Post-Pandemic Household Excess Savings Analysis [BOK Issue Note 2023-24]

Macro Economy
household savings excess savings post-pandemic economic recovery financial assets
Research Department(02-759-4204)

1. Interest rates have gone up sharply in major economies since last year, and yet the toll on consumption and housing prices has been less damaging compared with the past crisis episodes, owing largely to the accumulation of a large stock of household savings. We examine how much savings Korean households have in excess and the ramifications of their holdings on the economy and financial environment.

2. Excess household savings have been building up since pandemic to amount to an estimated 4.7% to 6.0% of the nominal gross domestic product (GDP) and 9.7% to 12.4% of private consumption. The buildup owed to constrained spending at the start and peak of pandemic and to increased income last year. Decomposition of determinants pointed largely to forced savings during pandemic from government-imposed restrictions on mobility and consequential consumption constraints.

3. Allocation of household savings suggests ①not much of them were used on consumption as overall household income conditions had been modest until last year and ②they were held mostly in liquid assets like deposits and stocks rather than

going to pay down debt. Household holdings in financial assets led by cash deposits, stocks, and funds surged 1,006 trillion won during pandemic period of 2020 to 2022, sharply greater than the addition of 591 trillion won from 2017 to 2018 before the

pandemic. The net stock of financial assets (financial assets minus debt) has also ballooned to suggest acquisition of financial assets surged during pandemic.

4. The stockpile of liquid financial assets at households can have several implications for post-pandemic economic recovery. ①They can act as a buffer to consumption shocks and ②have the potential to flow into the asset market with expectation changes. Since this paper mostly used macroeconomic data for the analysis, micro study is needed to examine heterogeneous household behaviors.

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