South Korea’s middle-class households are struggling to save, with their leftover money after expenses dropping below 700,000 won ($480). Experts warn that this growing financial strain could weaken domestic spending.
According to Statistics Korea, households in the 40–60% income bracket had an average surplus income of 658,000 won ($450) in the fourth quarter of last year, 88,000 won lower than a year earlier. Surplus income refers to the money left after paying taxes, interest, and living expenses. This means that, over three months, middle-class households had less than 700,000 won available for savings.
This amount marks the lowest level in five years, since the fourth quarter of 2019, when it stood at 653,000 won. It is also the first time in five years that the surplus has fallen below 700,000 won.
Based on average monthly income, households were divided into five income brackets. In the fourth quarter of last year, the average monthly income for each bracket was about 1.21 million won for the lowest-income group, 2.91 million won for the second bracket, 4.40 million won for the middle-class third bracket, 6.34 million won for the fourth bracket, and 11.20 million won for the highest-income group.
Four years ago, middle-class households had a surplus exceeding 900,000 won, but this amount has sharply decreased since the end of the COVID-19 pandemic. This stands in contrast to the overall increase in average surplus income for all households over the past two consecutive quarters, indicating signs of recovery.
Two key reasons for the drop in middle-class savings are rising real estate costs and increasing spending on private education. While middle-class household income grew by 4.4% over the past year, spending increased by 6.1%, surpassing income growth.
Non-consumption expenditures for middle-class households reached 777,000 won in the fourth quarter, up 12.8% from the previous year, marking the largest rise since data collection began in 2019.
The increase was driven by higher taxes related to real estate purchases and rising interest payments. The non-consumption tax, a temporary tax, surged nearly fivefold compared to the previous year, further reducing household savings. Interest costs also rose by 1.2%, reaching 108,000 won, surpassing the 100,000-won mark for the first time.
Education spending increased by 13.2%, reaching 145,000 won, much higher than the 0.4% average increase for all households. This shows the growing pressure on middle-class households, who fear falling behind without homeownership and face rising private education costs.
As middle-class finances tighten, there are growing concerns that this could undermine both domestic consumption and the overall economy. A significant reduction in disposable income for middle-class households may lead to a decline in consumer sentiment, making it more difficult to achieve balanced economic growth.
An expert pointed out, “The middle class has a homeownership rate of over 50% and strives to maintain education expenses comparable to those of high-income households. A decrease in their disposable income could present a serious challenge to domestic consumption.”
