[Insight & Opinion] Let's Create Tax-Advantaged Investment Products for the Young Generation

Youth Leap Account Focuses on Safety
Korea Still Favors Savings-Based Asset Management
A Shift Toward Investment Is Needed

There is a product called the Youth Leap Account. It is a savings product designed to help young people aged 19 to 34 build assets through government contributions. It offers a high interest rate of up to 9.5%. Personally, while looking at this product, I have a question. The purpose and system are good. But why is it that only a principal-guaranteed savings account form is available?

In principle, there are two ways to manage assets. One is lending money and receiving interest in return. Deposits, savings accounts, and bonds fall into this category (although bonds can have capital gains, they share the characteristic of lending money). The other way is owning assets and making money through price or value appreciation. Real estate and stocks are included here. Asset management through lending is stable but yields fixed returns. On the other hand, theoretically, asset ownership, i.e., investment, can result in losing the entire principal in the worst case, but the upside is unlimited.

In a capitalist society, the stronger way to accumulate assets is to be an owner, not a lender. The growth engine driving capitalism is corporate competition, which results in increased consumer benefits. The world's wealthy all accumulate wealth by founding companies or owning stocks, which represent ownership in companies. This has been an unchanging formula since capitalism emerged in this world.

Top investors like Warren Buffett consistently say the shortcut to wealth is to start investing early. This does not mean not to save. It means to save and invest all your money. Methods like installment savings are also good because buying stocks, funds, or ETFs (Exchange-Traded Funds) in small amounts is also investing.

Korean society still encourages saving over investing. Government policies reflect this as well. The default option in retirement pensions includes deposits. This is rarely seen overseas. There are no investment products for children’s futures either. In advanced capital markets like the U.S. or the U.K., saving products are not recommended for children’s futures. Most are investment products, and they use systems that provide tax benefits or match some investment funds.

The world of investment is uncertain. No one knows what the stock market will do tomorrow. Human psychological nature dislikes uncertainty. Even though it is known that long-term investing is a rational choice, people often pursue current certainty. Over 10 or 20 years, stock market returns have outperformed deposits or bonds. Even if short-term returns are low or negative, over a long horizon of more than 10 years, stocks have always been the winner. Countries like the U.S. and the U.K. know this market history well and almost force(?) people to prepare for retirement or the future through investment products rather than savings.

Korea is no longer a society with high growth rates like in the 1980s. With a declining population, it has entered a society where it is difficult to increase production through massive input of human resources. Productivity per capita has become more important. Capital has also accumulated. However, many companies have capital sitting idle in their coffers. Naturally, the return on equity for companies is low. Now society must move toward using capital more efficiently. Individuals need to invest more to gain experience and accumulate assets, and companies must share profits with shareholders. Without this, social efficiency will not improve. We must gradually change from a society that encourages saving to one that encourages investing. A society that does not invest has no future.

Sang-geon Lee, Head of Mirae Asset Investment and Pension Center