Many Koreans Are Financially Illiterate

The 35-year-old Mr. Paek works as a director of a multinational company after majoring in economics at a prestigious university. He recently met his alumni who work at a bank and a securities company.

He sought their advice on where to invest his money, saying he has saved some 50 million won from his prepaid retirement allowance and monthly saving. After hearing he had kept that money in his salary account for nine months, his friends scoffed at him.

“Haven’t you heard of MMFs (Money Market Funds) or RPs (Repurchase Agreements)? Their annual interest rate is at least three percent. You would have earned 1.5 million won only if you had put that money into a savings bank,” they mocked. “People like you are dubbed money-blind.”

These days, the annual interest rate for savings is around four percent.

Thanks to the booming stock market and the keen attention paid to post-retirement days by workers in their 30s and 40s, the number of fund accounts surpassed seven million.

However, it turns out that most financial service consumers have little knowledge of finance, bordering on a state of financial illiteracy.

According to a survey by Dong-A Ilbo and the financial management firm FPnet of 109 financial planners, 94, or 86.2 percent, answered their customers have less-than-average financial technology. Three, or 2.8 percent, answered their technology is seriously insufficient.

This means nine out of 10 customers are financially illiterate.

When asked if their customers are preparing for their retirement well, 80, or 73.4 percent, answered their preparedness is “insufficient,” and 11, or 10.1 percent, said “totally lacking.”

Among the subjects, 95, or 87.2 percent, warned workers in their 30s and 40s will experience financial difficulties after retirement unless they change their perception about financial management and make a whole new plan for their life.

It turns out that parental financial illiteracy has a direct influence on children.

The Financial Supervisory Service surveyed the financial understanding of 1,334 teenagers in the Seoul Metropolitan Area last November. They scored an average of 40.11 points out of 100, more than 10 points lower than that of advanced nations. The financial illiteracy of Korea is being passed on to the next generation.

Wan-Bae Lee TK Sohn roryrery@donga.com sohn@donga.com