June 14 (Bloomberg) -- Housewife Ahn Jee Eun began looking for a job to supplement her husband’s income after the cost of sending her twin three-year-old daughters to pre-school pushed the family’s bank account into the red.
“My husband and I are spending about half of our income on education,” said Ahn, 34, who pays more than 1.7 million won ($1,500) a month on private tuition fees. “I’ve been cutting down on grocery shopping to make sure my kids socialize in good places and learn stuff they’re supposed to learn.”
Education expenses have helped push the nation’s household debt toward record levels, sapping households’ ability to spend money on other goods -- private consumption fell the most last quarter since the 2009 global recession. President Park Geun Hye this week set up a task force to scale back excess high-school testing in a nation where four out of five elementary school pupils get additional private tuition.
“The cost of education is the biggest contributor to the decline in household spending after household debt,” said Lee Ji Sun, an economist at LG Economic Research Institute in Seoul. “A lot of households are sitting on mortgages because their spending on education doesn’t allow them to save. Worse, some are taking out new loans to pay for schooling.”
Park this week tasked a panel with investigating high schools suspected of setting tests or teaching beyond the education council’s prescribed syllabus. Korean universities use those internal results as well as the national entrance examination when allocating places.
The Education Ministry said today that about 11 percent of 17,158 private schools or tutors checked over the past three months broke rules, including by teaching outside of legal hours. Some were fined or suspended.
By clamping down on extra-curricular teaching, the government aims to narrow the gap between schools and reduce the incentive for parents to spend money on extra tuition to get their children into the best places. The Education Ministry is also trying to cut the number of universities to force more youths to join the workforce straight from school.
Reversing that trend would help Park as slower demand from markets in Europe and China, and increasing competition from Japan, sap exports that make up more than half of Asia’s fourth-largest economy. Park in April unveiled a 17.3 trillion won extra budget to boost the domestic market.
South Korea spent 3.1 percent of gross domestic product on private education in 2009, the highest portion among members of the Organisation for Economic Co-operation and Development, according to the latest data available. A May 2 report by Statistics Korea said 81 percent of primary school children receive private education.
A Bank of Korea index measuring value added to the economy per unit of investment put education 72nd out of 78 industries, behind real estate and computer goods.
“Spending on education does less to boost economic growth compared to money spent on other industries,” said Kang Hyun Gu, a Seoul-based economist at Hyundai Securities Co. “We have an overflow of university graduates and a chunk of them end up not contributing much to the economy.”
The supply of graduates far outstrips the number of high-level jobs the country offers. About 42 percent of university students in 2011 are “excess supply” that the economy makes little use of, according to Samsung Economic Research Institute in Seoul. If they joined the workforce from high school, it would add more than 1 percentage point to growth, said Kim Dong Koo, an economist at the institute.
In a single generation, South Korea has risen to the top of the academic ladder, boasting the highest proportion of young adults with at least an upper secondary education among OECD members. In 2010, 98 percent of 25-34 year-olds had attained that level, compared with 43 percent for the 55-64 year-olds, the generation of their parents.
“The aspiration is to go for university degrees,” in Korea, Angel Gurria, secretary-general of the OECD, told a Seoul forum on Feb. 5. “The problem is, is that really what the economy needs?”
The cradle-to-college costs contributed to raising the ratio of debt to disposable income by 2 percentage points to 136 percent in 2012, central bank data show.
Previous efforts to reduce education costs have backfired. The government in 2011 began offering financial support for all five-year-olds and extended the benefit to younger children in March. Kim Hye Jung, a 35-year-old mother of two, says the money she saves will go on extra private English tuition for her son.
“I wanted to send my son to an all-English kindergarten but couldn’t because of the long waiting list,” Kim said. “All kids go to daycare centers now. It’s not special anymore.”
When South Korea scrapped Saturday classes starting in 2012, the number of private tuition classes swelled as mothers demanded more weekend tutoring. Even the Education Ministry’s efforts since 2005 to close universities that don’t meet criteria such as student numbers and a competitive curriculum have had little effect. The number of colleges offering at least a four-year degree rose to 189 last year, from 173 in 2005, with only four closed, according to the ministry.
Ahn, the mother of twins, says Park’s plans to pare back advanced learning won’t work.
“All mothers want to beat each other in finding better opportunities for their kids,” Ahn said. “I don’t want my daughters to get anything less than my neighbors.”
In economies around the world today, the U.S. will release industrial production, producer price and current-account data, while the Bank of Japan published the minutes from a policy meeting held on May 21-22. Inflation numbers are due in the euro region.
Output in the U.S. rose 0.2 percent last month from April, a Federal Reserve report may show, following a 0.5 percent decline the previous month, according to the median estimate in a Bloomberg News survey of analysts.
The Japanese central bank minutes showed that policy makers discussed volatility in the government bond market, with one board member saying that the BOJ could help to restore stability by indicating it planned a two-year limit for its unprecedented monetary easing program.
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