Even in the era of low growth and low interest rates, the number of wealthy people and financial assets in the world and Korea have steadily increased in the past decade.
In 2019, there were around 920,000 millionaires living in South Korea and this figure is projected to reach over 1 million in 2024. The prospect of 'one million millionaires' raises the question about how this small population is able manage assets, grow wealth and invest for the future.
The portfolio of assets is diversifying, including cash and cash equivalents, stocks, and real estate. This article looks at the changes in the number of wealthy people & their assets in Korea and changes in financial behavior over the past 10 years.
In context of this article, 'affluent' or 'wealthy' individuals are those whose annual income exceeds 1 billion KRW.
1. Trends of Affluent Koreans over the Past 10 years
Over the past 10 years, the number of affluent Koreans has increased by 2.2 times, and their total financial assets have increased by 1.9 times.
The number of affluent Koreans increased by 2.2 times from 160,000 in 2010 to 354,000 in 2019. This is an increase of 9.2% every year, which is a very rapid increase in the number of rich people compared to the 0.5% annual increase in the total population of Korea during the same period.
This is partly because the scale of the Korean economy (gross domestic product, GDP) grew 4.2% annually from 1,323 trillion KRW to 1,919 trillion KRW during the same period.
As the Korean economy grew, the financial assets of all Korean households increased by 1.7 times from 2,186 trillion KRW in 2010 to 3,760 trillion KRW in 2019.
During the same period, the total financial assets of the rich increased 1.9 times from 1,158 trillion KRW to 2,154 trillion KRW, confirming that the financial assets of the rich increased at a much faster rate compared to general households.
Over the past decade, the share of the wealthy's financial assets among the financial assets of all households has gradually increased from 53.0% in 2010 to 57.3% in 2019.
2. Real Estate Assets of the Affluent Koreans
For the past 10 years, real estate assets accounted for around 50% of wealthy assets in Korea and 40% of financial assets. In the meantime, the proportion of real estate assets gradually increased, the proportion of financial assets gradually decreased, and the gap between the proportion of assets increased.
[Real estate assets of the affluent: Financial assets] are about [5:4], and the proportion of financial assets has decreased since the mid-2010s.
The increase in real estate assets seems to be due to the fact that the sale price of apartments in Seoul weakened in the early 2010s, but turned to strong in the mid-2010s, and the wealthy people increased their investment in real estate assets.
In contrast, the proportion of financial assets has gradually decreased since the mid-2010s. In 2017, the proportion of real estate assets and the proportion of financial assets increased at the same time, showing a growth trend in the same direction.
3. Status of Affluent Koreans in 2020
At the end of 2019, the number of wealthy Koreans was 354,000, and the financial assets of the wealthy were KRW 2,154 trillion.
As of the end of 2019, the number of wealthy Koreans with financial assets of more than 1 billion KRW was 354,000, an increase of 9.6% from the previous year. As the growth rate of the number of wealthy people in Korea increased, the scale of financial assets of the wealthy was also on the rise.
At the end of 2019, the total financial assets held by wealthy Koreans was 2,154 trillion KRW, an increase of 6.8% compared to 2018. Financial assets of 1 billion KRW or more are further subdivided into 'typically wealthy' financial assets of 1 billion KRW to less than 10 billion KRW, 'high' assets price of 10 billion to 30 billion KRW, and 'ultra-high' assets price of 30 billion KRW or more.
91.5% of Korean wealthy people fall into 'typical wealth' price range, 6.9% (24,000 people) fall into 'high wealth' price range, and 1.8% (6,400 people) fall into 'super high wealth' prices range.
The financial assets they own are estimated at 823 trillion KRW for the 'typically wealthy' assets price, 429 trillion KRW for the 'high' assets prices, and 901 trillion KRW for the 'super high' assets prices.
70.4% of wealthy Koreans live in Seoul and the metropolitan area in 2020, an increase of 17,000 compared to the previous year
The number of wealthy Koreans increased by 31,000 from 323,000 in 2018 to 354,000 in 2019. By region, the number of rich people increased significantly in Seoul and the metropolitan area, where 70.4% of the wealthy are concentrated.
In Seoul, six districts: Gangnam-gu, Seocho-gu, Jongno-gu, Seongbuk-gu, Yongsan-gu, and Yeongdeungpo-gu, showed relatively higher concentration of affluence than other autonomous districts.
The most expensive area in Seoul as of October 2020 was Gangnam-gu, with an average sales price of 71.6 million South Korean won per 3.3 square meters.
4. The Growth Engine of Wealth in Korea
The growth engines for wealth formation are “annual savings” and “seed money”
The first growth engine to increase the wealth of the rich in Korea is “annual savings”.
“Annual savings capacity” refers to the amount of living expenses, taxes, and three major insurance premiums (national pension, health insurance, and employment insurance) minus the annual income of a rich household.
The annual savings capacity of rich households is an average of 73 million KRW, which is more than 6 million KRW per month. The difference was large by total asset size, and the annual savings of households with total assets of less than 5 billion KRW was 48.8 million KRW, whereas those with more than 5 billion KRW were 144.9 million KRW, which was 2.2 times higher.
The second growth engine for the wealthy to grow their wealth is 'seed money.'
"Seed money" is the cornerstone for the rich to increase their wealth, and by achieving this, the income from future investments will in earnest exceed a certain amount.
The least amount of seed money that the rich think is 500 million KRW (median value), 73.1% of the rich answered that they should ideally have more than 500 million KRW.
Other growth engines for asset formation are “debt utilization” and “investment asset distribution strategy”
The rich, on average, use about 11.4% of their total assets in debt utilization to acquire investment assets or run business. The rich who practiced debt utilization the most were those with total assets of 5 to 10 billion KRW, and 14.2% of their total assets were used.
Another way of the wealthy to grow assets is the strategy for distributing investment assets to savings capacity. In other words, the larger the total asset size, the higher the investment ratio of real estate investment assets. It shows that the distribution of investments from financial assets appear in the initial period when the accumulated assets are small, then after a certain amount of assets, larger real estate assets are more actively invested in many cases.
5. Future Investment Plans of Affluent Koreans
The financial investment agency that the wealthy think is the most promising in the long term is 'stocks'
In the long term, the most prominent financial investment destinations for the affluent in the future were 'stocks' with 61.6%, 'investment/savings insurance' (such as pensions, variable life, and variable universal life) with 28.0%, and 'funds' with 26.8%.
Even among the wealthy, there were differences in prospects for promising investment destinations according to the total asset size. There was little difference between 'stocks' and 'investment/saving insurance', but there was a difference in outlook for 'funds' and 'bonds.'
People with total assets of more than 5 billion KRW were likely to select long-term investment destinations for “funds” and “bonds” while those with less than 5 billion KRW preferred “discretionary/trust products”.
The intention to invest in overseas assets is small, the main reason is 'because the global economy is uncertain'
Wealthy Koreans often showed a negative attitude that they had no intention of investing in foreign assets.
Among the wealthy, 43.3% answered that they had 'no intention of investing in overseas assets,' which was higher than 24.3% who were “normal” and 32.5% who were “willing to invest”.
41.4% of those with a total asset of less than 5 billion KRW answered that they have no intention to invest in foreign assets, and 45.7% of those with a total asset of less than 5 billion KRW responded that they did not intend to invest, indicating that their interest in overseas investment was relatively low.
This is believed to be due to the divergence of the wealthy's evaluation of overseas assets amid growing global uncertainty.
The reason the rich are not interested in investing in overseas assets is most often because 'the global economy is uncertain' and 'the risk of investment loss is high.' Others simply thought that 'domestic investment is enough.'
6. Changes due to COVID-19
30.5% of the affluent Koreans experienced a decrease in income due to COVID-19
It is seen that 30.5% of the wealthy experienced a decrease in monthly household income due to COVID-19. The wealthy households who experienced a decrease in income showed an average decrease of 21.3% in the household's monthly income; and the more financial assets meant the less the decrease in income.
The area with the greatest decrease in income was 'Work/Business income', which was the most affected area by responding that 94.3% experienced a decrease, while 44.3% experienced a decrease in 'Financial income', and 28.7% for 'Real estate rental income'.
Rich people who have experienced a rise in the value of comprehensive assets are more active in portfolio adjustment.
In a situation where the value of assets, especially stocks and funds, changes rapidly due to COVID-19, 19.0% of the rich conducted a portfolio inspection according to the market conditions. In particular, it was found that the more total assets were, the more actively the portfolio inspection was performed.
Only 11.7% of the wealthy with total assets of less than 3 billion KRW reviewed or changed their portfolio, while 24.9% of the rich with total assets of 5 billion KRW or more, more than doubled their portfolio inspections and changes.
The number of wealthy Koreans increased every year over the past 10 years, along with total financial assets. For those who make an annual income of more than 1 billion KRW, real estate assets have been a valuable contribution to their wealth. In fact, for the past 10 years, real estate assets accounted for around 50% of all assets of the wealthy.
91.5% of Korean wealthy people fall into 'typical wealth' price range (whose annual income falls between 1-10 billion KRW), 6.9% fall into 'high wealth' price range (10-30 billion KRW), and 1.8% fall into 'super high wealth' prices range (more than 30 billion KRW). The 1.8% 'super high wealth' category represents just 6,400 people in the country.
By region, the number of rich people increased significantly in Seoul and the metropolitan area, where 70.4% of the rich are concentrated.
The main two ways in which the affluent grow their wealthy is through 'savings' and 'seed money.' 'Debt utilization' and 'investment asset distribution strategy' were also important to wealth formation.
The financial investment agency that the rich think is the most promising in the long term is 'stocks.' Wealthy people with total assets of more than 5 billion KRW were likely to select long-term investment destinations for “funds” and “bonds” while those with less than 5 billion KRW preferred “discretionary/trust products”.
In a situation where the value of assets (especially stocks and funds, changes rapidly due to COVID-19) a large portion rich conducted a portfolio inspection according to the market conditions. Typically it was found that the more total assets were, the more actively the portfolio inspection was performed.
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