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Report: Koreans Cutting Back Spending

Posted August. 08, 2006 03:35,   


People are remodeling their spending structure, cutting back on expenditures.

As an overall uneasiness about the future increases, the urban working household’s average expenditure style for the second quarter of this year (April – June) dropped to its lowest in eight years compared to the second quarter numbers for each year.

Essential expenses such as housing, transportation, and electricity showed average expenditures, but cutbacks were made in categories involving dining out, culture, and recreation.

According to the “Second Quarter Household Economy Trends” announced by the National Statistical Office on August 7, the average urban working household’s propensity to consume was 73.3, the lowest second quarter figure in eight years since 1998 (66.1).

The “propensity to consume” is a figure that shows how much money is spent from the “disposable income,” that is the income that can actually be spent after taxes and various annuities. Lower figures mean a lower tendency to spend.

The propensity level of the middle class, the third group in the categorization by income that ranges into five groups (average income of 2.9 million won), also dropped to 75.6, the lowest in eight years since 1998 (71.5).

The average monthly income of the urban working household increased 6.5 percent to 3.3 million won compared to the same quarter of last year, but the rate of increase in consumption was only 5.8 percent.

Song Tae-jung, research fellow with the LG Economic Research Institute, said, “The household economy structure is changing because of expected slowdown in the national economy. We can expect people to try to save as much money as possible and continuously cut back on expenses that are not pressing, such as culture, recreation, or clothing.”

In fact, a close look at the expenditure of urban working households during the second quarter shows that the rates of increase in housing expenses (14.2 percent), transportation (7.8 percent), education (6.6 percent), and light and heat (4.7 percent) were higher compared to those in dining out (-1.1 percent), clothing and shoes (2.1 percent), and culture and recreation (1.9 percent), which were lower or even negative.

The increase in transportation and light and heat were mostly due to increases in oil prices.

Choi Soon-hwa, head researcher with the Samsung Economic Research Institute, said, “It looks like the expenditure reconstruction that started last year is continuing.”

Among the “extra-household” expenses such as mandatory taxes, annuities, and various social insurances, the increase in taxes was prominent. The national household tax average increased 16.1 percent compared to the same quarter of last year, and the urban household average also increased by 13.5 percent.

Meanwhile, the income gap between the upper 20 percent and lower 20 percent was the largest since 2000.

The average income of the upper 20 percent was 5.24 times that of the lower 20 percent, the largest number since 2000, when it was 5.28.

This can be interpreted as a failure of the current government’s polarization reduction policy.

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