Hope savings turns into ‘despair savings’

For 31-year-old office worker Mr. A, the 'Youth Hope Savings' program was more than just a financial scheme; it was a beacon of hope. He shared his excitement about the account maturing next month - a result of two years of diligent saving, amounting to a substantial 500,000 won each month, and totaling 13 million won, bolstered by generous government subsidies. This program, notable for its high annual interest rate of up to 10%, combines standard bank rates with government incentives, resulting in an impressive interest return of 1.11 million won - 750,000 won higher than that of a general installment savings account, which offers only a 3% interest rate.

Despite the optimism surrounding the program, the reality for many young savers has been less favorable. At the end of the previous year, a staggering 861,309 accounts were prematurely closed, a significant figure considering the 2.9 million initial subscribers. This high rate of early termination is particularly noteworthy in light of the scheme's initial popularity, which was so immense it even crashed the bank's application server.

The contrast in experiences among these savers is pronounced. Mr. A attributes his successful savings to his choice of enduring long commutes from his parents' home, significantly reducing his living expenses. As a non-regular worker, Mr. A's monthly income slightly exceeds two million won. Had he opted to rent a house near his workplace, he would have faced a monthly expense of at least 500,000 won. In stark contrast, Mr. B, a young man in his 20s, was forced to abandon his savings plan due to the heavy burden of living costs consuming a substantial portion of his modest earnings. He explains, “When my income is low, I earn around 1.2 million won per month, but my living expenses only approach 800,000 won. I can't set aside 500,000 won each month for savings.”

Many savers relied on 'parental support' to meet their savings goals. Amidst the high cost of living, many young individuals found it challenging to manage their expenses solely on their earnings. Consequently, some parents stepped in, depositing 500,000 won into their children's accounts each month to ensure they met the deposit deadline. This scenario created a divide: even among those earning similar salaries, individuals with 'silver spoon' advantages were able to enjoy their income while also reaping the benefits of the savings scheme. This disparity in financial backing led to the resurgence of the term 'Youth Despair Savings.' The account was initially intended for young people with an annual income of less than 36 million won but inadvertently marginalized those with lower salaries who couldn’t afford to save and those with higher incomes but without affluent backgrounds.

Buoyed by the success of the Youth Hope Savings, the government rolled out an extended version, the 'Youth Leap Account.' This enhanced program, featuring a 5-year maturity period, offers the potential to accumulate up to about 50 million won through monthly deposits of 700,000 won. Participants of the Hope Savings program were allowed to transfer their accumulated funds into the Leap Account in one go. However, the Leap Account hasn't garnered the same enthusiasm as its predecessor. In the six months since its launch last June, only 510,000 youths have opened Leap Accounts, which falls short of government expectations and represents just 17% of the projected uptake.

President Yoon Suk Yeol recently implemented measures to stimulate the stock market, articulating a vision of the market as "a ladder of opportunity where anyone can rise based on their abilities." A significant factor behind the unexpectedly high initial subscription to Hope Savings, almost eight times the government's estimates two years ago, was the rapid downturn in the stock and cryptocurrency markets. These markets, once viewed by the 2030 generation as avenues for financial ascent, suddenly lost their appeal. While investing in stocks and cryptocurrencies can potentially yield higher returns, they inherently involve the risk of financial loss. The preference of young people for savings accounts, which offer security without the risk of loss, over riskier investments, despite not being able to afford to wait for the guaranteed interest, speaks volumes. It highlights a pressing need for financial strategies and policies that align with the realities and needs of the younger generation. Only with such an approach can we hope to establish a genuine ladder of opportunity for all.