Among the money high-income earners made in the fourth quarter of last year, the share actually spent on consumption was the lowest in four years. Income rose sharply on bonuses paid for Chuseok, but spending did not increase, according to one interpretation.
According to the Ministry of Data and Statistics (MODS) and the Korean Statistical Information Service (KOSIS) on the 2nd, the average propensity to consume for households in the fifth income quintile (top 20%) in the fourth quarter of last year was 54.6%, down 0.4 percentage point (p) from a year earlier. For a fourth quarter, it was the lowest in four years since 2021 (52.6%).
The average propensity to consume means the share of a household's disposable income that is spent on consumption. Disposable income is what remains after subtracting non-consumption expenditures such as taxes and interest from total income, and can be freely used for consumption or saving.
The average propensity to consume for fifth-quintile households fell from 55.6% in the fourth quarter of 2019, when the related statistics were revamped, to 52.6% in 2021, then rose to 57.8% in 2023. However, it declined for two consecutive years afterward. In particular, in the fourth quarter of 2024 it fell 2.8 percentage points from a year earlier, the steepest drop.
The decline in the average propensity to consume last year appears to be because spending did not rise in step with higher earnings. The average monthly nominal disposable income (9,361,000 won) of fifth-quintile households last year rose 5%. That was the highest growth rate among all income brackets. In contrast, nominal consumption expenditure (5.11 million won) increased only 4.3%. While it exceeded the average consumption expenditure growth rate (3.6%) for all households, it fell short of the fifth-quintile income growth rate.
High-income earners appeared to channel most of the additional money into saving or investment. According to a report released by the Bank of Korea on the 27th titled "The impact of growth differentiation by institutional sector on prices," the recent marginal propensity to consume (MPC) of high-income groups (fourth–fifth quintiles) is estimated to have fallen from 0.11 in 2020–2021 to 0.07 in 2022–2023.
The marginal propensity to consume is a measure of how much consumption increases when income rises by 1 won. If the figure is 0.07, it means that when income increases by 1 million won, only 70,000 won is spent and the rest is used for saving or investment.