Net Savings Hit All Time Low of 1.5 Percent

It has been discovered that when the government began promoting consumer spending in 2002, the savings ratio for the average Korean fell to its lowest level in history and marked last among the major countries.

This sudden drop in the savings ratio eventually led to 3.91 million credit delinquencies, a serious stagnation in domestic demand, a slackening in investments, and the analysis that it has held back growth.

According to the report on the causes of the dropping personal savings ratio, the Bank of Korea (BOK) announced yesterday that net savings of individuals was 1.5 percent in 2002, falling by 4.5 percent from 6.0 percent in 2001.

This figure is the lowest since 1975 when the BOK began collecting statistics on this matter. The savings ratio of individuals rose from 15.4 percent in 1997 to 23.0 percent in 1998, but has continuously dropped since then, to 16.0 percent in 1999, 10.5 percent in 2000 and 6.0 percent in 2001.

The government had actively carried out policies to urge domestic consumption to boost the economy from 2000 to 2002. It was analyzed that due to these conditions, the net savings ratio suffered a sudden drop.

Based on 2002’s figures, Korea’s net savings of individuals was much lower than Japan (5.4 percent), the U.S. (2.3 percent), Germany (10.6 percent), France (12.2 percent) and other advanced countries with low ratios. It showed at least a 10 percent gap with its competitor, Taiwan (15.4 percent).

Choi Kyu-kwon, head director of the national income team at BOK said, “In 2002, credit cards were used widely and real estate prices rose, increasing individual consumption. On the other hand, it also increased household debt and unemployment, and as individual incomes dropped, the savings ratio dropped heavily as well. In 2003, with the upsurge in credit delinquencies, spending has been dwindling and the net savings of individuals seem to have recovered to the five percent level.”

Meanwhile, Korea’s savings ratio for the entire nation for last year was 32.6 percent, a slight increase from the 31.3 percent from the year before.

The entire nation’s savings ratio reached its peak, 40.5 percent, in 1988. It has continuously fallen ever since, to 37.5 percent in 1990, 36.3 percent in 1995, 33.7 percent in 2000 and 31.7 percent in 2001.

The net savings ratio of individuals is the rate of individual savings after spending from all disposable income. The savings ratio for the entire nation is the nation’s savings after consuming from all disposable income, and also includes the savings of companies and the government.

Joong-Hyun Park sanjuck@donga.com