Korea sees historic wealth gap, worst income inequality figures in years

Posted on : 2022-12-02 17:27 KST Modified on : 2022-12-02 17:27 KST
Rising home prices and diminishing subsidies for low-income Koreans appears to be driving the trends as we head into an era of high interest rates
Getty Images Bank
Getty Images Bank

The wealth inequality in Korea has reached its highest level ever. The income gap between low- and high-income groups has also taken a turn for the worse for the first time in five years.

Debt held by heads of households in their 20s has soared more than 40% in the last year, triggering warning alarms about household financial soundness in a high-interest period.

According to the “2022 Survey of Household Finances and Living Conditions” that was released by Statistics Korea on Thursday, the average assets of households in Korea as of the end of March were at 547.72 million won (US$421,180), up 9% (4.52 million won) from a year ago.

Real estate prices, including residential houses, jumped 9.9%, marking the second-highest asset growth rate ever. On the other hand, debt (91.7 million won) increased only 4.2% during the same period, and the average net wealth per household (456.02 million won), excluding debt, increased by 10%.

As of the end of March this year, the Gini coefficient of domestic net assets was 0.606, up 0.003 points from the end of March last year. The closer the index is to 1, the more wealth is concentrated among a small number of households.

The Gini coefficient of net assets has been on the rise in Korea every year since 2018, when housing prices in the Seoul metropolitan area began to rise rapidly, hitting an all-time high this year (excluding 2012, the first year this survey took place).

The average asset holdings per household in the top 20% of income was 1.29 billion won, which was about seven times higher than that of the bottom 20% (171.88 million won). This is an increase from the 6.7 times difference of last year.

The top 20% of households own 44% of all assets in Korea, including real estate.

The income gap between low- and high-income families has also widened for the first time in five years. Last year, the average income per household in Korea was 64.14 million won, up 4.7% (2.89 million won) from last year.

This is the largest increase since 2016, which was when the National Tax Service’s tax data started to be reflected in statistics. Earned income rose 7% last year, driving overall income growth up.

But the circumstances in each income bracket were markedly different. Income in the bottom 20% of households increased by 2.2%, which was not even half of the rate of increase (5.4%) for the top 20% of households.

One reason for that disparity was a 1.5% year-over-year decrease in government subsidies (public income transfers), which account for around half of income for the bottom 20% of households. That contrasted with a 0.8% increase in government subsidies for the top 20% of households last year.

The top 20% of households saw their earned income go up by 7.5%, more than the overall average rate of increase (7%).

“Government aid for low-income earners last year was down somewhat from 2020, while compensation for damages suffered by small business owners was up, making income inequality somewhat more severe,” said Choi Jin-gyu, the welfare economy section chief at the Ministry of Economy and Finance.

According to Choi, the government expanded its COVID-19 disaster relief assistance to small business owners in the middle class and above last year, which had the effect of reducing assistance for low-income earners.

As a result, Korea’s Gini coefficient of 0.333 went up 0.002 points from the previous year. (The Gini coefficient here is based on the household disposable income, or after-tax income, converted to individual income.) The Gini coefficient is an indicator of income equality; the close it gets to 1, the greater the inequality.

Korea’s income quintile share ratio — that is, the income of the top 20% of the population divided by the income of the bottom 20% — also worsened from 5.85 in 2020 to 5.96 last year. That represents a setback after income distribution improved for four straight years since 2017, when the government began expanding support for low-income earners.

Debt held by young households (in which the householder is aged 15-29) has spiked recently. Those households’ total debt — which includes both financial debt such as home mortgages and credit loans and loans in the form of key money (large housing deposits paid in lieu of monthly rent) — has risen by 41.2% over the past year.

That’s a remarkable jump, considering that debt across all households has only increased by an average of 4.2%.

“Debt in households aged 29 and below has increased because they funded home purchases with mortgages and with tenants’ key money,” said Im Gyeong-eun, the welfare statistics section chief at Statistics Korea.

According to household ownership figures collated by Statistics Korea, the number of young households who own a house rose from 187,000 in 2020 to 217,000 in 2021, for a 16% increase.

However, Im noted that there’s “considerable volatility” in these statistics, given the small sample of householders aged 29 and below.

The fiscal health of households in their 20s has reached a worrisome level. Financial debt has been rising relative to savings: it was 35.4% higher last year and 97.9% higher this year. In other words, people in this age group have nearly twice the amount of financial debt as they have savings.

That contrasts with other age groups, in which financial debt has declined relative to savings.

By Park Jong-o, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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