Increasing Household Debt
The current debt burden on Korean households is heavier than that on American households during the sub-prime mortgage crisis of 2008. In particular, the burden on low-income households has been found to be extreme, with the bottom 20 percent of families paying approximately 70 percent of their income for principal and interest payments.
Democratic United Party lawmaker Kim Ki-joon, who is a member of the National Policy Committee of the National Assembly, said on Nov. 17 that the average debt service ratio (DSR) of Korean households increased by 2.4 percentage points to 21.5 percent between 2013 and this year. The DSR, which is defined as the ratio of principal and interest payment to disposable household income, is used to measure the degree of household debt risk.
This year, the ratio reached a record high since 2010, when the first data was made available. Also, it is higher than American households’ 13.2 percent recorded back in October 2007, immediately before the crisis. The high DSR for this year is because the income growth was limited to 25.8 percent while the payment skyrocketed by 68.3 percent between 2010 and 2014.
“27.4 percent of the bottom 20 percent had financial debts last year, and their average DSR was 68.7 percent,” the lawmaker explained, adding, “Besides, the ratio showed a very rapid increase from 45.3 percent and 42.2 percent in 2011 and 2012, respectively.”