[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 Flow of Funds 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 of 2,421 trillion won, while financial assets reached 5,980 trillion won, resulting in a debt-to-asset ratio of 41%. This is a substantial improvement compared to the 51% ratio in 2008. This means that each year, financial assets have been growing at a relatively faster pace than liabilities. In fact, since 2020, individuals' financial surpluses have continued to expand, reaching an all-time high of 216 trillion won in 2024, and maintaining an upward trend with 202 trillion won in the first to third quarters of 2025.

The key issue is where and how this accumulated capital is being managed. The composition of Korean individuals' financial assets remains heavily centered on deposits. As of the third quarter of 2025, cash and deposits accounted for 44%, insurance and pensions for 28%, stocks and funds for 24%, and bonds for only 3%.

In contrast, in the United States, as of the second quarter of 2025, cash and deposits made up just 11% of household financial assets, while stocks accounted for a substantial 55%. While Korean households prioritize stability and liquidity in asset management, Americans place greater emphasis on growth and investment returns. This difference has led to a significant gap in the long-term growth rate of household financial assets between the two countries.

There are several structural reasons for the deposit preference among Korean households. First, the perception of assets in Korea remains focused on real estate. Financial assets have traditionally served 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 the population ages rapidly, there is a stronger tendency to prioritize principal protection. Fourth, memories of the era of high interest rates continue to have an impact, with inertia from a time when deposits alone could yield sufficient returns still lingering.

However, the environment has already changed significantly. In 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 enter the 0% range in the long run. As the growth rate falls, interest rates inevitably decline. Additionally, from a macroeconomic perspective, the structure in which savings exceed investments continues. When the supply of funds exceeds demand, it is difficult for interest rates to rise. Furthermore, in the third quarter of last year, Korean companies held 981 trillion won in cash-equivalent assets, reducing demand for bank loans and prompting banks to purchase bonds instead, which is also contributing to downward pressure on interest rates.

In this environment, a deposit-centered asset management strategy makes it difficult to preserve real purchasing power. As nominal interest rates fall, deposit interest income 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 offer both interest income and capital gains when interest rates fall. Yet, 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, with long-term funds diversified into investment assets. Second, the proportion of bonds should be gradually increased. Government and high-quality corporate bonds, as well as bond-type exchange-traded funds (ETFs), can provide stable sources of income during periods of declining interest rates. In particular, for those in their 50s and older who must prioritize both returns and stability, bond investments are more desirable than bank deposits. Third, rather than indiscriminately reducing stock investments, it is advisable to pursue a qualitative shift toward dividend-paying stocks.

The scale of individuals' financial surpluses is expanding. Now, the important question is not 'how much you save,' but 'where and how you invest.' Assets sitting 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