"20s Who Borrowed via Bank and Card Loans for 'Bittu', Fastest Increase in Delinquent Amounts"

Aggressive Investment by People in Their 20s During COVID-19 Period

Multiple Debtors in Their 20s Increase by 21%
Card Loan Delinquency Amount for 20s Rises by 40.11%

High Probability of Becoming Credit Delinquents Due to Lack of Income

[Image source=Yonhap News]

[Asia Economy Reporters Sim Nayoung and Song Seungseop] "In my mid-20s, I fell into stock addiction and struggled, then applied for a personal workout with my parents' help. I paid it off diligently and got a job. But the temptation of coins and stocks was my downfall. Since early last year, I have fallen back into the swamp of loans."

29-year-old Seo Jimin (alias) borrowed a total of 76.89 million KRW from six financial institutions, including commercial banks, savings banks, and regional banks, claiming to invest. The interest rates ranged from 6.3% to 16.4% per annum depending on the bank. Seo's monthly salary is 2.8 million KRW, but the monthly principal and interest repayment reached 2.77 million KRW, so now she is considering pre-workout. Seo expressed anxiety, saying, "With the prolonged COVID-19 situation, the company is also unstable, and I don't know when I might be laid off."

Hwang Sohee (alias, 27), who works at a small and medium-sized enterprise, was shocked when she checked her credit score while looking for a jeonse (long-term deposit lease) house loan. Her NICE score was 789, and KCB had dropped to as low as 617. Hwang said, "Both were originally in the 900s, but using long-term card loans for six months caused this," adding, "About 70% can be repaid if I withdraw my investments, but I am currently at a loss and cannot withdraw." In this high-interest era, getting a jeonse loan with a lowered credit score will obviously increase interest burdens. Hwang said, "I need to borrow money immediately to have a place to live, and then preventing card loan delinquencies is crucial, but it feels overwhelming."

Deterioration of Economic Ability in 20s is a National Threat

According to the 'Number of Multi-Debtors by Generation (people who borrowed money from three or more financial institutions)' submitted on the 30th by the Financial Supervisory Service and the Bank of Korea to Yoon Changhyun, a member of the National Assembly from the People Power Party, the number of multi-debtors in their 20s increased by 21.0% (from 302,582 to 366,369) from the end of 2019 to the end of 2021. The increase and growth rate are overwhelming compared to other age groups. The 30s increased by 1.0% (999,291 to 989,142), and the 40s decreased by -0.2% (1,389,407 to 1,385,908).

Considering that people in their 20s have low income before fully starting social life, the possibility that multi-debtors in their 20s become credit delinquents is higher than other age groups. The deterioration of economic ability in the 20s is a serious factor threatening the nation's sustainability, and countermeasures are needed. Yoon, a planning standing committee member of the Presidential Transition Committee, said, "The debt backlash has begun for the 20s who jumped into 'young pull' and 'debt investment,'" adding, "Risk management measures such as youth-tailored debt restructuring plans should be proactively prepared in anticipation of the interest rate hike period."

At the beginning of the COVID-19 crisis, stock prices plummeted, and people in their 20s borrowed money to rush into the stock and coin markets. As central banks worldwide injected money, the market overheated further. The bubble did not last long. It burst from the second half of last year, and the 20s despaired. With interest rates rising sharply, their debt burden is increasing.

Increase in Credit Delinquents Expected Among 20s

▲Status of Card Loan Delinquency Rates by Age Group Since COVID-19

Card loan conditions for people in their 20s have deteriorated much faster than other age groups. Young people who have maxed out their loan limits at first-tier financial institutions and can no longer borrow money have reached out to second-tier financial institutions, leading to an increase in those unable to repay loans in their 20s.

Looking at the 'Trend of Card Loan Delinquency Amounts by Age,' the card loan delinquency amount for people in their 20s rose from 26.6 billion KRW to 37.3 billion KRW, a 40.11% increase over two years (December 2019 to December 2021). After the COVID-19 crisis, young people who could not earn money or invested with borrowed money suffered losses, producing a financially vulnerable group in their 20s. In contrast, delinquency amounts decreased in the 30s (-6.54%), 40s (-14.9%), and 50s (-11.46%).

As card loan delinquencies increased, the risk of people in their 20s becoming credit delinquents also rose. Looking at the trend of fixed non-performing loans (delinquent for more than three months) by age for card loans, only the 20s showed a significant increase of 25.88% (26.8 billion KRW to 33.7 billion KRW). Other age groups showed a decreasing trend.

The behavior of increasing loans secured by stocks among people in their 20s also became evident. According to securities companies' 'Margin Trading Loans by Age Group,' loans for people in their 20s increased by 172% (4.5241 trillion KRW to 12.306 trillion KRW). Depository securities collateral loans for the 20s also rose by 55.26% (554.5 billion KRW to 861 billion KRW).

Loans from second-tier financial institutions such as card and securities companies have higher interest rates than first-tier institutions. Combined with the rising interest rate period, the increasing interest is fatal for people in their 20s with low credit ratings. If repayment ability declines, they may be labeled as credit delinquents before even taking their first step into society.

Ways to Rescue from the Debt Pile

Is there a way to rescue people in their 20s buried in debt? Experts say that since the causes of youth debt are divided into 'livelihood deterioration type' and 'investment failure type,' solutions must be provided for both. A report titled 'Post-COVID-19 Youth Debt Status and Implications' by Hana Financial Research Institute stated, "To block speculation by people in their 20s, regulations such as the Debt Service Ratio (DSR), which limits total debt repayment relative to income, should raise the loan threshold." It also proposed, "Banks should devise measures to prevent loans from being invested in risky assets different from their original purpose."

Ultimately, some believe that youth employment is the answer. Professor Kim Daejong of Sejong University’s Department of Business Administration said, "Starting social life as a debtor causes problems in maintaining normal financial life even in their 30s and 40s," adding, "What people in their 20s need most is a good economy that supplies many quality jobs."

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