A generation indebted: Young Koreans struggle under record loans in Q1

Young South Koreans are drowning in debt.

Korean youths in their 20s and 30s are reeling under growing personal debt as they aggressively take out personal loans, looking for investment opportunities amid a widening financial gap between themselves and the richer, older generation.

As of the end of March, the country’s young adults had a record 446.5 trillion won ($395 billion) combined loan balance, a 14.1% increase or an additional 55.39 trillion won in borrowing compared to the year-earlier period, according to calculations by The Korea Economic Daily based on recent data from the Bank of Korea.

The debt increase for those in their 20s to 30s was higher than the 9.5% rise for Korea’s entire generation in the same period.

Young Koreans began falling into heavy debt following the outbreak of the COVID-19 pandemic in mid-February last year as the government and the central bank eased lending rules to allow them unprecedented access to credit, resulting in a dramatic increase in debt.

Skyrocketing housing prices, particularly in Seoul and the surrounding metropolitan area, have prompted even jobless young people to heavily take out loans to buy apartments in the belief that the only way for real estate prices in Korea is up.

According to the Korea Real Estate Board, young adults in their 20s and 30s accounted for a record 42.1% of all people who bought at least one apartment in January. The ratio rose above the 40% mark for the first time in August last year with 40.4%.

CRYPTOCURRENCIES FOR QUICK MONEY

As the older generation is getting richer with the rise in prices of houses they own amid the pandemic-caused economic slowdown, Korea’s young people have also turned to cryptocurrencies for quick money.

Young people accounted for 63% of 2.49 million new subscribers to Korea’s four cryptocurrency exchanges – Bithumb, UPbit, Korbit and Coinone – in the first quarter.

Analysts say the growing debt obligations by young Koreans will cost them higher interest payments, leading to possible delinquency for many as the Bank of Korea has flagged several times that it would raise its policy rate in the fourth quarter.

The benchmark three-year treasury bond yield was 1.484% last Friday, the highest since Nov. 19, 2019, when it was at 1.485%.

Multiple young debtors, who borrowed from more than three financial institutions, had a combined loan balance of 130 trillion won at the end of 2020, up 16.1% from a year earlier.

Credit card debt by people in their 20s stood at 8 trillion won at the end of last year, up 16.6% from the previous year.

If the central bank begins monetary tightening near the end of this year, an increasing number of young Koreans could fall further into debt, struggling to pay down debt by taking on fresh debt, analysts said.

Write to Ik-Hwan Kim at lovepen@hankyung.com
In-Soo Nam edited this article.