[2023 Budget] Youth Leap Account Changed Drastically from '100 Million in 10 Years' to '50 Million in 5 Years'

President Yoon Seok-yeol's Key Youth Pledge Greatly Revised
"Considering Realistic Conditions Such as Maturity Maintenance, Funding, and Demand"
Maturity Reduced to About Half the Savings Amount

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] President Yoon Seok-yeol's campaign pledge, the Youth Leap Account, has abandoned its original goal of "accumulating 100 million won in a lump sum after 10 years" and has instead made its operational direction more realistic. The policy will be changed to help accumulate 50 million won over a 5-year maturity period.

In the next year's budget plan announced by the government on the 30th, the outline of the Youth Leap Account system operation was revealed. The Youth Leap Account reflected in the budget plan has been "refreshed" based on the campaign pledge contents, taking into account the government's fiscal conditions and demand for financial products.

Additional Household Income Requirement Beyond Individual Income

The eligibility criteria require youths aged 19 to 34 to have an individual income of 60 million won or less, while simultaneously the household income must be at or below 180% of the median income. Although the individual income requirement has been relaxed compared to the Youth Hope Savings (total salary 36 million won or less), a household income standard has been added. Considering the 2023 median income estimated by Statistics Korea (3.456 million won per month for a two-person household), it is expected that a two-person household with a monthly income of 6.22 million won or less will be eligible to join. For those fulfilling military service, the period of service (up to 6 years) will be excluded from the age calculation. The government estimates the eligible population to be about 3.06 million people, which corresponds to approximately 30% of the 10.59 million people aged 19 to 34.

The account maturity has been shortened from 10 years, as proposed in the campaign pledge phase, to 5 years. The Financial Services Commission explained, "This is a comprehensive measure considering the low demand for 10-year maturity financial products and the conditions requiring long-term government funding." Considering the feasibility of maintaining a 10-year maturity and fiscal conditions, the originally pledged "account to accumulate 100 million won" was deemed unachievable.

Government Will Subsidize Up to 6% of Contributions
Monthly 700,000 Won Subscription Yields Annual 8% Savings Effect

The monthly contribution amount ranges from 400,000 to 700,000 won, with the government subsidy calculated as up to 6% of the contribution. A budget of 344 billion won has been allocated for the subsidy. Considering the product launch in the second half of the year, about half of the annual required funds have been allocated. Individual subsidies are expected to vary depending on income level and contribution amount. A Financial Services Commission official in charge of the Youth Leap Account stated, "It is difficult to confirm the absolute amount of individual subsidies at this stage."

The interest rate is expected to be set by adding a margin to the 5-year maturity savings interest rate of commercial banks. The government expects that, given the current market interest rate situation, a lump sum of up to approximately 50 million won will be accumulated after the 5-year maturity. To accumulate 50 million won (after tax) over 5 years by contributing 700,000 won monthly in a general taxable savings product, an annual interest rate of 8% must be applied. For tax-exempt products, the interest rate needs to be about 7% annually. The Youth Hope Savings product launched earlier this year had a maximum interest rate of about 6% per annum.

Regarding the launch of bond-type and stock-type products mentioned during the campaign pledge phase, aside from deposit-type products, the decision will be finalized after consultations with the financial sector. Lee Se-hoon, Secretary General of the Financial Services Commission, said, "Details such as interest rate levels and monthly contribution methods will be prepared in consultation with financial companies that will sell the products once the next year's budget plan is finalized," adding, "Since government fiscal expenditure needs to be managed carefully, we will design detailed plans considering the maximum feasible execution within available resources."

No Relaunch of Youth Hope Savings
Youth Hope Savings Subscribers Will Be Allowed to Join Youth Leap Account

The Youth Hope Savings, which was considered for relaunch to support youths who started earning money last year, will not be relaunched. Instead, demand will be absorbed by the Youth Leap Account. It is planned that subscribers of the Youth Hope Savings with a 2-year maturity can join the Youth Leap Account simultaneously or sequentially.

Regarding criticisms that supporting only the youth without assistance for middle-aged or elderly groups is unfair, the Financial Services Commission stated, "Considering the widening asset gap between generations and the difficulty for youth to even have opportunities for asset formation, there is increasing social demand for more substantial and long-term asset formation support for the youth."