Youth savings schemes leave Korea’s most vulnerable savers behind
A National Assembly report finds young Koreans with low or unstable incomes are most likely to lose government benefits after quitting savings plans early.
A notice about Youth Future Savings (translated) is displayed at Woori Bank's headquarters in Jung District, central Seoul, on June 29.YONHAP
Nearly three-quarters of the young Koreans who quit the government's flagship savings scheme had been saving less than 300,000 won ($213) a month, a National Assembly research institute said Wednesday.
The country's asset-building programs deliver most of their benefit to the people who need it least, the National Assembly Futures Institute said in a report.
Savers who can afford more hold their accounts to maturity and collect the full government top-up. Those who cannot pay in small amounts or drop out before the term ends forfeit both the contribution and the tax exemption on their interest.
The report examined the Youth Leap Account (translated), a five-year scheme launched in June 2023 that stopped taking new subscribers last year. Savers could pay in up to 700,000 won a month and finish with about 50 million won, including government contributions and tax-free interest.
As of July last year, 39.4 percent of those who closed their accounts early had been paying in less than 100,000 won a month. Another 20.4 percent were in the 100,000 to 200,000 won band and 13.9 percent in the 200,000 to 300,000 won band. Just 0.9 percent had been paying the 700,000 won maximum.
The share of account holders quitting before maturity has been climbing, from 8.2 percent at the end of 2023 to 15.9 percent a year later.
"Low-income, unemployed and irregular young workers have the greatest need for support in building assets, yet a regressive incidence is occurring in which they are repeatedly pushed out at both the entry and the retention stages," Kim Bong-seop, an associate research fellow at the institute's Population Center, said.
Access is uneven before the saving even starts. A 2022 Seoul Youth Panel survey cited in the report found that 22.2 percent of young people in regular employment had taken part in an asset-building program, against 18 percent of those in temporary or daily work and 12 percent of those on nonstandard contracts such as delivery riders and insurance agents.
A poster for the Youth Leap Account (translated) hangs at a remote consultation center for the scheme in Jung District, central Seoul, on July 3, 2023.NEWS1
The main schemes, including a program that translates roughly to "the Youth Future Savings Account," require proof of employment or business income to open an account, which shuts out jobless young people and those looking for work before they can apply.
About three in 10 subscribers to the Youth Leap Account and its predecessor, the Youth Hope Savings Account, failed to reach maturity, the report said. The most common reason was job loss or a drop in income, at 39 percent, followed by a need for emergency cash, at 33.3 percent.
The concern is that the successor savings scheme repeats the design. Youth Future Savings, which went on sale on June 22, runs for three years with a monthly ceiling of 500,000 won. The government adds 6 percent of what a saver pays in, or 12 percent for those who qualify for the preferential tier.
That tier favors lower earners, but because the contribution is proportional to the amount deposited, paying in less means receiving less, and quitting early means losing most of the benefit.
Of the 2.34 million people who applied in the first round, 1.55 million cleared the income screening and 1.39 million went on to open accounts, the Financial Services Commission said Monday. The commission and the Korea Inclusive Finance Agency are considering a further enrollment period in September after inquiries continued from young people who missed the first round.
Financial Services Commission Chairman Lee Eok-won, right, hands out coffee to young commuters near the Shinhan Bank building in Seongdong District, eastern Seoul, on June 22, promoting Youth Future Savings (translated) on the day applications opened.NEWS1
The report argued that raising participation among low earners is not enough on its own, and that the schemes need to be redesigned so savers can actually reach maturity. It proposed letting savers suspend and later resume payments after job loss or a fall in income, and allowing partial withdrawals in an emergency.
It also recommended preserving part of the government contribution where an early exit is unavoidable, and opening the schemes to unemployed young people who are job hunting or in vocational training.
"The paradigm of youth policy needs to shift from how much support was provided to whom the effect actually reached," Kim said.
BY KIM DA-YOUNG [cho.yongjun1@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
