Flooding Youth Financial Support

[Asia Economy Reporter Song Hwajeong] As interest rates rise, increasing the burden on young people, financial authorities and the financial sector are rolling out various financial support measures targeting youth.

According to the Financial Services Commission on the 16th, from the second half of 2020 to 2021, when housing prices surged, 2030 youth who purchased homes with loans disproportionate to their income faced significant repayment burdens. The share of housing transactions by 2030 youth in the metropolitan area increased from 25.2% in 2019 to the first half of 2020 to 30.2% in the second half of 2020 to 2021. Among home purchases, 2030 youth accounted for 56.7% of the use of borrowed funds such as loans. Additionally, due to asset price adjustments, young people who borrowed money in a low-interest environment to invest in stocks and virtual assets faced economic and psychological difficulties. The balance of credit loans for 2030 youth increased from 1.9 trillion KRW at the end of June 2020 to 3.6 trillion KRW at the end of June 2021, based on the top 10 securities firms. The proportion of virtual asset investors by age group showed that 2030 youth accounted for 55.0%.

In response, financial authorities have decided to establish a special rapid debt adjustment system to help low-credit young people who suffer significant difficulties such as investment losses to recover quickly. The special rapid debt adjustment system, operated temporarily for one year, allows low-credit youth aged 34 or younger with credit scores in the bottom 20% to receive interest reductions and repayment deferrals even before delinquency, managed by the Credit Recovery Committee. Depending on the debt burden, interest rates for low-credit youth will be reduced by 30-50%. During the principal repayment deferral period, an interest rate of 3.25% will be applied to low-credit youth. It is expected that up to 48,000 young people can reduce their annual interest burden by 1.41 to 2.63 million KRW per person through this program.

Alongside this, to support young people who lack appropriate asset formation means in accumulating lump sums, the launch of long-term (up to 10 years) asset formation products is being pursued, and an additional interest rate discount of 10 basis points (1bp = 0.01 percentage points) will be provided for low-income youth aged 39 or younger with annual income below 60 million KRW when applying for the Safe Conversion Loan.

The financial sector has also introduced support measures for youth. Shinhan Financial Group announced the 'Shinhan Youth Potential Project' worth 14 trillion KRW. Through this project, support for youth will be promoted over the next five years focusing on four core areas: ▲housing and living stability ▲asset growth ▲job creation ▲welfare enhancement.

First, approximately 11 trillion KRW of direct and indirect financial support will be implemented to stabilize youth housing and living. Key tasks include supplying 7.6 trillion KRW in loans for first-time home purchases and reducing interest burdens, supplying 2.55 trillion KRW in loans for youth jeonse and monthly rent with preferential interest rates, and lowering interest rates and waiving guarantee fees on related loan products to alleviate financial burdens for vulnerable youth. Second, 2.7 trillion KRW will be supported for youth-preferred financial products to increase youth assets. This includes 2.3 trillion KRW for youth lump-sum savings support (with 1% preferential interest) and about 400 billion KRW in youth-specialized financial products. Third, job creation will be promoted to employ 17,000 young people. Shinhan Group plans to directly hire 7,000 people over five years and invest about 167.5 billion KRW in various employment and startup programs operated by Shinhan Financial, such as Square Bridge, Global Young Challenge, Youth Debt Total Care, and Futures Lab, aiming to create 10,000 jobs. Lastly, 50 billion KRW will be invested to enhance youth welfare, including support for childbirth, childcare (education), and job and education support for disabled youth.

Hana Bank is the sole commercial bank selling the 'Youth Tomorrow Savings Account.' The Youth Tomorrow Savings Account is a savings product introduced by the Ministry of Health and Welfare to help economically disadvantaged young people accumulate lump sums and start their social lives securely.

The eligibility for the Youth Tomorrow Savings Account includes youth aged 19 to 34 at the time of application (15 to 39 for recipients and near-poor households) with earned income or business income, belonging to recipient or near-poor households, or youth with household median income at or below 100%. For this product, the government provides an additional matching deposit equal to the monthly payment of 100,000 KRW made by the youth (300,000 KRW for recipients and near-poor households). The subscription amount can range from 100,000 KRW to 500,000 KRW (in 10,000 KRW increments), and the subscription period is three years. The interest rate can reach up to 5.0% per annum (pre-tax, as of July 11) by adding a maximum preferential interest rate of 3.0% to the base rate of 2.0%. The preferential interest rates include ▲1.2% for salary and main transaction transfers ▲1.0% for new or existing housing subscription savings ▲0.5% for marketing consent ▲0.3% for registering the 'Hana Hap' service.

Youth can apply for subscription through the Ministry of Health and Welfare’s welfare portal site 'Bokjiro' from the 18th until October 5th. Once the eligible candidates are confirmed in October, they can subscribe to the product through Hana Bank branches and the mobile app 'Hana One Q.'

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