The extent to which Korean households spend money earned from stocks stands at only one-third of the level seen in advanced economies, a new report shows. The findings are attributed to the still-limited share of stocks in household assets and the fact that most stock gains are channeled into real estate investment.
The Bank of Korea (BOK) released these findings in a report titled "Assessment of the Stock Wealth Effect in Korea" on Tuesday.
According to the BOK, an analysis of the wealth effect on Korean households from 2012 to 2024 found that for every 10,000 won increase in stock prices, only 130 won — roughly 1.3% of capital gains — was used as a source for consumption.
Considering that in other advanced economies such as Europe and the United States, 3% to 4% of capital gains from rising stock prices translate into increased consumption, Korea's level stands at just one-third of that.
The BOK attributed this to the still-narrow base of stock investment among Korean households. As of 2024, the size of stock assets relative to disposable income among Korean households was 77%, far below the United States (256%) and major European countries (184%). In addition, stock assets are concentrated among high-income and high-net-worth groups, weakening the effect of translating into increased consumption.
Low returns and high volatility in domestic stocks have also been cited as factors. The BOK explained, "The tendency to perceive capital gains from stock investment not as permanent income but as a temporary phenomenon that could be reversed is also assessed to have weakened the effect on consumption growth." In fact, from 2011 to 2024, the monthly average expected return in Korea's stock market was only one-sixth of that in the United States. The duration of stock price increases in Korea was 2.3 months, shorter than the 3.1 months seen in the U.S.
In addition, the fact that profits realized in the stock market were invested first in real estate has been pointed to as another reason limiting consumption. For non-homeowning households, an estimated 70% of capital gains from stocks flowed into the real estate market.
However, the BOK noted that signs of change are emerging as Korea's stock market has recently risen at an unprecedented pace, with household stock investments increasing and expected returns climbing.
"Last year, household capital gains from stocks reached 429 trillion won, 22 times the historical average," the BOK said. "In particular, young people and middle- and low-income groups newly entering the stock market show a relatively larger wealth effect, raising the possibility of expanding the wealth effect across the entire economy." It added, "Over the medium to long term, a stable investment environment must be created so that the stock market can function as a foundation for household asset formation. It is desirable to translate this into expanded consumption capacity."
