Household debt for younger Koreans — those born from the 1980s onward — has surged to $22.7 billion, up from $3.9 billion from last year.
Data from South Korea's Financial Supervisory Service (FSS), released today by Representative Kim Han-jeong of the Democratic Party of Korea, reportedly indicates that the high levels of lending are attributable to an increase in investments in cryptocurrencies, stocks and real estate.
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While millennials and Gen Z accounted for roughly 34% of total household debt in Korea in 2019, that figure grew to 45.5% by 2020 and is now at 50.7%. Rep. Kim has called for government measures to help manage the debt and reduce the risks of default, stating:
“They have been lending excessively to buy real estate amid surging asset prices. The young generations have been burying themselves in stock investment and buying cryptocurrencies.”
The FSS data provides a degree of granularity, revealing that these generations’ home-backed lending has soared from $2.8 billion to $16 billion, while credit loans increased from $1.1 billion to $6.7 billion on the year.
Rising debt has become a fundamental part of the wider socio-economic story of younger Koreans. A Bloomberg article published in fall 2020, aptly titled “Broke Millennials Turn to Day Trading to Strike It Rich in Korea,” cited one 27-year old who said:
“In Korea, us 20-somethings only have two ways to get rich: Either we win the lottery or trade shares. We know we will never be rich on whatever wages we earn. We will never earn enough to buy a home.”
While the article focused on the turn to day trading in traditional stocks on apps like Robinhood, the same underlying dynamic — suppressed wages, a “frozen job market” and rising real-estate prices — is fueling their reliance on bank loans to make other investments they believe could pay off in the medium- or long-term, such as crypto and real estate.
Lee Han Koo, an economics professor at the University of Suwon, characterized this dynamic as “desperate,” noting that this socio-economic environment has fueled a perception among youth that trading represents a “once-in-a-lifetime opportunity” to break out of an insurmountable impasse.
Related: South Korea's 'Kimchi premium' is back: Is the Bitcoin rally starting to heat up?
According to an IMF report from August 2020, Koreans’ household debt-to-disposal income of 180% is now the highest among OECD countries. House prices, as in many OECD countries, have been on an uninterrupted tear since 2014. Whereas the country’s gross national income per capita is $32,047, the median price of apartments in Seoul — where half of the population lives and half of the firms are based — was close to $800,000 last fall.
Locked out of the housing market and trapped by stagnant wages, Koreans’ turn to speculation — ranging from hedge funds to biotech to crypto — was central to Bitcoin’s (BTC) infamous “Kimchi bubble” of 2017. With longer-term economic trends now exacerbated by the pandemic, Bitcoin’s premium in Korea again surged to yearly highs this spring.
Read on relating to Cointelegraph
