Tuesday, August 3, 2021

Young generation weighed down by heavy loans

People in their 20s and 30s are suffering from heavier debt, as seen by the rapid increase in their percentage of the country’s total debt; they account for nearly 60 percent of new loans.

According to a recent report from the Korea Institute of Finance, this age group made up less than half, or 49.5 percent, of new loans in 2017. However, their share has been steadily rising, reaching 58.4 percent as of the end of the third quarter of 2020.

In terms of the total amount of new loans, their share increased to 55.3 percent from 42.4 percent three years ago.

The report explained that the increased debt in the age group is mostly attributed to mortgages, which accounted for 64 percent of the 409 trillion won ($461 billion) total, as of the third quarter of 2020.

The paper suggested that young people’s reliance on leveraged investments was another key part of the increased debt. In addition to mortgages, the younger generation was found to be in debt in other areas, including non-bank credit loans.

The total loans given to frequent borrowers ― those obtaining money from more than three financial institutions ― stood at 130 trillion won at the end of last year, an increase of 16.1 percent from 2019.

Due to the increasing amount of debt, the age group’s loan-to-income (LTI) ratio has been aggravated, much more than any other grouping.

Market experts warn that a debt shock for the younger generation could be extreme, particularly if banks decide to increase interest rates.

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