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South Korea Tries to Curb Parents' Education Spending

Residential and commercial buildings in Seoul

Photograph by SeongJoon Cho/Bloomberg

Residential and commercial buildings in Seoul

Housewife Ahn Jee Eun began looking for a job to supplement her husband’s income after the cost of sending their twin 3-year-old daughters to preschool pushed the family’s bank account into the red. “My husband and I are spending about half of our income on education,” says Ahn, who pays more than 1.7 million won ($1,500) a month on tuition. Ahn says she’d rather spend less on groceries than pull her girls out of their exclusive kindergarten, where the other kids are from wealthy families and the mothers know which schools and tutors are the best.

In the latest quarter, private consumption in South Korea fell the most since the 2009 global recession. Heavy spending on schools and tutors had an impact. “The cost of education is the biggest contributor to the decline in household spending after household debt,” says Lee Ji Sun, an economist at the LG Economic Research Institute. “Worse, some are taking out new loans to pay for schooling.”

In mid-June, President Park Geun Hye set up a task force to scale back a common practice in Korean high schools: teaching material not required by national curriculum standards and thus forcing one high school student in five to seek help from private tutors. The Ministry of Education said on June 14 that out of 17,158 private schools or tutors investigated by regulators over the past three months, almost 1,900 had broken some or all of the rules regulating the fees parents pay for extra schooling, as well as the 10 p.m. curfew after which private schools and tutors cannot teach students.

The education ministry is also trying to cut the number of universities to force more youths to join the workforce straight from school. “We have an overflow of university graduates and a chunk of them end up not contributing much to the economy,” says Kang Hyun Gu, a Seoul-based economist at Hyundai Securities (003450:KS). About 42 percent of university students in 2011 are “excess supply” that the economy makes little use of, according to the Samsung Economic Research Institute in Seoul.

Previous efforts to reduce education costs have backfired. The government in 2011 began offering financial support to the parents of all 5-year-olds and extended the benefit for younger children in March. The idea was to encourage families to have children and to subsidize the cost of education to keep private debt at acceptable levels. Many Korean parents are using the government handout to pile more schooling on their children. Kim Hye Jung, a mother of two, says that because of the government subsidy, the money she saves will go to more English lessons for her son. “I wanted to send my son to an all-English kindergarten but couldn’t because of the long waiting list,” Kim says. When South Korea scrapped Saturday classes in 2012, the number of private cram sessions swelled as mothers demanded more weekend tutoring.

Ahn, the mother of twins, says Park’s plans to pare back the extra material the private schools are offering won’t work. “All mothers want to beat each other in finding better opportunities for their kids,” she says. “I don’t want my daughters to get anything less than my neighbors.”

The bottom line: After household debt, the cost of education is the biggest contributor to the recent decline in Korean consumption.

Kim is a reporter for Bloomberg News in Seoul.

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