The Wealthy Hand-to-Mouth Households in South Korea

This study establishes the stylized facts on household balance sheets in South Korea and empirically investigates their macroeconomic implications based on the concept of wealthy hand-to-mouth (HtM)' households that hold little liquid wealth with owning large amount of illiquid assets. Using a household-level panel data for the period of 2000-2014, we find that (1)there are neither deleveraging of household debts nor a sharp decline in house price even during the financial crisis, (2) run-up in household debt in 2000s is led by high-income group, (3) regardless of net worth level, wealth is highly concentrated on illiquid assets such as housing and real estate, (4) the share of wealthy HtM households is very high compared to the cases of other advanced countries. We estimate the marginal propensity to consume out of a transitory shock and find that the consumption response of HtM households is larger compared to the non-credit-constrained group, posing a threat to macroeconomic stability. Using discrete choice models with fixed effects, we also find that a household that acquire more real estate assets is more likely to become wealthy HtM when its income is relatively lower or its indebtedness is relatively higher. We discuss the characteristics of HtM households and the role of macroprudential policy.