decrease, household consumption will be positively affected; however, there is also a possibility that household debt could surge again, making future policy management crucial.

Jeong stated, "The significantly elevated price level due to accumulated inflation so far may constrain the speed of consumption recovery going forward," and suggested, "Given that the debt ratio of those in their 30s and 40s remains high, if interest rates decrease, policy efforts should be made to prevent a substantial re-expansion of household debt."

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