Defensive strategy for households
Gloomy signs loomed over the Korean economy starting the New Year. The Chinese stock market plummeted repeatedly, while the oil price fluctuated, largely disturbing the global economy. With no sign of improvement in domestic consumption and export, household debts snowballed to nearly 1,200 trillion won. The sense of crisis was escalated after the Federal Reserve hiked interest rates, and North Korea’s sudden nuclear test contributed to “Korea discount.”
When the economic climate is worsened and uncertainty grows, it is important to look back on the economy itself, because reckless moves can bring about a catastrophe such as the Roman Empire’s ending.
Known risks are not risks. That is why we must look for the third path. Companies must save costs innovatively, while securing stable cash flow and fiscal health. Households must also reduce unnecessary consumption and spending and increase financial assets to maintain security and balance. In time of interest rates hike, debts must be repaid early or transformed to healthy debts to reduce interest spending.
Wisdom of utilizing insurance is also necessary, because it is the most scientific system to shift risks. While real estate or stock investments are aggressive investments, insurance is defensive investment.
The Korean population in their 40s and 50s concentrated their assets investments in real estates while they significantly lack in insurance. Insurance must be used more aggressively when the situations are hard, because the working-class and low-income families can have relatively high effects of insurance payments.
In the New Year, the insurance industry’s focus is “competition.” A new era of competition has opened with the government’s bold financial industry reform. Various new products with optimized payments will be offered, and consumers may find great products.
There is an old saying that batting makes fans happy, while defense makes the coach happy. While a fancy homerun will thrill the fans, defense actually contributes more to a victory. For companies and households, defense is the priority. It is time for wisdom to prepare for a better future.
by Lee Soo-chang, Chairman of the Korea Life Insurance Association
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