Revival of national savings campaign

The Jan. 24, 1972, editions of many domestic dailies in Korea gave front-page treatment to the news that President Park Chung-hee gave a monetary gift to a 27-yer-old shoeshiner who became a national savings champion. He went to Seoul 10 years ago from his hometown of Wanju, North Jeolla Province, shined shoes in downtown Seoul, and saved 1.15 million won (then worth 3,000 U.S. dollars), often skipping lunch. Back then, the average monthly salary for a public servant was 10,000 to 20,000 won (25-30 dollars). President Park praised him in a New Year`s news conference as a model of frugality and savings and offered the gift several days later. President Park also gave him, who was handicapped by polio when he was a child, a lifetime coupon for free medical care at the National Police Hospital.

In the 1960s and 70s, when most Koreans were in dire poverty and few could afford to construct a building, the government held a public campaign to encourage savings. Target savings amounts were allotted to each financial institution. Banks that failed to achieve their targets attracted deposits from private lenders by offering a 10-percent commission, but were punished by financial authorities. Even elementary school students were required to open bank accounts. This was the best way to raise capital at a time when the country depended on billions of dollars in loans from advanced economies such as Japan, the U.K. and France to build plants and roads. A deposit product for wage earners once had annual interest rate of up to 30 percent, tempting many to put their money into it. In the 1990s, certain banks offered through lottery giveaways overseas travel tickets, cars and mobile phones.

Korea`s deposit rate, which was once one of the world`s highest, is now at rock bottom. The national aggregate savings rate was just 30.4 percent in the third quarter last year, the lowest since 27.9 percent in the third quarter of 1982. The household savings rate, or total household savings divided by disposable income, topped 20 percent until the late 1990s, but the rate plunged to 2.7 percent in 2011. The rate in Korea is one of the world`s lowest along with New Zealand`s 2.3 percent and Japan`s 2.9 percent. The sharp decline is attributable to an increase in household debt and low interest rates, which make people with money reluctant to go to banks. A low savings rate makes it more difficult for companies to raise money, negatively affecting the economy.

Feeling a sense of crisis, financial companies are reportedly planning to hold a joint campaign to promote savings for the first time in 30 years. On this coming Friday and Saturday, the Korea Federation of Banks and financial companies plan to hand out leaflets promoting deposit products at major train stations and bus terminals in Seoul. Banks and insurers will consistently promote such products, including those for wage earners and farmers and others offering tax benefits. What the previous savings champions had in common was that they put their money into their bank accounts first before spending it, saved 70-80 percent of their income, and even made donations to charity. Koreans should open savings accounts through this opportunity given the rapid aging of their society.

Editorial Writer Shin Yeon-soo (ysshin@donga.com)