8% youth savings plan faces test as stock market booms
Higher-return chase may steer young investors away from long-term savings
Financial Services Commission Chairman Lee Eog-weon, right, speaks with commuters in Seoul's Seongsu area, Monday, during a promotional event for the Youth Future Savings Plan. Yonhap
The appeal of a new government-backed savings program for young people, which opened for applications on Monday, is being put to the test as a stock market frenzy draws younger investors into equities.
According to the Financial Services Commission (FSC), applications for the Youth Future Savings Plan will be accepted for two weeks through July 3 at 15 major banks. The program is available to individuals aged 19 to 34.
Applicants must meet income requirements based on earnings from the previous year. The general tier is available to those who earn a salary of up to 60 million won ($39,000) a year, as well as small business owners with annual sales of up to 300 million won.
The three-year savings product allows subscribers to deposit up to 500,000 won a month. It offers a base interest rate of 5 percent, which can rise to as much as 7 to 8 percent depending on the bank and eligibility for additional incentives.
The government will provide contributions equivalent to 6 percent or 12 percent of monthly deposits, depending on income levels, while exempting interest income from taxation.
The FSC estimates that the program will generate annual returns of 13.2 percent to 14.4 percent for subscribers and as much as 19.4 percent for lower-income participants when government contributions and tax benefits are taken into account.
A key question is whether the program can attract young subscribers, as Korea's stock market frenzy continues to draw retail investors.
Hana Bank employees celebrate the benchmark KOSPI’s historic breakthrough above the 9,000 mark at the bank’s dealing room in Seoul, Thursday. Joint Press Corps
Fueled by a semiconductor-led rally, the benchmark KOSPI has surged more than 90 percent this year, topping the 9,000-point mark for the first time last week.
The stock rally has strengthened younger investors' preference for equities over traditional savings products as they seek higher returns. Critics view that this would make it difficult for the government-backed savings program to attract subscribers.
Still, industry officials said the combination of government contributions, tax benefits and guaranteed returns could appeal to young people looking to build savings with less risk.
"It is true that many young people are shifting toward the stock market in search of short-term gains," a banking industry official said. "But this government-backed program offers relatively high returns with greater stability, making it an attractive option for those looking to build savings."
FSC Chairman Lee Eog-weon attended a promotional event for the savings product in Seoul's Seongsu area on Monday morning, where he handed out coffee to commuters and encouraged participation in the program.
"The Youth Future Savings Plan will serve as a reliable partner and a ladder of opportunity for young people struggling to build assets," Lee said. "The government will continue strengthening support measures to help young people accumulate wealth and plan their future."