[Inside Chodong] "The Day 30 Trillion Won Is Released All at Once in February 2024"

[Asia Economy Reporter Sim Nayoung] There is a major inflation history that even Koreans are not well aware of. It happened during the Korean War. When the war broke out, employees of the Bank of Korea were busy evacuating. They failed to transport 10.5 billion won stored in the underground vault. When North Korean troops captured Seoul, they seized this money. The money was scattered near the Nakdong River, where fierce battles took place. South Korea’s monetary order soon fell into tremendous chaos. This is a case that shows what kind of results an unexpected and unprepared flood of money can bring.

A similar event seems likely to occur again after 70 years. It is due to the Youth Hope Savings Plan created by the previous administration and implemented by the Financial Services Commission. In February 2024, the maturity of the Youth Hope Savings Plan, which 2.9 million people subscribed to in February this year, will come due. Even considering early withdrawals and calculating with 2.5 million people, more than 30 trillion won will be released into the market all at once. A senior official of the Bank of Korea said, “It is a ‘big event’ that could affect the price level in our country.”

A young person who saved 500,000 won monthly will receive 12,985,000 won at maturity. This amount includes the government’s tax-free savings incentive (360,000 won) and the interest (625,000 won) paid by banks at a much higher rate than usual savings. It effectively yields a 9% annual interest rate with tax benefits.

While some young people may wait until maturity and use the money as needed, the key issue is those who withdraw the savings without a clear plan, with a large bonus added. Predictions about what might happen after February 2024 include: “Will the stock and cryptocurrency markets fluctuate?” “Will overseas travel increase sharply?” “Could luxury consumption explode?” One thing is certain: companies eager to attract this 30 trillion won will encourage young people, who may not know where to spend the money, to become like moths to a flame. Although the original purpose of the Youth Hope Savings Plan, created with government funds and bank cooperation, was to help young people build a lump sum, stopping at this goal alone would be neither here nor there.

Many capitalist countries have used ‘guided plans.’ A guided plan refers to a method where the government sets goals such as export promotion or strategic business investment and then tries to achieve those goals by gaining cooperation from the private sector without conflict. As the word ‘guided’ implies, there is no legal binding force. Instead, the government stimulates economic agents in the desired direction by using carrots and sticks such as subsidies, granting monopolies, or regulations.

What should be done to prevent the Youth Hope Savings Plan from dissipating into thin air? The government must establish a ‘guided plan’ that provides practical help to young people. The housing issue, a pain point for youth, could be the target. It could be a way for young people who lack the initial 10 million won seed money and live in goshiwons or peripheral monthly rental rooms to use it as seed money to live in officetels. If part of the monthly rent deposit is prepared through the Youth Hope Savings Plan, the Korea Housing Finance Corporation could provide guarantees and banks could offer low-interest loans for the rest.

The Youth Hope Savings Plan must settle firmly so that the Youth Leap Account, which the current government is preparing, can take it as a model. The day when 30 trillion won is released all at once is less than two years away.

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