It has been a long time since Koreans ceased to be recognized for their passion for saving.
A recent report confirmed they have lost that passion more rapidly than people in other major economies over the past decade.
According to the report by the Organization for Economic Cooperation and Development, Korea’s household savings rate ― the ratio of savings to total disposable income ― declined from 23.2 percent in 1998 to 3.1 percent last year. The decrease of 20.1 percentage points over the cited period was the steepest among the 18 OECD member states surveyed.
What is particularly worrisome is that the rate fell at a faster pace in recent years, with the OECD forecasting it will slip to as low as 2.9 percent this year.
The nation’s savings rate stood at 24 percent in 1987, the highest among OECD members, and retained the top spot for 13 years, posting a record high 25.9 percent in 1988.
The figure plummeted to single-digits in the 2000s as sluggish income growth amid the economic slowdown, increased spending on social security schemes and protracted low interest rates discouraged households from keeping their money in the bank.
Last year’s rate of 3.1 percent, the fourth-lowest in the list of the OECD members surveyed, was far below those for France with 16.8 percent, Germany with 11 percent, Britain with 7.4 percent and the U.S. at 4.7 percent.
Measures should be worked out to shore up the continuous decrease in the savings rate, which could eclipse growth potential and damage macroeconomic stability.
Household saving is one of the primary sources of capital investment and its rate can be used as a key indicator for long-term economic growth.
According to a study by a local research institute, a 1 percentage point reduction in savings rate would lead to holding back economic growth by up to 0.15 percentage point.
Tighter controls on household debt, improved income for less-privileged families and more incentives to bank depositors are needed to keep the savings rate at a proper level.
In this context, monetary authorities are right to be moving to provide more tax incentives for long-term bank deposits.
It may also have to be more seriously considered to raise the benchmark interest rate, which has been frozen at an annual 3.25 percent for 11 months, to around 4 percent, which many experts see as proper for managing the national economy.
