High Interest Rates Hit Young People Hardest

A sharp increase in interest rates since 2021 has hit younger Koreans hardest, a study by the Korea Development Institute shows.

Spending among consumers in their 20s declined by almost W900,000 per person annually, the biggest plunge among all age groups (US$1=W1,336).

"For every one-percentage-point increase in interest rates annual spending by indebted consumers in their 20s fell by around W299,000," the institute said.

The Bank of Korea has hiked the base interest rate from 0.5 percent in 2021 to 3.5 percent, so private spending by people in their 20s declined by W897,000, compared to W204,000 among people in their 30s, W155,000 in their 40s, W85,000 in their 50s and W36,000 in their 60s or above.

The main reason is that younger people are saddled with much higher housing debt if they have just bought an apartment.

Among indebted Koreans aged 20 to 39, housing debt accounted for 82.4 to 85 percent, whereas for people over 40 it was between 63.6 percent and 73.1 percent.

That means young people have no choice but to cut down on other spending to service their rising debts. Also, younger people typically earn less than older age groups and faced difficulties because they do not have any other assets and it is difficult to borrow more money.

"The government should come up with measures to give young borrowers a chance to repay their loans more easily, for example in long-term installments."