Young Koreans unbothered by escalating debt burden

Finance

Published: 07 Sep. 2023, 17:41 Updated: 08 Sep. 2023, 10:22

Young Koreans unbothered by escalating debt burden

A customer consults with a bank teller in downtown Seoul on Aug. 8. [NEWS1]

Young Koreans are seemingly untroubled when it comes to going into debt.

Householders under 29 years of age had 50 million won ($37,500) in debt on average in 2022, up 41.2 percent on year, according to Statistics Korea’s survey on household finance and living conditions published in December.

The debt-to-asset ratio reached 49.3 percent for those in their 20s, which was more than double the average debt-to-asset ratio, 21.8 percent, across all age groups.

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“The share of borrowers [in their 20s] across all household borrowers has grown from 2020,” the Bank of Korea in its Financial Stability Report in June assessed.

“The possibility of an unexpectedly high increase in delinquency rate on household loans issued in 2020 and onwards” needs to be reckoned with, the central bank added.

The graph shows the on-year percentage increase in debt by householders of different age groups. [STATISTICS KOREA]

Other recent financial data provides further insights into young Koreans’ tolerance over debt.

The delinquency rate of mortgage loans borrowed from 19 commercial banks stood at 0.44 percent for those in their 20s in the second quarter this year, easily outpacing the 0.17, 0.21 and 0.2 percent delinquency rate for those in their 30s, 40s and 50s, respectively,

One out of four borrowers in their 20s who received a small-sum loan of 1 million won were not able to pay interest as of early August, according to Credit Counseling & Recovery Service (CCRS), a credit management organization.

The 1 million won loan was introduced by the Korea Inclusive Finance Agency for vulnerable groups as it does not take their delinquency history into account.

The percentage was highest among all age groups and well above the overall percentage of unpaid interest bills at 14.1 percent.

A five-year-high number of 4,654 people in their 20s wrote off their debt through CCRS’ finance restructuring service between January and June.

FOMO and unawareness

Whether it was due to poor financial choices, business going bust or exorbitant medical fees from unexpected health issue of a family member, experts say one of the underlining reasons for the rising number of young borrowers is the lack of sufficient awareness on the risks of debt.

The employment rate for those in their 20s was 61.4 percent in July, shrinking for the first time in 29 months, adding weight to the financial burden. For those between 15-29 years of age, 1.26 million were unemployed.

Job seekers wait to apply for unemployment benefits at a social welfare center in Mapo District, western Seoul, on Aug. 10. [YONHAP]

“Going into debt before finding a job lowers the income level and in turn increases the chance of more debt,” said Lee Won-ik, a professor of social welfare at Pusan National University.

A lawyer specializing in debtor rehabilitation argued that the “act first, think later” mindset of the 20s prompted them to borrow money without a well thought out redemption plan.

“A widespread ‘fear of missing out’ is prevalent among young people,” said Noh Hye-jin, a professor of social welfare at Gangseo University, in a September 2022 study.

“Those with financial liabilities take on new challenges by using debt [loans] as a means to improve their status quo,” Noh added.

Young Koreans in their 20s that she observed took little caution in borrowing money, including ones who borrowed money from lenders that popped up at an internet portal over a phone call or received fast personal installment loans without a specific purpose.

“Financial firms need to regulate loans by assessing whether if a borrower is capable of repayment but they are somewhat insensitive in that matter, busy chasing down short-term profits,” said Ha Joon-kyung, an economics professor at Hanyang University.

BY OH HYO-JEONG, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]