Assemblyman Kim Young-sun: "Early Interest Rate Hike Will Cause Crisis for Working-Class Youth"

Low-Income Groups, Self-Employed, Youth ... Need for Tailored Emergency Measures

Kim Young-sun, member of the People Power Party.

[Asia Economy Yeongnam Reporting Headquarters, Reporter Song Jong-gu] In response to the sharp rise in interest rates, voices have emerged in the National Assembly calling for the expansion of tailored support measures for low-income households, self-employed individuals, and young households who face a high risk of household debt insolvency.

Assemblyman Kim Young-seon pointed out, “The burden of domestic household debt is increasing due to rising loan interest rates, and there is particular concern about the deterioration of financial soundness among low-income households, self-employed individuals, and young households holding household financial debt. Tailored support measures considering household characteristics must be prepared.”

Despite the Bank of Korea’s first-ever big step (a 0.5% point interest rate hike) and four consecutive rate increases, on the 21st of last month, the U.S. Federal Reserve raised its benchmark interest rate by 0.75 points, unusually taking three consecutive giant steps, causing an inversion of interest rates between Korea and the U.S., and the upward trend in Korean interest rates is expected to continue.

Additionally, as of the first quarter of 2022, household loans surpassed 1,752 trillion won, accumulating significantly in quantity, and the increase in other loans with high interest rates continues, indicating a high possibility of deterioration in the quality of debt.

According to data from the Hyundai Research Institute, although interest costs are low for low-income groups, due to their low income levels, a 2%p increase in loan interest rates causes the DSR (debt service ratio) to rise by 3.8%p, showing the largest increase compared to other income groups.

Furthermore, for self-employed households, a 2%p rise in loan interest rates increases the average annual interest cost by about 2.1 million won, and the DSR rises by about 3.4%, significantly increasing repayment burdens and worsening financial soundness.

By age group, the DSR of young households rose to 38.1%, approaching the low DSR threshold (40%), indicating a deterioration in financial soundness.

In response, Assemblyman Kim said, “It is necessary to actively consider tailored support measures reflecting household characteristics rather than uniform methods to prevent these households from entering default.” He added, “For low-income groups, beyond short-term support measures such as maturity extensions, I will do my best as a member of the National Assembly’s Planning and Finance Committee to ensure that monetary and financial stability policies are designed from a long-term perspective, linked with employment market policies so that vulnerable households can improve their debt repayment capacity on their own.”