‘Happiness fund’ should offer more joy: Study

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‘Happiness fund’ should offer more joy: Study

When President Park Geun-hye pledged during her presidential campaign to launch a “people’s happiness fund” to help people with household debt problems, many questions arose over how effective and fair the plan would be.

Yesterday, the Hyundai Research Institute released a report raising concerns that the fund would only benefit one strata of low-income households with debt woes and urged that the government devise measures to help out the rest.

According to the institute’s report, which was based on recent data from Statistics Korea, there were around 4.12 million low-income households as of last year whose disposable income is less than 50 percent of the country’s median income.

Of them, 1.56 million households are burdened with loans they can’t afford, including 497,000 households that have overdue debts for the past year, which means they can apply for help from Park’s people’s happiness fund.

The idea, which is being fleshed out by the Financial Services Commission, is to create an 18 trillion won ($16.4 billion) fund to write down overdue debts owed by poor households to banks or nonbank lenders by a maximum of 70 percent. The rest of the loan should be repaid by debtors on a longer-term basis.

Recent data from the Bank of Korea showed that the country’s household debt reached a record high of 959.4 trillion won last year, up 47.6 trillion won from the previous year.

While debt continues to grow, the ability of households to repay those debts has been falling. This has led to a higher volume of overdue payments on loans.

The government worries about a ticking time bomb of household debt.

The Hyundai Research Institute report points out that the fund does nothing for 1.07 million low-income households that have lots of debt but aren’t behind on their loan payments.

They are also in risky financial shape with high debt service ratios, the ratio of debt payments to disposable income.

“There is no difference in terms of disposable income and debt service ratio between households with or without overdue payments,” said Lee Joon-hyup, a research fellow at Hyundai Research Institute.

“If members of indebted households that work hard to repay overdue loans do not receive any benefit from the people’s happiness fund, they will no longer be enthusiastic to repay debt thinking that the government will some day help them out if they don’t. That brings on moral risks.”

Lee added that before introducing the people’s happiness fund, the government “should first come up with measures to support the livelihoods of low-income households and plan the idea fairly after careful consideration.”

By Lee Eun-joo [angie@joongang.co.kr]
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