[돈이 보이는 경제지표]Households anxious about the coronavirus, will the savings rate reach the highest in 21 years?

The hands of the men who are holding a bank passbook and weaving a budget.

[이데일리 최정희 기자] In Corona 19, self-employed people had to close their stores from time to time, and there was a growing anxiety that even office workers who are working well at the company are packing their luggage and whether their salary will be reduced. For this reason, it is predicted that the household saving rate will reach the highest level in 21 years. Households have reduced consumption and increased savings. It is a phenomenon that occurs not only in Korea, but also in the United States and Europe. Even in the United States, which is pushing for a $2,000 per capita payment, question marks are being raised as to whether this money will go back to the bank.

(Source: Bank of Korea Economic Statistics System) *Estimate for 2020

◇ Household saving rate likely to peak after the financial crisis

The Bank of Korea predicted that in 2020, the household savings rate (the proportion of household net savings among household disposable income) will reach around 10% for the first time since 1999. The household savings rate has never exceeded 10% since recording 13.2% in 1999.

The annual average was 10.5% from 1970 to 1979, 15.4% from 1980 to 1989, and 18.6% from 1990 to 1999. It recorded 4.3% from 2000 to 2019. The household saving rate seems to have gradually declined due to the trending low interest rate. After the 2008 financial crisis, when the fear of income and employment grew, savings gradually increased, and the savings rate rose to 8.4% in 2015, but then declined to 6.0% in 2019.

However, with Corona 19 in 2020, households became more anxious again. The BOK announced that the increase in household savings rate is expected to be around 4 percentage points compared to 2019. Would the household income have decreased as the economy worsened so that wages did not rise and the self-employed were in danger of closing their business? It is not.

It is estimated that the household’s disposable income (nominal) increased by around 2% as the government gave money through disaster subsidies. According to the results of the Statistics Korea household trend survey, household income in the second quarter increased by 4.8% from the same period last year. Most of the reasons for the increase in household income are investigated by government subsidies. In the second quarter, when disaster assistance was paid to all the citizens, transfer income (income provided for free by government agencies) surged by 80.8%. In the third quarter, it continued to increase by 1.6%. Households appear to have used the increased income to save rather than consume. In fact, private consumption (nominal) is expected to decrease by the mid-3%. Overseas travel fell sharply in Zipcock life, and consumption related to transportation and entertainment fell sharply.

The US and Europe also increase the savings rate to the 20% range

This is not unique to Korea. In the United States, a plan to pay a disaster support fund of $2,000 per person is pending in the Senate, but opinions are divided on the effect. In May, the New York Times (NYT) reported that the United States paid up to $1,200 in disaster assistance per capita, and only 15% of those who received it said they plan to spend or spend the money. Most of them said they would use it to save money or pay off debts.

The personal savings rate in the U.S. remained around 7-8% last year, but jumped to 25.7% in the second quarter of 2020 and reached 15.8% in the third quarter. Disposable income increased, but consumption declined due to economic blockade. In the euro area, the household savings rate last year was around 12-13%, recording a record high of 24.6% in the second quarter. For this reason, opinions have been raised that it would be better to select and support households who have lost their jobs due to Corona 19, rather than paying disaster support money to all the people in cash. For households with urgent living expenses, disaster subsidies will lead to consumption immediately.

This is a phenomenon that resulted from restrictions on movement due to Corona 19 and unstable household living. Whether the rise in the household savings rate continues until next year and restricts consumption, or whether the saved money will lead to a huge consumption explosion depends on the Corona 19 situation.