[2030 Debt Warning] Chasing Stocks and Coins with ‘Just Borrow’... Interest Rate Hike as the Biggest Risk

'Struggling Betting' Youth Figures... Crisis Ahead of Reality of Interest Rate Hikes
Half of Record Household Debt Held by 2030s, Leading Stock and Coin Markets
Loans Taken Recklessly Without Considering Repayment Ability... Mostly Without Countermeasures

[Asia Economy Reporters Sunmi Park and Seungseop Song] Gwak Sang-hoon (29, pseudonym), who works at a small-to-medium enterprise, took out a 30 million KRW unsecured loan at an interest rate of 2.9% at the end of April to invest in cryptocurrency. Although he borrowed money cheaply with about 470,000 KRW in interest for one year, he suffered a loss of 32 million KRW within a month as the cryptocurrency market crashed. With loan interest rates rising, if he does not repay the borrowed money by April next year, he will have to bear additional interest, and Gwak, struggling with tight finances, feels overwhelmed.

"We inform you that your loan interest rate has changed from 2.22% before the change to 2.55% after the change." Kim Min-ho (36, pseudonym), who received a notice of mortgage loan interest rates from his bank, is realizing that his interest burden has increased even before the base interest rate rose. He was repaying 1.7 million KRW monthly in principal and interest, but from this month, the interest rate increase means an additional expenditure of about 200,000 KRW per month. Kim said, "I took out the maximum unsecured loan for stock investment, but I am worried that switching to a fixed-rate mortgage loan will reduce the loan limit due to new loan regulations."

The 2030 generation, who piled up debts through "Yeongkkeul" (borrowing to the limit) and "Debt Investment" (borrowing to invest) amid the frenzy of investing in coins, stocks, and real estate, now face the biggest risk of interest rate hikes. With the worsening COVID-19 situation and stricter cryptocurrency regulations making market conditions unfavorable, young people who recklessly borrowed loans may be hit hard even by slight interest rate increases. Moreover, most of the loans they took out have a high risk of becoming non-performing due to their low repayment ability, raising concerns that this could cause significant shocks to the financial market.

◆The 2030 Generation Leading Household Debt... Vulnerable to Interest Rate Hikes

According to the Bank of Korea on the 12th, as of the end of May, the weighted average interest rate on household loans at deposit banks (based on new loans) was 2.69% for mortgage loans and 3.65% for unsecured loans, up 0.17 percentage points and 0.36 percentage points respectively from a year ago. With Bank of Korea Governor Lee Ju-yeol's remarks about the possibility of interest rate hikes within the year, there are forecasts that the interest rate could rise by 50 basis points (0.5 percentage points) from the current 0.50% to 1.0% by the end of the year, making it highly likely that loan interest rates will continue to rise.

The problem is that more than half of the borrowers who recklessly took out loans for debt investment without considering their repayment ability are in their 20s and 30s. According to data submitted by the Financial Supervisory Service to Kim Han-jung, a member of the National Assembly's Political Affairs Committee from the Democratic Party, as of the end of the first quarter, the household loan amount for the 2030 generation was 259.6 trillion KRW, an increase of 44.7 trillion KRW over one year. The share of the 2030 generation in the total increase in household loans rose from 33.7% in 2019 to 45.5% in 2020 and exceeded half at 50.7% in the first quarter of 2021. This is the result of 'debt investment' and 'Yeongkkeul' driven by demand for panic buying funds in real estate, rising stock prices, and the cryptocurrency investment craze.

Especially, the coin market has become a stage dominated by the 2030 generation. According to the four major exchanges?Bithumb, Upbit, Korbit, and Coinone?two-thirds of the 2,495,289 new members in the first quarter of this year were in their 20s and 30s. People in their 20s accounted for 32.7% (816,039), the largest share, followed by those in their 30s at 30.8% (768,775).

With 'stock market beginners' rushing in to avoid becoming 'lightning poor' (sudden poverty), the 2030 generation accounts for about half of newly opened stock accounts. According to Kiwoom Securities, among 2,095,000 new accounts opened in the first half of this year, nearly half, 965,000, were from the 2030 generation. Among all age groups, those in their 30s were the largest at 512,000, followed by those in their 40s (498,000), 20s (453,000), and 50s (324,000).

The 2030 generation tends to invest by borrowing rather than using surplus funds. Shinhan Bank stated in its 'Financial Life Report 2021' that "Among all age groups, those in their 30s had the highest rate of borrowing to invest in stocks at 17.4%, followed by those in their 20s (15.6%), 40s (14.8%), and 50s and above (13.2%)."

◆Risk of Going Bankrupt Due to 'Daktchul' Investment

The real estate market is also a frenzy among the 2030 generation. According to data on the balance of mortgage loans by age group submitted by Yoon Doo-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, to the Financial Supervisory Service, as of the end of April, the mortgage loan balance of the 2030 generation was the highest among all age groups.

The loan amount was 184.5 trillion KRW, accounting for 30.7% of the total. At the end of 2018, before the real estate 'Yeongkkeul' craze, those in their 40s had the largest amount at 160 trillion KRW, while those under 30 had only 130 trillion KRW, but the situation has completely reversed. Even looking only at those in their 20s with lower income levels, the mortgage loan balance surged by 111.1% in three years.

The 2030 generation's real estate investment includes high-priced apartments in Gangnam as well. Recently, 17,323 people in their 20s and 30s applied for the general supply of Banpo Raemian One Bailey, which attracted 36,116 applicants for 224 units, recording an average competition rate of 161.2 to 1. Nearly half of the applicants were from the 2030 generation.

The fourth wave of COVID-19 and the expected base interest rate hike within the year inevitably burden the 2030 generation who are investing with borrowed money. Those who have already lost their principal due to the collapsed coin prices are struggling even to pay interest.

Kim Ji-eun, a housewife in her 30s who secretly raised 10 million KRW to invest in Dogecoin and others, said, "There was an atmosphere around me that if you don't invest in coins, you become 'lightning poor.' I started when Bitcoin was 64 million KRW in March, and it rose to 80 million KRW within a month." She added, "I switched to coins like Dogecoin with more volatile returns, but I lost all the money I made because I switched at the peak and didn't even have my principal left. Most of my friends who started investing in coins this year have not recovered their principal and are experiencing losses," she lamented.