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Americans are known to be great borrowers, paying for their living expenses by credit card and buying homes and cars with bank loans. With most of their monthly income spent on paying of bills and repaying loans, little if anything is left in their savings account. As a result, the U.S. has seen household savings go below zero to -1.4 percent. Now, experts warn, many Koreans are also spending more than they earn.
The trend started after the financial crisis of the late 1990s. Household savings stood at 24.8 percent in 1998 and have fallen 2-3 percentage points every year since then, plummeting to 4.4 percent last year -- the fastest decline in the world. A survey by the Korean Labor Institute shows that 35 percent of urban households save nothing. Why do many Koreans find life so difficult when they do not use their credit cards nearly as recklessly as their US counterparts? ¡°Households here saw private education expenses for children and bank loans they took out to buy their own homes snowball after the financial crisis, and they are putting a heavy burden on them now,¡± says Dr. Kim Kyung-won of the Samsung Economic Research Institute. ¡°If the trend goes unchanged, we may see household savings fall to as little as 1-2 percent.¡±
The low interest rates that became the norm after the financial crisis have sapped people¡¯s willingness to save and stoked a national borrowing frenzy, regardless of economic status, to buy homes. The amount of mortgages issued over the last three or four years reached a whopping W200 trillion (US$1=W955). Given that interest is a low 6 percent, borrowers pay W12 trillion a year in interest. A survey by the Samsung Research Institute of Finance says the average debt of urban households has increased to W30 million. If they go out for dinner two to four times a month, use their own cars costing W200,000-500,000 a month, and pay the two to four cell phone bills that have become the standard, there is nothing left to save.
Tax and national insurance also surged after the financial crisis and are putting extra pressure on households. Individual paid W2.42 million in taxes in 2000; last year they paid W3.38 million. Health insurance and national pensions fees have risen 3-6 percent every year. ¡°Increasing taxes lead to reduced disposable income, which eventually lowers savings rates,¡± says Dr. Park Jae-ha, a researcher at the Korea Institute of Finance. ¡°When we compare how middle-class people live in the U.S. and Korea, it¡¯s more difficult for the latter.¡±
(englishnews@chosun.com )
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