🔍 What is the household debt risk index?
With loans growing and house prices rising these days, you may worry, "Is our household's economic situation okay?" The indicator that addresses exactly this concern is the Household Debt Risk Index (HDRI).
Simply put, think of the HDRI as a household's "economic health checkup report." Just as a hospital judges your health by combining blood pressure, blood sugar and so on, the HDRI measures a household's risk by taking income, debt and assets all into account.
📊 How is the HDRI calculated?
The HDRI is created by combining two key indicators:
1️⃣ DSR (debt service ratio)
- An indicator of how much you are repaying relative to your income
- If your monthly income is 3 million won and you repay 1.2 million won in loan principal and interest? → DSR 40%
- "How much of what you earn goes to repayments?"
2️⃣ DTA (debt-to-asset ratio)
- An indicator of how much debt you have relative to your assets
- If your house is worth 500 million won and your loan is 500 million won? → DTA 100%
- "How much debt do you have compared with your assets?"
⚠️ What is the threshold for an at-risk household?
If the HDRI exceeds 100, the household is classified as an "at-risk household." The benchmark value of 100 is set at a DSR of 40% and a DTA of 100%.
Three types of at-risk households
- 🚨 High-risk households: income is insufficient and debt is also high relative to assets
- 🏠 High-DTA households: debt is high relative to assets (mainly real estate loans)
- 💸 High-DSR households: a lot must be repaid relative to income
🤔 Being an at-risk household doesn't mean you'll go broke right away!
Important: Being classified as an at-risk household does not mean you will go bankrupt or run into trouble right away. It is a concept like a traffic light signaling "a situation that needs attention."
- 🟢 Safe: HDRI below 100
- 🟡 Caution: HDRI of 100 or more (at-risk household)
- 🔴 Danger: high-risk household
💡 How can I check my HDRI?
A simple self-check:
- Calculate your monthly income (after tax)
- Calculate your monthly loan repayments (principal + interest)
- DSR = (monthly repayments ÷ monthly income) × 100
- Calculate your total asset value (real estate, deposits, etc.)
- Calculate your total debt
- DTA = (total debt ÷ total assets) × 100
Let's try an example:
- Monthly income 4 million won, monthly repayments 1.2 million won → DSR 30%
- Total assets 600 million won, total debt 400 million won → DTA 67%
In this case, both indicators are below the thresholds, so the situation can be seen as relatively safe.
🎯 What should you do if your HDRI is high?
If your DSR is high:
- Increase income: consider a side job or a second job
- Cut spending: keep a household ledger and eliminate unnecessary spending
- Improve loan terms: refinance with a lender offering a lower rate
If your DTA is high:
- Raise asset value: expect real estate values to rise (though this is uncertain)
- Reduce debt: early repayment, paying down principal
- Build additional assets: deposits and savings, investments, etc.
📈 Korea's recent HDRI situation
As Korea's household debt problem grows more serious, the share of HDRI at-risk households also keeps rising. Risk is especially high in the Seoul metropolitan area, where real estate loans are large.
🏁 Wrapping up: Regular checkups are important!
The HDRI is like an early warning system for a household's economic situation. It is important to check it regularly and prepare in advance.
Remember:
- At-risk household ≠ an immediate problem
- A signal that needs attention
- Preparing in advance can make a real improvement