[2030 Debt Warning] Youth Multiple Debts Total 130 Trillion Won... Circular Borrowing a 'Default Time Bomb'

Proportion of Multiple Debtors Under 30 Approaches 25%
Card Loans Reach Record High, Revolving Balance Increases
New Loans and Maturity Extensions Blocked, Risk of Explosion

[Editor's Note] As the Bank of Korea officially signals an interest rate hike within the year, warning lights have been lit regarding the management of household debt, which is among the worst globally. Last year, household debt approached 1,700 trillion won, surpassing nominal Gross Domestic Product (GDP) for the first time ever. Financial authorities, judging that household debt has reached a dangerous level, began tightening measures from the end of last year, but the first quarter of this year still saw a record high of 1,765 trillion won. In particular, excessive borrowing by the 2030 generation has emerged as a ticking time bomb in the Korean financial market, intertwined with interest rate hikes and cryptocurrency crashes. Experts warn that if the prices of homes, stocks, and cryptocurrencies?on which the MZ generation (Millennials + Generation Z) have gone all-in through Yeongkkeul (borrowing to the limit) and Debt Investment?plummet, it could become a time bomb for the Korean economy. Bank of Korea Governor Lee Ju-yeol also pointed out the risks of household debt, saying, "The market could be greatly shaken by even a small shock." Asia Economy presents the current status, problems, and alternatives regarding household debt among the 2030 generation and middle- to low-credit borrowers, who have become the 'weak links.'

[Asia Economy Reporters Oh Hyun-gil, Ki Ha-young, Song Seung-seop] Hwang Mun-young (29, pseudonym), who worked as a contract employee at a small and medium-sized enterprise, recently left the company after his contract ended and is now working part-time at a restaurant. His credit card debt due this month alone amounts to 5 million won. He recklessly used credit cards while employed, and installment payments began to increase. Eventually, he used a card revolving service to avoid delinquency, but the number of debt channels gradually increased. Now, with his part-time income of 1.5 million won, it is difficult even to repay the revolving amount.

Driven by anxiety about becoming a 'lightning poor' (byeorak geoji), many in their 20s and 30s who took out loans to buy homes and invested in stocks and coins are found to be multiple debtors. Nearly one million people in their 20s and 30s are juggling loans from various financial companies.

If new loans or maturity extensions are not possible, a domino effect of credit defaults is inevitable. In a debt situation sustained by 'rolling over' debts, a decrease in income or an increase in interest rates can lead to a serious insolvency state.

According to the Bank of Korea on the 12th, among 4.23 million multiple debtors with loans from three or more financial institutions as of the end of last year, those aged 30 or younger accounted for nearly 1.05 million (25.2%), an increase of 1.8 percentage points from the previous year-end.

Since the COVID-19 crisis closed employment opportunities and youth unemployment rates soared, an increase in debt for livelihood was inevitable. However, the recent trend of rising loans among the 2030 generation raises concerns.

According to recent Statistics Korea data, the average household debt nationwide last year was 82.56 million won. By age, those in their 20s had 34.79 million won, those in their 30s had 100.82 million won, while those in their 40s had 113.27 million won, and those in their 50s had 99.15 million won. Compared to the 40s and 50s, who have accumulated assets through years of economic activity, the debt burden on social newcomers in their 20s and 30s is considered excessive.

Also, the average loan-to-income ratio (LTI) for all households at the end of last year was 229.1%, with those in their 30s having the highest at 262.2% among all age groups. The overall LTI rose by 11.6 percentage points over the past year, but for those under 20 and in their 30s, it surged by 23.8 and 24.0 percentage points, respectively.

Especially among the youth, multiple debts due to the recent craze for stock and virtual asset investments, driven by Yeongkkeul (borrowing to the limit), are severe.

The outstanding loan balance of young multiple debtors reached 130 trillion won, a 16.1% increase from the previous year-end. As unemployment prolongs and sufficient earned income to repay debts is not obtained, cases of borrowing again to endure are increasing. Long-term card loans (card loans) and partial payment amount rollover agreements (revolving) are representative examples.

At the end of last year, the card loan balance of eight card companies reached a record high of 32.046 trillion won. Among them, the card loan balance for those under 30 was 1.141 trillion won, an 18.5% increase from the previous year. This is a sharp rise compared to annual growth rates of 1.1% and 8.2% for those in their 30s and 40s, respectively.

The revolving balance also recorded 458 billion won last year, increasing by 6.8% compared to a year earlier. As of the end of last year, the total revolving balance was 5.65 trillion won, a 2.5% decrease from the previous year, but it increased only among those under 30 and over 60. An increase in revolving usage means that the ability to repay relative to monthly income has decreased accordingly.

Regarding the loan problems of those under 30, it is advised to approach by distinguishing between vulnerable demand and speculative demand.

Shin Yong-sang, a research fellow at the Korea Institute of Finance, pointed out, "For vulnerable youth, measures such as debt adjustment and establishing a foundation for self-reliance are needed, while for speculative demand groups, measures to block fund supply and strengthen financial education to curb speculative demand are necessary." He added, "Since a significant portion of vulnerable borrowers are likely multiple debtors, separate management is required for non-bank credit loans, including card loans."