[Financial Planning for the 100-Year Life] Korean Households Stuck in Deposits Need a Shift in Asset Management Strategy

The Bank of Korea's third-quarter 2025 money flow statistics, released last week, show a significant improvement in the financial structure of Korean households. As of the third quarter of 2025, individuals (households and nonprofit organizations) held financial liabilities totaling 2,421 trillion won, while their financial assets amounted to 5,980 trillion won, resulting in a debt-to-asset ratio of 41%. Considering that this ratio was 51% in 2008, this represents a substantial improvement. This means that, each year, financial assets have been increasing at a relatively faster pace than liabilities. In fact, since 2020, the financial surplus of individuals has continued to expand, reaching a record high of 216 trillion won in 2024, and this trend is ongoing, with the surplus rising to 202 trillion won in the first three quarters of 2025.

The issue lies in where and how these accumulated funds are being managed. The composition of Korean individuals' financial assets remains heavily focused on deposits. As of the third quarter of 2025, the proportion of cash and deposits was 44%, insurance and pensions accounted for 28%, stocks and funds made up 24%, and bonds represented only 3%.

In comparison, as of the second quarter of 2025, U.S. households held just 11% of their financial assets in cash and deposits, while stocks accounted for a very high 55%. While Korean households prioritize stability and liquidity in asset management, Americans place greater emphasis on growth potential and investment returns. This difference is creating a significant gap in the long-term growth rate of household financial assets between the two countries.

There are several structural reasons for the strong preference for deposits among Korean households. First, Korean households still perceive real estate as the primary asset. Financial assets have been regarded more as standby funds for real estate purchases than as long-term investment vehicles. Second, negative experiences with high volatility in the stock market have led to a general distrust of financial investments. Third, as aging progresses rapidly, the tendency to prioritize principal protection has become stronger. Fourth, memories of the high-interest-rate era also play a role, as the inertia from a time when deposits alone could generate sufficient returns still lingers.

However, the environment has already changed significantly. Over the medium to long term, interest rates are under structural downward pressure. Korea's potential growth rate is currently in the high 1% range, but due to population decline, it is highly likely to fall into the 0% range over the long term. As growth slows, interest rates are bound to decline. In addition, from a macroeconomic perspective, the structure in which savings exceed investment continues. When the supply of funds exceeds demand, it becomes difficult for interest rates to rise. Furthermore, in the third quarter of last year, Korean companies held 981 trillion won in cash-like assets, reducing demand for bank loans and prompting banks to purchase bonds instead, which is another factor contributing to lower interest rates.

In this environment, deposit-centered asset management makes it difficult to maintain real purchasing power. As nominal interest rates fall, deposit interest declines, and the real interest rate, adjusted for inflation, is likely to turn negative.

In a rapidly aging Korean society, the key to post-retirement asset management is stable cash flow. While deposits are advantageous for principal protection, they are not a means to outpace inflation over the long term. In contrast, bonds are relatively less volatile and can provide both interest income and capital gains when interest rates fall. However, bonds account for only 3% of individuals' financial assets.

This is why a shift in asset allocation is necessary. First, the proportion of deposits should be maintained only at the level of emergency funds, and long-term funds should be diversified into investment assets. Second, the proportion of bonds should be gradually increased. Government bonds, high-quality corporate bonds, and bond-type exchange-traded funds (ETFs) can provide stable sources of income when interest rates fall. Especially for those in their 50s and older, who need to prioritize both profitability and stability in asset allocation, bond investments appear more desirable than bank deposits. Third, rather than indiscriminately reducing stock investments, it is advisable to seek a qualitative shift toward dividend stocks.

The scale of individual financial surpluses is expanding. Now, the important question is not 'how much can be saved,' but 'where and how should it be invested.' Assets left in deposits may appear safe, but in the long run, this could be a risky choice. In the structural environment of low growth, low interest rates, and an aging population, it is time for Korean households' asset management strategies to evolve toward a more mature direction.

Kim Youngik, Director of the Tomorrow Hope Economic Research Institute