[Unpaid Debt Among 20s]③ The Debt Growth Rate of Young Adults Is Much Faster Than That of Middle-Aged and Older Adults

30s and Under Account for 40% of Total Loan Increase in Q1
20s Mainly Due to Jeonse and Monthly Rent Deposits

Youth debt is growing faster than in other age groups. The government analyzed that the main cause for those in their 20s is the deposit for jeonse or monthly rent. Throughout the COVID-19 period, youth debt increased noticeably more than other generations. This trend continues even after the pandemic has ended.

On the 26th, Kim Seong-ju, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, received data from the Bank of Korea titled 'Outstanding balance and proportion by age group of borrowers with increased borrowing.' It showed that the total loan increase across all age groups in the first quarter of this year was 79.7 trillion won. This figure includes both new loans and increases in existing loan balances.

Among these, those aged 30 and under accounted for 40.8% (32.5 trillion won). Those in their 40s made up 27% (21.5 trillion won), those in their 50s 20.1% (16 trillion won), and those aged 60 and above 12.1% (9.7 trillion won). Over the past two years, the share of loan increases by those aged 30 and under has consistently exceeded 40% of the total borrowing increase. Although the amount of increase temporarily decreased in the fourth quarter of last year due to rising interest rates, loan amounts have been rising again since the first quarter of this year.

The reason youth debt is higher than other generations, according to Statistics Korea, is primarily due to securing deposits for jeonse or monthly rent. In last year's Household Financial Welfare Survey, 64.5% of mortgage loans taken by household heads in their 20s were for securing jeonse or monthly rent deposits. Among unsecured loans, 43.8% were also for this purpose. When people in their 20s and 30s become independent, they need housing, but since their homeownership rate is low, they must secure deposits for jeonse or monthly rent, making loans essential.

Source: Seongju Kim, Democratic Party of Korea; Bank of Korea

According to the KB Real Estate Market Review, during the COVID-19 period, jeonse and monthly rent prices rose sharply along with house prices. Although they dipped in the second half of last year, they have been recovering since the first quarter of this year. In the July real estate market review, KB Financial Group's Management Research Institute stated, "To strengthen risk management against reverse jeonse and jeonse fraud, the government relaxed loan regulations only for loans aimed at returning deposit differences. Additionally, the reduction in jeonse loan interest rates has caused demand that shifted to monthly rent to revert back to jeonse, influencing the rise in jeonse prices."

As interest rates rise, young people are taking on debt to secure housing, leading them to cut back on spending. The trend of 'Geojibang,' where young people criticize each other's consumption habits, is popular for this reason. The Korea Development Institute (KDI) estimated in its April report titled 'Increased Debt Repayment Burden on Youth Due to Interest Rate Hikes and Implications' that if the base interest rate rises by 1 percentage point, the annual consumption of borrowers with loans decreases by an average of 132,000 won.

By age group, those in their 20s were hit the hardest. The consumption decrease for those aged 60 and above was 36,000 won, while for those in their 20s it reached 299,000 won. The annual consumption decrease for those in their 30s was 204,000 won, slightly better than those in their 20s. KDI researcher Kim Miru predicted, "As the high interest rate trend continues, delinquency rates are likely to rise mainly among vulnerable borrowers, and the trend of rapid increase among youth compared to middle-aged and older generations will persist."