"Spent More Than Earned"... One in Five Middle-Class Households Faces 'Deficit Living'

Decrease in Earned Income Amid High Inflation and Interest Rates
Deficit Households Increase Up to the Top 80% Income Bracket

In the first quarter of this year, it was analyzed that about one in five middle-class households had a 'deficit household' where expenditures exceeded income. This is due to decreased earned income putting pressure on households amid high inflation and high interest rates.

A customer visiting Hanaro Mart Yangjae Branch in Seocho-gu, Seoul is looking at apples.
Photo by Jinhyung Kang aymsdream@

According to the Household Trends Survey by Statistics Korea on the 26th, the proportion of deficit households among all households in the first quarter of this year was 26.8%. This is the highest level since the first quarter of 2019 (31.5%). Compared to one year ago (26.7%), it increased by 0.1 percentage points. A deficit household refers to a household whose consumption expenditure exceeds its disposable income (income minus non-consumption expenditures such as taxes and social insurance premiums).

By income quintile, the proportion of deficit households in the 4th quintile, which is the 20-40% income group, increased by 2.2 percentage points from a year ago to 18.2%. Compared to the previous quarter, the 4th quarter (14.8%), it rose by 3.4 percentage points. The proportion of deficit households in the 3rd quintile, classified as middle class with income in the 40-60% range, was also 17.1%. This means that nearly one in five middle-class households spent more money than their consumption capacity, living a 'deficit household' life.

The 5th quintile households, with income in the top 20% or higher, also recorded a deficit household rate of 9.4%, up 0.5 percentage points from a year ago. The deficit household rate in the 2nd quintile also increased by 0.9 percentage points from a year ago to 28.9%. The deficit household rate in the 1st quintile reached 60.3%, but improved by decreasing 2.0 percentage points compared to last year.

Except for the bottom 20% income group, the proportion of deficit households increased across all groups. The background for the increase in 'deficit households' among middle-class and high-income households is the prolonged high interest rates and high inflation, along with sluggish income growth. As high prices and interest rates continued, household expenditures such as consumption and interest costs increased, but income did not increase enough to offset these, leading to more deficits.

The average monthly household income in the first quarter increased by 68,000 KRW (1.4%) compared to a year ago, but household expenditures rose by 99,000 KRW (2.5%). Interest costs also increased by 14,000 KRW (11.2%). Although earnings slightly increased, the real income adjusted for inflation declined. Earned income alone decreased by 35,000 KRW (1.1%) compared to a year ago, showing 'negative growth.' Statistics Korea's analysis indicates that households with a high proportion of wage earners, such as middle-class and high-income households, suffered greater damage to their household finances.