Youth Borrowing from Savings Banks Instead of Saving

Increase in Second-Tier Financial Loans Among Young People
Household Loans Under Age 29 Reach 26 Trillion Won
17.5% Increase Compared to End of Previous Year
Balloon Effect of Bank Loan Regulations
Increase in Personal Rehabilitation and Debt Adjustment Cases

#Job seeker Kim Byung-min (28, pseudonym) recently took out a loan from a savings bank. After quitting his new job just one month after starting in March, Kim struggled financially while working part-time jobs. As he also needed to prepare for employment, he eventually looked into loans. Through online communities, Kim learned about no-income loan products from savings banks and borrowed about 8 million won at an annual interest rate of 17%. Although the amount is burdensome, he plans to repay it once he successfully finds a new job.

The number of young people seeking loans from the secondary financial sector is increasing every year. According to data on "Household Loans by Financial Sector" received by Jin Sun-mi, a member of the Democratic Party of Korea, from the Financial Supervisory Service on the 14th, the total household loans from the secondary financial sector for those aged 29 and under reached 26.5587 trillion won as of the end of last year. This represents an increase of about 17.5% compared to the end of the previous year (22.6074 trillion won). During the same period, loans from banks to young people increased by 11.2%, from 61.7178 trillion won to 68.6541 trillion won, showing a steeper growth rate in the secondary financial sector. Compared to other age groups, the increase rate of household loans in the secondary financial sector among young people was also higher. For all age groups during the same period, the total household loans in the secondary financial sector amounted to 768.2658 trillion won, an increase of only 8.1% from the previous year's 710.4612 trillion won.

This phenomenon appears to have occurred as loan demand shifted to the secondary financial sector due to strengthened loan regulations in the banking sector last year. Young people aged 29 and under are more likely to be pushed toward the secondary financial sector because they generally have lower incomes and less financial transaction history compared to other age groups.

The balloon effect of banking sector loan regulations, which causes an increase in total loans in the secondary financial sector, continues into this year. As of the end of March this year, the total loans in the secondary financial sector for people in their 20s reached 26.8316 trillion won, a 1% increase compared to the end of last year. In contrast, the total bank loans for young people decreased by 0.6%, from 68.6541 trillion won at the end of last year to 68.2349 trillion won as of March this year.

In particular, the use of savings banks by young people has noticeably increased. The total household loans from savings banks for people in their 20s rose by 21.6%, from 3.5041 trillion won at the end of 2020 to 4.2627 trillion won at the end of last year. The total loans in the savings bank sector have shown a continuous upward trend over two years. Compared to 2.8998 trillion won at the end of December 2019, this is a 47% increase. As of March this year, it reached 4.2667 trillion won.

The number of personal rehabilitation and debt adjustment cases among people in their 20s is also increasing annually. The number of personal rehabilitation filings for those aged 20 to 29 rose from 10,307 cases in 2019 to 11,108 in 2020 and 11,907 in 2021, increasing by about 800 cases on average each year. The number of confirmed debt adjustments for people in their 20s also increased yearly, from 11,087 in 2019 to 12,780 in 2020 and 13,078 in 2021.

Especially among young people who reach personal rehabilitation, a high proportion of loans are due to financial hardship. According to a survey conducted by the Seoul Financial Welfare Counseling Center on 512 young people in their 20s who applied for personal rehabilitation at the Seoul Rehabilitation Court, 43% cited "living expenses" as the primary reason for incurring debt. Representative Jin said, "It is urgent to activate public debt adjustment programs for youth, expand financial counseling support, and implement youth financial policies to prevent economically vulnerable young people from bearing excessive debt burdens and becoming socially isolated." She added, "Fundamental social issues such as job shortages and income inequality must also be addressed simultaneously."

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