[Debt-ridden Youth] Disappearing Social Ladder, 'Firefly Debt Investment' in Cryptocurrency and Stocks

Rapid Increase in Youth Debt... 60% of Cryptocurrency Investors Are in Their 20s and 30s
Some Resort to Secondary Financial Institutions and Illegal Loans Due to Worsening Employment Market

[Asia Economy Reporters Kim Hyo-jin and Song Seung-seop] Financial risks among the youth are increasing day by day due to ‘reckless debt investment (borrowing to invest)’ in cryptocurrencies and stocks, as well as a surge in mortgage loans. The worsening employment and job structure have deepened the tendency to rely on secondary financial institutions or illegal online loans.

Concerns are rising that the risks will inevitably expand uncontrollably if young people burdened with debt face interest rate hikes. Simultaneous warning signs from the ‘Silshin generation’?exposed to ‘unemployment’ and ‘credit delinquency’?are growing louder.

◆ Risk asset investment pouring fuel on the debt pile = Recently, what is particularly worrying is the youth’s bold rush into risk assets such as cryptocurrencies and stocks. Baek Jong-ho, a research fellow at Hana Financial Management Research Institute, diagnosed in his report “Post-COVID-19 Youth Debt Status and Implications” that “Since COVID-19, youth debt has been increasing rapidly compared to other age groups, highlighting a craze for risk asset investment using leverage among the youth.”

Among the age groups investing in cryptocurrencies through Bithumb, the largest domestic cryptocurrency exchange, those in their 20s and 30s account for over 60%, and the credit balance of these investors surged by more than 50% in the first half of last year compared to 2019 due to the stock investment craze.

Researcher Baek further pointed out, “On the other hand, due to worsening employment conditions and income reduction, vulnerable youth are excluded from financial access, worsening debt conditions such as multiple debts and illegal loans, deepening polarization.”

As young people rely on secondary financial institution loans to secure living expenses, they fall into multiple debts, perpetuating a vicious cycle of credit delinquency. At the end of last year, the card loan balance for those in their 20s reached 1.1 trillion won, a 19% increase compared to 963 billion won in 2019. The revolving service usage growth rate was also the highest among all age groups at 6.8%.

Since COVID-19, illegal online loans targeting vulnerable youth have been spreading. Recently, ‘work loans,’ which involve manipulating credit and loan histories to generate financial institution loans and then collecting about 30% of the loan amount as fees, have also been spreading. According to the Financial Supervisory Service’s investigation, most users of work loans are university students and job seekers.

Illegal lenders’ activities through private online communities and social networking services (SNS) are becoming increasingly sophisticated, including ‘durable goods loans’ where smartphones are purchased on installment and then cashed out, and ‘small payment scams’ where gift certificates or game items are purchased via small mobile payments and then cashed out.

Many young people who have taken on unbearable debt are finding it difficult to recover. Compared to the end of 2019, the personal rehabilitation filing rate in the first half of last year increased by 29.8% for men in their 20s and 24.7% for women in their 20s.

◆ Can they handle the shock of interest rate hikes? = Under the Moon Jae-in administration, mortgage loans among those in their 20s surged by 111%, deepening the ‘mortgage loan dark clouds’ over the youth. According to Hana Financial Management Research Institute, as of the third quarter of last year, youth mortgage loans totaled 173 trillion won, and jeonse (key money deposit) loans amounted to 88 trillion won, with housing-related loans accounting for 64% of the youth debt increase.

Although risk asset investment caused the rapid increase in youth debt, most people in their 20s and 30s felt anxious about soaring housing prices and sought to buy their own homes. With a surge in youth engaging in ‘Yeongkkeul’ (borrowing every possible resource) to purchase homes, Bank of Korea Governor Lee Ju-yeol’s indication of interest rate hikes within the year has ignited the fuse of a ‘Yeongkkeul bad debt bomb.’

According to the Financial Supervisory Service, the proportion of variable interest rates in mortgage loans, including bank jeonse loans, approaches 50%, meaning vulnerability to interest rate hikes. According to past simulations by the Financial Supervisory Service, for a 300 million won principal loan with a 30-year term at 3.5% interest, the monthly repayment amount increases by about 170,000 won if the interest rate rises by 1 percentage point.

Experts emphasize the need for careful management based on a comprehensive overhaul of housing policies, rather than simply loosening or tightening loans.

Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, “Among the youth, loans should be expanded for borrowers with income and stable future repayment ability, and those who borrowed beyond their capacity should be managed proactively.” This means a ‘selective approach’ based on repayment ability is necessary.

He added, “Ultimately, the challenge is how to enable young people to live in quality housing,” and analyzed, “It is a matter of normalizing the real estate market chaos that began with the Moon Jae-in administration’s intervention.”

Professor Kim Sang-bong of Hansung University’s Department of Economics also advised, “If financial authorities only consider whether to loosen or tighten loans, the problem will not be solved,” and suggested, “Since it stems from housing prices, the way to resolve the surge in loans is for the skyrocketing real estate asset prices to come down.”

This content was produced with the assistance of AI translation services.