House ownership widens wealth gap between young and old

The wealth gap between younger and older adults has widened over the last few years, largely depending on whether they own houses or not, according to the country’s statistics agency, Wednesday.

According to the Statistics Korea’s report, the wealth gap between adults aged 40 and above and adults younger than 40 has widened by 45 percent over the last three years, from 160 million won ($118,000) in 2019 to 230 million won in 2022.

Kim Mee-roo, a researcher at the Korea Development Institute said older adults tend to have their own houses, and that they have seen their wealth increase as housing prices rose. These factors, along with the country’s ample money supply and lower interest rates over the last few years, have contributed to the widening gap.

However, younger adults, many of whom tend to be under lease or rental contracts, have seen only a marginal increase in wealth.

The net worth of people aged 40 and older increased by 110 million won, from 380 million won in 2019 to 490 million won in 2022. During the same period, the net worth of people younger than 40 increased by only 40 million won to 260 million won from 220 million won.

Rental loans among younger adults have also increased over the last three years. In 2019, rental loans accounted for around 20.4 percent of their total loans, but the rate increased to 30 percent in 2022.

Between 2019 and 2022, the average value of their loans also went up to 100 million won from 80 million won, the report added.

“The current high interest rate trend will have (more of) a negative impact on young adults,” Kim warned.

After ending the 20-month period of zero percent base rate in November 2021, the Bank of Korea has continued to raise the rate, which now stands at 3.5 percent.

Kim added that rising interest rates will also pressure younger adults to reduce their spending. “If interest rates continue to go up and put a strain on their finances, (younger adults) have to cut their spending as they do not have enough savings and (they have) difficulties in borrowing more money,” Kim said.

According to a credit rating agency’s data, the average annual spending of people under 30 declined by around 300,000 won when the country’s benchmark rate increased by 1 percentage point, while the spending of people who are aged 60 and older decreased only by 36,000 won.

The debt service ratio of younger adults also increased more for younger adults. When the benchmark rate increased by 1 percentage point, the DSR of people in their 20s and 30s increased by 3.2 and 3.3 percentage points, respectively.

On the other hand, the DSR for people who are in their 40s, 50s and 60s climbed by 2.6, 2.1 and 1.2 percentage points, respectively.

Kim noted that the rising delinquency rate for young adults is also a risk. Reduced spending of young adults will additionally have a negative impact on the country’s economy in the long term.

“In the medium and long term, it is important to stabilize housing prices as housing loans take a significant proportion of total debt,” Kim said.