Rate hikes affect spending by young households

[Graphics by Song ji-yoon]

South Korean households headed by those in their 30s and 40s have sharply reduced spending in the wake of a series of interest rate hikes and high inflation, a study showed on Sunday.

According to a report released by the Bank of Korea on the impacts of rate hikes on households by income, the top 10 to 20 percent of the income bracket demonstrated the lowest vulnerability to rate fluctuations, while the bottom 30 percent was under severe risk from the BOK’s rate hikes as their liabilities outweigh assets.

In particular, highly indebted homeowners in their 30s and 40s accounted for a high proportion of the latter group.

Following an analysis of the recovery trajectory in household spending since the rate hikes, the study found that households in the bottom 30 percent group showed the slowest recovery in spending.

Overall, the study found that a one percentage point rise in the interest rate leads to a 0.32 percentage point decline in household spending.