"Household Debt Soars to 1.7 Times Income, Leaving No Money After Payments"

South Korea's Household Debt-to-Income Ratio Far Higher Than Global Counterparts, Hindering Consumption Recovery SEOUL—South Korea's household debt-to-income ratio far exceeds that of other major economies, sparking concerns about its detrimental effects on the domestic economy, recent data reveals. The substantial debt burden is stifling private consumption, creating a cycle of stagnated domestic demand. Data from the Bank of Korea, submitted to the National Assembly’s Strategy and Finance Committee by Rep. Cha Gyu-geun of the Cho Kuk Innovation Party, indicates that as of the end of 2024, the financial debt-to-disposable income ratio for households and non-profit institutions in South Korea was 174.7%. In financial terms, disposable income amounted to KRW 1,356.5 trillion, while financial debt reached KRW 2,370.1 trillion. Disposable income refers to the net income of households and private non-profit organizations after deducting taxes, social insurance contributions, and non-consumption expenditures, such as loan repayments. Financial debt encompasses the market-valued liabilities of households, calculated on a non-consolidated basis within the Bank of Korea’s flow of funds statistics. Household Debt Trends: Gradual Decline in Ratio, Yet Persistent Concerns Recent trends show the debt-to-income ratio peaked at 194.4% by the end of 2021 before easing to 191.5% in 2022, 180.2% in 2023, and 174.7% by the end of 2024. Although the ratio is improving, it remains notably high compared to other OECD nations. In 2023, household debt rose from KRW 2,316.9 trillion to KRW 2,370.1 trillion, a 2.3% increase. However, disposable income grew faster, at 5.5%, from KRW 1,285.8 trillion to KRW 1,356.5 trillion, reducing the ratio. Despite these improvements, South Korea’s household debt-to-income ratio remains higher than most developed countries. According to OECD data, the ratio stood at 186.5% (provisional) at the end of 2023, surpassed only by Switzerland (224.4%), the Netherlands (220.3%), Australia (216.7%), Denmark (212.5%), and Luxembourg (204.4%). In stark contrast, South Korea’s ratio sharply contrasts with major economies like the United States (103.4%), Japan (124.7%), Germany (89.0%), the United Kingdom (137.1%), and France (121.4%). Italy, with a ratio of 82.0%, remains among the most conservative in household debt. Structural Challenges Hinder Consumption Recovery Economic analysts caution that high household debt levels suppress consumption, limit domestic demand, and slow economic growth. Bank of Korea Governor Rhee Chang-yong noted in a September 29 press briefing that private consumption growth is forecasted at just around 1.1% this year, potentially peaking at 1.6% due to structural factors like household debt. Highlighting the need to curb speculative investments in housing, Governor Rhee reiterated in a November 12 speech for the central bank's founding anniversary that “past practices of boosting the economy through excessive real estate investments must end.” Similarly, Park Jung-woo, an economist at Nomura Securities, emphasized in a May 2023 report that "rising costs of debt repayment and interest expenses have structurally eroded household purchasing power, making a consumption recovery unlikely." Policy Implications and Future Outlook Rep. Cha Gyu-geun stated, “While the ratio has been continuously declining, the actual reduction in debt itself only occurred in 2023.” He emphasized that the government should avoid policies that rely on expanding debt, such as housing-related stimulus, to ensure sustainable household debt management. He added that proactive management could stabilize household debt levels, provided the administration refrains from relying heavily on leverage-based economic recovery strategies. Across the OECD’s 32-member countries, South Korea remains among the highest in household financial burdens, raising questions about the sustainability of consumption-led growth in one of Asia’s largest economies.