Financially-squeezed young people have less chance to grasp financial knowledge

By Kang Ye-won

For 20-somethings, whether they’re still in college or have recently graduated and started working, it’s likely that money management and investment are unfamiliar terms.

Especially for children whose parents have not paid for their higher education or who moved out at early age. Korean kids commonly stay with their parents until they have their own families — and it’s more challenging for a generation in a bad economy to learn how to manage their own money; whether it be budgeting, saving or financing.

Ji Yoon-mi, 27, a recent graduate from Korea University and a curator hopeful, has been looking for a job since February. So far she has found no luck, and says financial insecurity is the biggest challenge.

She stays with her parents and lives on a 300,000 won monthly allowance, two thirds of which go straight into her college loan payment.

“I’ve been barely paying off the interest, I haven’t had leisure time with friends in a while, ... and saving money is not even an option for me.”

Just like Ji, young people depend on their parents in inheriting knowledge and knowhow on financial planning from budgeting to building credit and saving.

But when their parents are not so financially literate, they can only turn to peers or the Internet for advice.

“Because there are too many options out there, I don’t know who to listen to, ... I would sometimes get tempted to answer those calls offering cheap credit,” she said.

Thanks to back-up support — her mom who pays her debts whenever she runs low on cash — Ji didn’t have to resort to curb loan services that usually target poor credit borrowers with ridiculously large interest rates.

Professional money managers warn that young people like Ji can easily fall for financial products that are advertised for big returns.
“Rather than seeking aggressive investments, young people should focus on accumulating a sum of money,” said Kim Hyun-soo, a wealth management consulting manager at Woori Securities.

For people who don’t have a large amount of principal, Kim suggested investing in pension funds or annuities. An annuity is a contract between an investor and an insurance company, through which he or she makes a series of payments for a long-term return, and it is often tax deferred on earnings growth.

“Once you have saved 10 to 20 million won, then you might want to look into relatively safe investments such as equity-linked securities (ELS), which don’t require a big principal,” Kim said.

ELS are stocks or index-based shares on the S&P 500, where the investment return is dependent on the performance of the underlying equities that are linked to the securities.

Then, there’s people like Yoon Hee-eun who have taught themselves personal finance.

The 32-year-old, who worked at KT, a telecom company, for the last nine years, is a veteran in personal financing. Yoon has made three separate savings accounts and two investment portfolios in mutual funds and stocks, which are now worth about 160 million won or $140,000.

“I’ve been able to accumulate some money with clear goals in mind: I always wanted to go to graduate school and to pay for my own wedding,” Yoon said.

She exchanges investing information with her co-workers who have similar levels of income and spending with her.
“Nowadays, I follow influential twitters, read postings from online communities, I have even gone to meet-ups titled “How to make a billion (won).”

Money management 101: stick to the basics 1. Learn self control As parents must have taught this since you were young, it’s easy to spend on credit that is easily accessible today. Keep in mind that sooner you pay off debt fully, it’s easier to keep your finances in order. 2. Take charge in your financial planning Although it’s always helpful to talk to consultants and bankers, it’s important that you know where your money goes both in terms of budgeting and financing. Financial supervisory service offers a series of online financial literacy 101 from credit management to financial planning for life stages. Also take advantage of online sites and smartphone apps such as mint.com, which helps track your financial accounts. 3. It’s never too early to start saving for retirement Again, it’s the basics: the earlier you start saving, the less principal that you need to invest in to meet the retirement goal, and the sooner you’ll be able to call working an “option” rather than a “necessity.” Source: Investopedia