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Young people opt out of gov't savings plans as cost of living soars
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By Lee Kyung-min
A man in his 20s surnamed Kim remembers closing a government-assisted savings account. If held to term, it would have netted him 10 percent annual interest on his initial investment in just two years.
“All I had to do was put in 500,000 won ($374) every month for two years, but I canceled it last year,” he said. “At first, I thought I could come up with that money each month, but as time went by I just couldn’t afford it.”
The jobseeker is one of many who had to give up the otherwise handsome interest income.
The two-year program put in place under the former Moon Jae-in administration was launched in February of 2022 to help young people aged between 19 and 34 with an annual salary of less than 36 million won.
The account would have reached maturity this month. However, about one in three account holders closed the account mid way through its term, due largely to soaring prices of goods and services over the pandemic years. This is a circumstance particularly challenging for young jobseekers.
According to the Financial Supervisory Service's data submitted to Rep. Kang Min-kuk of the ruling People Power Party (PPP) on the National Assembly's National Policy Committee, the number of subscribers who closed their Moon administration-funded account was 861,309 as of December last year, accounting for 29.8 percent of the initial subscribers or some 2.8 million people.
The Yoon Suk Yeol administration rolled out a similar program in June of last year.
Yoon's saving program states that 50 million won will be given to subscribers as long as they make a monthly deposit of 700,000 won for five years.
Despite the promise of 8 million won in interest income, only 510,000 subscriptions were registered as of December of last year, accounting for only 17 percent of the government’s target of over 3 million.
The government announced a set of incentives, Jan. 30, to drum up more interest among young voters. Chief among them was an interest rate of up to 3.7 percent even when they close the account before the five-year maturity stage. The 3.7 percent is comparable to held-to-term interest rates offered by local commercial banks on three-year maturity savings accounts. Income tax will be exempted from the interest accrued as long as the account remains open for at least three years.
The measure is unlikely to induce the desired outcome, as indicated by a spike in the delinquency rate among borrowers aged between 20 and 39 over the past year.
Data presented by Rep. Kim Sang-hoon of PPP, a member of the National Assembly Strategy and Finance Committee, showed that the amount delinquent came to 494 billion won between January and July of 2023, up from 352.4 billion won between July and December of 2022.