[Inside Chodong] Youth Leap Account and the Dilemma of Government Intervention

Heartbreaking youth. There is no one who does not take youth issues seriously. Those who resist survival by studying or working part-time while having lunch with convenience store lunch boxes. A generation that finds it difficult even to expect that tomorrow’s self will be better than today’s self. Youth, once a beautiful name just by existing, has somehow become a major welfare group.

One of the things created for this reason is the Youth Leap Account. Young people aged 19 to 24 can save up to 700,000 KRW per month for five years, and with interest and tax-exempt benefits combined, they can hold up to 50 million KRW. The interest rate is up to 6%. Considering that the current interest rates for savings and deposits are around 3%, this is about twice as high.

It is also popular enough that 620,000 people applied within just six days (June 15?22) of its launch. The Youth Hope Savings, which was introduced early last year, had about 1.7 million applicants in the first week. Compared to that, this is somewhat lower. Still, the fact that this many people flocked to the Youth Leap Account, which has a much longer maturity, shows that young people have a strong interest in saving a lump sum.

The intention is good, and the results are desirable. However, there are parts that should not be overlooked here. It is market logic broken by political reasoning. The product launch was handled by 11 commercial banks. But the product was designed by the Financial Services Commission. The creators and sellers are separate. From here, the discord began. Although the Youth Leap Account is a national agenda and cannot be openly criticized, there is debate even within the Financial Services Commission. “The government is not a place that makes savings and deposit products for banks to sell.” “Any policy with the word ‘finance’ attached comes to us.” “It’s a presidential campaign promise, so we do it if told.”

Because they had to ‘accomplish’ something that was not originally their job, unreasonable measures emerged. Currently, bank loan interest rates are in the 4% range. If the Youth Leap Account interest rate is higher than this, the more they sell, the more they incur losses. Knowing this, the authorities pressured banks to raise savings interest rates contrary to market logic. Banks that made huge profits from the interest rate spread between loans and deposits were asked if they couldn’t raise the interest rate a bit to help struggling youth. The frame was already set with good and bad defined. Banks had no choice but to surrender.

At first, the five major banks that said they couldn’t offer up to 6% raised their base interest rates. Industrial Bank of Korea, which initially said it would offer more than 6%, lowered its base interest rate. This was out of concern that if the interest rate was even 0.1 percentage points higher than others, there might be a rush of subscribers. If that happened, only certain banks could suffer huge losses, so they reluctantly colluded. Banks that should compete ended up appearing to collude because of government policy.

Social contributions from well-off banks are almost obligatory. Helping young people save lump sums to ease worries about meals and housing is important. However, this cannot justify undermining market logic. If “selling at a loss” is not an empty phrase but a fact, it becomes serious. For companies, performance as well as internal and external perceptions are operational risks.

If bank support is to be provided, other methods such as establishing funds or endowments can be used. Small livelihood loans of 1 million KRW each to low-credit borrowers were such a case. The financial authorities raised 50 billion KRW of the funds used there through bank donations. It was a case that avoided controversy over government intervention while maximizing operational finesse. For necessary systems like the Youth Leap Account, it is better not to create unnecessary controversies from the start.

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