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Debt three times more than annual incomes of vulnerable households
By Yi Whan-woo
One out of every four to five Koreans owes debts that are three times as much as their annual income due to costly borrowing rates and surging housing prices, a report showed Monday.
Released by Korea Institute for Health and Social Affairs, the report said that the rate for debt-ridden young Koreans was up 2.6 times from 10 years earlier, when relevant data was compiled while the debt amount was up nearly 2.5 times for the same period.
The report followed an analysis of data compiled by Statistics Korea in 2021, to find out the assets of people aged between 19 and 39 and suggest possible solutions for them to plan for a secure financial future.
For every household led by those aged between 19 and 29, the average household debt amounted to 84.55 million won ($63,900) in 2021, a steep increase from 34 million won in 2012.
"The debt amount in 2021 was 2.48 times larger than that of 2012," the institute said, noting that it grew steadily over time ― reaching 41.8 million won in 2014, 54.45 million won in 2017, 63.67 million won in 2018 and 76.93 million won in 2020.
Of the 84.55 million won, 66.49 million won was in secure loans ― the debt collateralized by valuable assets such as real estate, cash accounts or vehicles.
Another 13.42 million was in credit loans ― the money taken out by borrowers under their credit line or the ability to make repayments.
Between 2012 and 2021, the number of secure loans increased by 2.6 times and credit loans by 2 times.
Some 69 percent or 58.2 million won of the debt was used for buying homes and another 13.98 million won was spent for business and investment purposes.
The amount of debt for housing purchases increased 2.9 times during the 2012-2021 period, while the debt for business and investment purposes increased 1.6 times over the same time period.
"It is noteworthy that more young people are getting loans for investment purposes, even though the No. 1 reason for them borrowing money is still to buy homes as older generations did," the institute noted, warning that taking out excessive loans for investment purposes can result in a higher risk of exposure to financial vulnerability.
As part of solutions to lower the financial risks of the young borrowers, the institute suggested introducing a curriculum aimed at improving finance-related knowledge in schools, offering support for those struggling with repayment, expanding benefits for newlyweds buying their first home to others in the targeted age group and enhancing the social safety net.
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