Paradox of Saving Occurring in South Korea

According to the Ministry of Strategy and Finance, South Korean households recorded a rate of savings of 8.82% last year after 3.9% in 2012, 5.6% in 2013 and 7.18% in 2014. This has to do with the households’ preference for saving over spending related to the aging of the population and the poverty of the aged that are being accelerated these days.

Last year, only Switzerland (19.96%), Luxembourg (17.48%), Sweden (16.78%) and Germany (9.93%) posted higher rates of saving in comparison to South Korea among OECD member countries.

Under the circumstances, it is said that the paradox of thrift is occurring in South Korea. In the past, savings by households in the country used to lead to corporate investment based on borrowing of the money and this, in turn, tended to result in an increase in employment and household income. Now, however, companies are refraining from making an investment to the point of hampering the virtuous cycle and declining household consumption is negatively affecting the national economy.

Besides, the number of people in their 40s, who are the most active consumers, is one the decline. According to the Korean Statistical Information Service, the number of the population in that age group has declined since 2011, when it totaled 8.533 million. “South Korean households’ propensity to consume has decreased at a rapid pace during the past 10 years,” said Lee Keun-tae, senior research analyst at the LG Economic Research Institute, adding, “The decrease is more rapid than that of Japan during its recent long-term recession.”