Are high-income earners resuming spending?

Consumer sentiment among people earning 4.18 million won (3,750 U.S. dollars) or more per month is reviving.

According to the “2013 second quarter trend of household finance” released by the Statistics Korea on Friday, the portion of households that are in the red among the fourth income bracket who earns between 4.18 million won (3,750 dollars) and 5.6 million won (5,030 dollars) have increased by 0.5 percentage point year-on-year. The portion of households that are in the red among the fifth income bracket earning more than 5.6 million won per month have also expanded by 0.1 percentage point, statistics revealed.

Households in the red refer to those that spend more than their disposable income, which is the amount of money that households have except their mandatory payments, including insurance, out of their total income.

In the case of the fifth income bracket, the portion of households in the red have increased over the past three consecutive quarters, raising expectations that stagnant consumer sentiment among high-income earners might be rebounding. According to a source at the Strategy and Finance Ministry, “High-income earners who shunned spending due to sluggish domestic consumption and external economic uncertainties are increasing their spending recently.”

By expenditure item, households in the fifth income bracket increased their spending on entertainment and culture consumption by 14.2 percent year on year. Entertainment and culture is the most representative segment in which consumers reduces spending before any other items in the event of economic recession.

They have also notably increased expenditures on education (4.7 percent), and housing and water utility (10.9 percent). Households in the fourth income bracket significantly increased their spending on household products, including seasonal items such as air-conditioners.

In contrast, the portion of households in the red among the first to third income brackets, whose monthly income amounts to 4.18 million won or less, have edged down, suggesting that their consumer sentiment is not improving yet. The portion of households in the red among the first income bracket (2.14 million won or 1,920 dollars, or less) and the third (3.22 million won or 2,890 dollars - 4.18 million won or 3,750 dollars) have declined for four consecutive years, while that of households in the red among the second income bracket (2.14 million won or 1,920 dollars - 3.22 million won or 2,890 dollars) declined for three consecutive years.

Households in the second income bracket saw their automobile purchase drop a whopping 67.6 percent year on year. In contrast, their liquor and tobacco consumption have gained 14.0 percent, the highest among all the income brackets.