Household Debt in Korea: Empirical Evidence from Micro Data


Author : Kyeongwon Yoo

 Using the recent survey of household finance in Korea, we found the following characteristics of household debt. Firstly, debt to income ratio seems to be sound in Korea at the household level although the share of seemingly risky households is around 5% and they are distributed evenly in all income groups. Secondly, most households have more financial assets than their own debt holdings but the risky households in their portfolio are also found in most income groups. Thirdly, based on some suggested standards to evaluate financial health of households, about 3% of households are estimated as risky in their debt level although more than 80% of households seems to be sound in their portfolio.

 Lastly, we explore the determinants of debt and financial asset accumulation at household level using the household survey data. Given that debt and assets are both components of household's financial portfolio, we explore the degree of inter-dependence between households' assets and debts by jointly modelling theses two aspects of the portfolio with bivariate Tobit model. Our empirical findings support a negative inter-dependence between debts and financial assets holding although a high degree positive inter-dependence between debts and total assets including the housing assets.

JEL Classification Number: D12, D14, C34

Key words: Household Debt, Micro Data, Bivariate Tobit