S. Korea’s Middle-Class Boost Dips to Five-Year Low
Middle-class families in South Korea are finding it difficult to set aside savings, as their remaining funds after covering expenses have fallen beneath 700,000 won ($480). Specialists caution that this increasing economic pressure might undermine consumer expenditure within the country.
Based on data from Statistics Korea, families within the 40-60% income range experienced an average disposable income surplus of 658,000 won ($450) during the final quarter of last year, which represents a decrease of 88,000 won compared to the same period the previous year. Disposable income here denotes funds remaining post-tax payments, financial interests, and daily expenditures. Consequently, this indicates that such middle-income homes accumulated just under 700,000 won across one fiscal quarter specifically meant for saving purposes.
This figure represents the lowest point over the past five years, specifically during the fourth quarter of 2019, where it was recorded as 653,000 won. Additionally, this is the first instance within the last five years that the surplus has dropped beneath the threshold of 700,000 won.
According to their average monthly earnings, families were categorized into five distinct income groups. During the final three months of last year, the mean monthly incomes for these categories stood at approximately 1.21 million won for those in the lowest earning tier, 2.91 million won for the next category up, 4.40 million won for the mid-level class segment, 6.34 million won for the penultimate grouping, and reached as high as 11.20 million won per month for individuals within the topmost revenue stratum.
Four years back, families belonging to the middle class enjoyed a surplus greater than 900,000 won; however, this figure has notably declined post-pandemic. Interestingly, despite this decrease, the mean excess income across all household categories has shown an upward trend during the last two sequential quarters, pointing towards economic recuperation.
There are two primary factors behind the decline in middle-class savings: escalating property prices and heightened expenditures on private schooling. Despite a rise of 4.4% in the earnings of middle-class households during the last year, their expenses climbed by 6.1%, outpacing the increase in their incomes.
In the final quarter, non-consumption expenditures for middle-income families amounted to 777,000 won, showing an increase of 12.8% compared to the same period last year, which represents the highest growth rate recorded since tracking started in 2019.
This growth was fueled by increased taxes associated with property acquisitions and escalating interest expenses. A provisional tax, categorized as a consumption-related levy, skyrocketed almost four times relative to the prior year, consequently diminishing personal savings even more. Additionally, interest expenditures climbed by 1.2% to hit 108,000 won, marking the initial instance where this figure exceeded the threshold of 100,000 won.
The expenditure on education saw an uptick of 13.2%, amounting to 145,000 won, significantly surpassing the general household average growth rate of just 0.4%. This surge highlights the escalating stress experienced by middle-class families, particularly as they grapple with the challenges posed by lacking property ownership and contend with climbing expenses related to supplementary schooling.
With middle-class budgets becoming tighter, worries are increasing that this might weaken both internal spending and the broader economy. A substantial decrease in the money left over after household expenses for middle-income families could result in lower consumer confidence, potentially complicating efforts towards steady economic expansion.
A specialist noted, “With a homeownership rate exceeding 50%, the middle class aims to keep education costs similar to those of higher-income families. A reduction in their available income might pose a significant obstacle to consumer spending within the country.”