The nation's personal savings rate, once one of the world's highest and a driver of Korea's rapid economic growth, has nosedived since 2000. Despite stagnating household incomes, expenses have grown sharply thanks to mortgage payments, skyrocketing private education costs and increasing tax and pension burdens. Experts warn that the drop in savings could lead to slower investment and consumption, leaving Korea vulnerable to another economic crisis.
Korea's household savings rate hit a record high of 23.2 percent in 1998, shortly after the financial crisis of 1997. It has been on the decline since, reaching the 2 percent range last year, according to a government estimation. Average annual savings per household has dwindled to less than a sixth of what it was seven years ago, from W4 million (US$1=W936) in 1999 to W630,000 last year.
The speed of the decline is worrying. From 1999 to 2006, the savings rates of 14 OECD nations including the U.S., Japan and the U.K. dropped by 1.3 percentage points from an average of 6.6 percent to 5.3 percent, whereas Korea recorded a decline of more than 13 percent.
Economists warn that Korea can no longer be complacent about its falling savings rate, even though it might be better than those of the U.S. and Japan at negative 0.5 percent and 2.4 percent, respectively. Most advanced nations recorded savings rates of around 10 percent (Japan at 13.5 percent, the U.K at 9.4 percent and Germany 13.9 percent) when they achieved per capita GDP of US$20,000. Korea's current rate is only one fifth of that.
"We are moving closer to advanced nations in terms of our poor savings rate, but our economy remains far behind," said Park Jong-kyu, an economist at the state-run Korean Institute of Finance. If the economy slows down too much, Park added, Korea could see personal bankruptcies soar because people have few financial assets to cushion them against such a blow.
