[Financial Stability Status] 2030 Household Debt 485 Trillion, 27% Share 'All-Time High'

Bank of Korea Announces 'Financial Stability Situation (September 2021)'

About 27% of total debt

Growth rate 12.8%... Significantly exceeding other age groups' growth rate (7.8%)

Authorities' regulations and interest rate hikes raise interest in slowing debt growth

[Asia Economy Reporter Kim Eun-byeol] The household debt of young people in their 20s and 30s has reached a record high of 485 trillion won as of the end of June. This is the result of money released in response to the COVID-19 crisis pushing up asset prices such as stocks and real estate, with young people borrowing to invest one after another. Attention is focused on whether the debt peaked in the second quarter as the Bank of Korea raised the base interest rate last month and financial authorities began managing loans.

Based on the 'Financial Stability Status' report released by the Bank of Korea on the 24th, Asia Economy estimated the household debt balance of the youth, recording 485.79 trillion won for the 2030 generation. The growth speed is also fast, rising from 398.55 trillion won at the end of 2019 before the COVID-19 crisis to over 400 trillion won last year, and increasing by nearly 20 trillion won this year. The share of total household debt also reached 26.9%, the highest ever as of the second quarter. In particular, the youth's household debt growth rate was 12.8% year-on-year, significantly surpassing the growth rate of other age groups (7.8%).

Behind this is the 'FOMO (Fear Of Missing Out) syndrome,' a phenomenon of fearing falling behind others. As house and stock prices rose, many borrowed to invest. In the first half of the year, young people accounted for 36.6% of apartment sales transactions in the Seoul metropolitan area. Among 7.23 million new accounts opened at major securities firms last year, youth accounts accounted for 3.92 million (54%).

Lee Jung-wook, Director of the Financial Stability Department at the Bank of Korea, stated, "Jeonse (key money deposit) loans for young people continue to increase rapidly, and housing mortgage loans and credit loans have also recently expanded." He added, "Despite strengthened housing-related tax policies, housing mortgage loans increased as house prices continued to rise." He further noted, "Young people have lower income levels than other groups, so they could be at risk if asset price adjustments occur."

As of the second quarter, the total household debt including young people reached 1,805.9 trillion won, up 10.3% year-on-year. This is the largest increase in four years since the second quarter of 2017 (1,388 trillion won, 10.4%), right after the Moon Jae-in administration took office. While bank household loan growth remained high at 10.8%, non-bank household loans also increased by 9.9%. Including corporate debt, the private debt scale surpassed 4,000 trillion won, and the private credit ratio to Gross Domestic Product (GDP) reached 217.1%.

Meanwhile, the Bank of Korea analyzed that despite government loan regulations after the COVID-19 crisis, household loan growth expanded further, and the housing price rise became even stronger. Professor Ha Jun-kyung of Hanyang University’s Department of Economics said, "Regulatory effects may be limited when asset prices are rising," but emphasized, "If interest rate measures and regulations work together, there will be effects on the total amount of debt."