[2030 Debt Warning] "Chasing Dreams, Chased by Debt"... Risk of Credit Default and Bankruptcy

Half of New Cryptocurrency Exchange Registrants Are Aged 20-30
New Applications for Rapid Debt Adjustment in H1 Also Up 56%
Experts Warn "Youth Debt Poses Risk as a Time Bomb"

[Asia Economy Reporters Kwangho Lee, Seungseop Song]Jeon Sumin (33 years old, pseudonym), a job seeker, has recently been losing sleep over interest burdens. Last year, upon a friend's recommendation, she recklessly took out loans to invest in stocks and coins, which turned out to be a critical mistake. As initial investments yielded profits, Jeon, aiming for a big win, borrowed additional money from several financial institutions. However, after suddenly losing her job at the end of last year, her life collapsed in an instant. Facing a high employment barrier, she remained unemployed for over half a year, and to make matters worse, the stocks and coins she invested in hit rock bottom. She tried to cover debts with high-interest card loans, but the interest snowballed. Eventually, she borrowed money from illegal loan sharks but was hit with explosive interest rates. Jeon confessed, "Interest rates soared in a short period, and although I barely managed to cover them, I have reached a point where I can no longer cope."

Last year's surge in debt-financed investments (debt investment) and all-in borrowing (pulling together all resources) created millions of young debtors. Due to continuous real estate policy failures under the Moon Jae-in administration, the number of 20s and 30s taking loans to buy homes surged, and the desperation caused by employment difficulties and low income drove many to speculative stock and coin investments. Many also blindly rushed into unverified P2P (online investment-linked finance). Most of the investment funds were borrowed money.

However, with the full-scale regulation of virtual currencies and P2P in the second half of the year, there are concerns that many young people will struggle not only to make quick fortunes but even to manage interest payments. Experts warn that if this coincides with interest rate hikes, the shock to these young people could be greater than expected. There are warnings that bankruptcies among young people with low repayment capacity could surge in a short period.

Coins and P2P Investments Chasing Quick Fortunes... Facing Mass Closures

According to financial authorities and the financial sector on the 13th, under the Specific Financial Transactions Information Act (Special Act on Financial Transactions, or "Special Act"), exchanges that fail to establish real-name verified bank account partnerships by the end of September will have their operations suspended. Most commercial banks are reluctant to issue real-name accounts, raising the possibility of mass closures.

Currently, only the four major domestic exchanges?Upbit, Bithumb, Coinone, and Korbit?have real-name verified bank account partnerships, and even their contract renewals are uncertain.

The problem is that more than half of the investors in virtual currencies are in their 20s and 30s. According to data from the Financial Services Commission obtained by Kwon Eun-hee, a member of the National Assembly's Political Affairs Committee from the People’s Party, the number of new registrants at the four major virtual currency exchanges in the first quarter of this year was 2,495,289. Among them, those in their 20s numbered 816,039 (32.7%), and those in their 30s numbered 768,775 (30.8%), meaning the 20s and 30s accounted for more than half of all registrants. If virtual currency exchanges are shut down en masse, there are concerns that small and medium exchanges might embezzle customers' funds and disappear, leaving investors to bear the losses.

The enforcement of the Online Investment-Linked Finance Act (OnTu Act) at the end of next month could also burden young people who invested in P2P. P2P is a service that directly connects borrowers and investors online. It allows personal investors to lend money to those who cannot use traditional financial institutions due to low credit, earning interest income later. Over the past two to three years, it has become a popular investment destination among people in their 20s and 30s, with their proportion increasing overwhelmingly.

Professor Kim Sang-bong of Hansung University’s Department of Economics pointed out, "Because no significant measures were taken against virtual currencies and P2P, poor-quality companies have proliferated, causing greater damage. While regulation is necessary to clean up the market, it may also lead to harm among the 20s and 30s."

Crushed Under Debt, 20s and 30s... Rapid Increase in Bankruptcies

As debt among people in their 20s and 30s has skyrocketed exponentially, illegal lending businesses have also flourished. This exploits the fact that those with low income and high employment barriers find it difficult to borrow money within the formal financial system, increasing the risk of turning to illegal finance.

According to a survey by the Korea Institute for Health and Social Affairs, the proportion of illegal loan usage is relatively higher among those earning less than 1 million won and those earning between 1 million and 3 million won compared to other income groups. In fact, according to the Korea Financial Services Association, among 876 victims of illegal loans last year, more than half (56.8%) were in their 20s and 30s. This figure combines victims reported to the association and judicial authorities and represents a 36.4% increase compared to the same period the previous year.

The number of young people requesting credit recovery due to unmanageable debt is steadily increasing. According to the Credit Recovery Committee, 4,835 people applied for "rapid debt adjustment" in the first half of this year. Rapid debt adjustment targets debtors with arrears of 30 days or less. This is a 56.2% (1,740 people) increase from 3,095 in the first half of last year.

A Credit Recovery Committee official explained, "For people in their 20s and 30s, job shortages and difficulties even in restaurant part-time jobs due to COVID-19 have increased the demand for living expenses and tuition loans. When conducting counseling on the ground, the number of young people expressing hardship is steadily increasing." In fact, compared to the end of 2019, the number of personal rehabilitation filings in the first half of last year increased by 29.8% for males in their 20s and 24.7% for females in their 20s.

Experts point out that youth debt could become a trigger for an economic crisis. Professor Kim Dae-jong of Sejong University’s Business Administration Department warned, "For young people, the demand for living expenses combined with the debt investment craze has greatly increased the scale of debt. In the secondary financial sector, it is assumed that about 10% of people in their 20s and 30s cannot repay. No one can guarantee what will happen once the financial authorities’ grace measures end."

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