Household Debt 1.7 Times Income... Remains High Compared to Major Countries

The ratio of household debt to income in South Korea has been found to be high compared to major countries.

Cha Gyugeun, a member of the National Assembly from the Party for National Innovation, is being interviewed by Asia Economy in his office at the National Assembly Members' Office Building. Photo by Yoon Dongju

According to data submitted by the Bank of Korea to Cha Gyugeun, a member of the National Assembly's Strategy and Finance Committee from the Party for National Innovation, as of the end of last year, the ratio of financial debt to disposable income for South Korean households and nonprofit organizations was 174.7%.

Disposable income was recorded at 1,356.5 trillion won, while financial debt stood at 2,370.1 trillion won. Disposable income refers to the net disposable income of households, including small business owners, and private nonprofit organizations, calculated by subtracting mandatory expenditures such as taxes, social insurance premiums, and non-consumption expenditures like loan repayments from total income. Financial debt is based on the Bank of Korea's flow of funds statistics and represents the size of non-consolidated household debt assessed at market value.

The household debt-to-income ratio surged from 182.9% at the end of 2020 to 194.4% at the end of 2021, then gradually declined to 191.5% at the end of 2022, 180.2% at the end of 2023, and 174.7% at the end of last year. Compared to the end of 2023, household debt increased by 2.3% from 2,316.9 trillion won to 2,370.1 trillion won over one year, but income rose by 5.5% from 1,285.8 trillion won to 1,356.5 trillion won, resulting in a lower debt ratio.

Although the household debt ratio is improving, it remains high among member countries of the Organisation for Economic Co-operation and Development (OECD).

According to OECD statistics, as of the end of 2023, South Korea's household debt-to-income ratio was 186.5% (provisional), with only five countries out of 32 having higher ratios: Switzerland (224.4%), the Netherlands (220.3%), Australia (216.7%), Denmark (212.5%), and Luxembourg (204.4%).

South Korea's figure was particularly higher than that of major countries such as the United States (103.4%), Japan (124.7%), Germany (89.0%), the United Kingdom (137.1%), France (121.4%), and Italy (82.0%).

Cha stated, "It is true that the household debt ratio has been continuously declining in recent years, but in fact, the debt itself decreased only in 2023," adding, "If the new administration does not fall into the temptation to stimulate the economy by mobilizing debt for real estate and other sectors, it will be possible to manage household debt at a stable level."