Strengthening Youth Asset-Building Programs in the Republic of Korea

Since the launch of the Youth Leap Account on 15 June 2023, the number of applicants has soared to 103.6 million by 14 July 2023, reflecting a growing interest in asset-building programs for youth. The Youth Leap Account is a state-backed savings program designed for a five-year maturity period, allowing Koreans aged 19 to 34 to make monthly payments of up to KRW 700,000 ($517). The government provides a basic interest rate of 4.5% for the first three years. Account holders can receive up to KRW 50 million ($36,922), combining preferential interest rates and government contributions upon maturity. Young adults with an individual gross income of KRW 75 million ($55,382.87) or less, and household income at 180% or less of the standard median income announced by the Ministry of Health and Welfare, qualify for the program. After three years, the interest rate converts to a variable rate based on the average difference between the base and preferential rates.

In addition to the Youth Leap Account, the government has various youth asset-building programs. These include the Youth’s Savings Account for Tomorrow, managed by the Ministry of Health and Welfare, targeting low-income youth with a monthly income of KRW 2.2 million ($1,624.48) or less; Benefits for Tomorrow, managed by the Ministry of Employment and Labor, supporting young adults employed in small and medium-sized enterprises (SMEs) in manufacturing and construction industries with 5 to 50 employees; and the Youth Hope Savings introduced by the Financial Services Commission (FSC) in February 2022, targeting young people with a total income of KRW 36 million ($26,581.21) or less. Although the Youth Hope Savings also targets young adults aged 19 to 34, detailed conditions vary by applicant (e.g., military service completion, income scope). The FSC does not allow applicants to apply for both the Youth Leap Account and the Youth Hope Savings simultaneously. However, sequential registration is permitted, allowing applicants to register for the Youth Leap Account after mid-term cancellations and maturity of the Youth Hope Savings.

These asset-building programs aim to:

1. Bridge both intergenerational and intragenerational wealth gaps.
2. Help young people accumulate assets for marriage or childbirth.
3. Provide incentives for young people to join the workforce.
4. Promote stable asset building by curbing excessive leverage and increasing investment in safe assets.

Since these programs are limited to young adults, they can help reduce the generational wealth gap. They also aim to close the intra-generational wealth gap by varying government contributions based on household and earned income. Additionally, these programs can improve the quality of life for youth by aiding their transition to independence, marriage, or childbirth, and promoting social dynamism. They support labor supply and build human capital by helping young people accumulate assets through earned income. Programs like the Youth Leap Account contribute to stable asset building by providing safe and profitable state-backed savings accounts.

While further efforts are required to prevent account holders from terminating accounts prematurely, it is essential to classify the reasons for these terminations and align them with policy goals, rather than focusing solely on the overall termination rate. Mid-term terminations are often driven by expenses related to adulthood, such as independence, marriage, childbirth, investment in assets like stocks, and liquidity for consumption expenditures.

Mid-term terminations prompted by young adults transitioning into adulthood should be considered special conditions, allowing them to use their accumulated funds seamlessly. Currently, the Youth Leap Account offers government contributions and non-taxable benefits for mid-term terminations under special conditions (e.g., death of the account holder, relocation abroad, retirement, business closure, natural disasters, or long-term illness). The purchase of a first home, which aids in transitioning into adulthood, is also recognized as a special condition. However, marriage and childbirth are excluded from these conditions. Including marriage and childbirth would encourage young adults to utilize their funds effectively during these significant life transitions. On the other hand, terminations for alternative investments or consumption should not receive non-taxable benefits or government contributions, as this contradicts the goal of stable asset building. The Youth Leap Account currently allows deposit-secured loans to prevent terminations due to liquidity needs.

The government should enhance efforts to encourage account renewals by aligning savings programs with other asset-building initiatives, such as housing. Surveys show that 55.5% of young participants in asset-building programs aim to save for a house. Linking these programs with housing projects and offering benefits for transferring funds to housing savings accounts upon maturity can help maintain membership. Additionally, measures should be explored to help young people utilize their assets better, such as providing tax credits for transferring accumulated assets to pension savings or Individual Retirement Pension (IRP) accounts. A similar initiative offered a 10% tax credit (up to KRW 3 million or $2205) for young people transferring funds from ISA accounts to pension savings after holding them for less than three years.

Long-term efforts should focus on building an integrated database to connect various asset-building programs. This database would guide young people to select the best-suited products by restricting dual registrations, as each program varies in maturity, benefits, and targets. The website of Korea Inclusive Financial Agency (KINFA) offers information on various state-backed programs through the ‘Consumer Finance at a Glance’ section. Enhancing access to these programs through online platforms like Government24 is necessary. 

A comprehensive database, including applicant characteristics, accumulated assets, and reasons for mid-term terminations, would provide valuable insights for future policies. Moreover, designing policies from the users' perspective through two-way communication is crucial for meeting young adults' needs effectively.

Korea Institute of Finance website.