Indebted Working-Poor Households and Their Policy Implications

Indebted Working-Poor Households and Their Policy Implications

No, Daemyung

Korea Institute for Health and Social Affairs
Research in Brief, vol. 34, pp. 1 - 7
Journal Title
Research in Brief
Having grown rapidly over the past two decades, household debt in Korea is today a major source of socioeconomic risk factors. Despite the recent tightening of loan regulations, the stock of household debt has continued to swell. In the fifteen years to 2017, gross household debt more than tripled from KRW465 trillion to KRW1451 trillion. As a share of GDP, the increase represents a rise from 61.1 percent to 83.9 percent. The ratio of household debt to disposable income soared to a high of 185.9 percent in 2017. Such an upsurge is the outcome of a complicated interplay of a number of factors, including low interest rate, the sense of relative deprivation due to rising housing prices, increased individual investment in real estate driven by the felt need to prepare for old age, the interest groups benefiting from housing market booms, and some unintended effects arising from policies on real estate loans. Household debt leads to reduced disposable income and, in turn, to a decline in the personal savings rate and decreased domestic consumption, with its inherent default risk elevating especially when paired with real estate market disturbances or interest rate hikes. The impact of growing household debt is especially severe on low-income families, whose ability to repay is limited. The focus of this study is on those in working poverty, who in most cases have valid reasons to take on debt and are considered as having the potential to repay their debt.
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