South Korean government helps young people save money by offering high-interest savings account with tax benefits

In the Republic of Korea (South Korea), young generations face challenges in accumulating wealth in fragile social and economic conditions, especially without financial support from their parents. In 2022, the government launched a state-backed savings account program (“Youth Hope Savings Product”) for low-income youth aged 19 to 34. Over 2.9 million youths have registered for the program. In 2023, the newly elected government announced it would replace it with a similar program, “Youth Leap Account,” expanding the eligibility and the maximum amount of possible savings.

With South Korea’s slowing growth and rising inequality, younger generations are becoming more skeptical about chances of social mobility and equality in opportunities. According to the 2021 Social Survey, nearly 60 percent of respondents said “chances of upper social mobility are low in Korea.” In 2006, only 30 percent of respondents had given the same answer.¹ Inequality within younger generations in capabilities to build financial assets such as savings has been pointed out as one of the main problems.

In response to these issues, the government established the Special Policy Plan for Youth in 2021 to enhance younger generations’ future competencies and mitigate inequalities among youth. Part of this plan was the “Youth Hope Savings Product,” established in February 2022.

People aged 19 to 34 with annual wages lower than KRW 36 million (USD 27,928) can register for the program. Registrants can submit a monthly payment of up to KRW 500,000 (USD 388) for a 2-year term, with an annual yield of nearly 10 percent. The yield is almost two to three times the conventional yield of savings products in Korea. The product has been sold via major commercial banks in Korea.²

According to the government’s announcement in March 2023, the Youth Leap Account, to be launched in June 2023, will have a similar structure. However, there are three significant differences. First, the income criterion would be expanded to an annual wage of KRW 75 million (USD 58,184). Second, registrants can submit a monthly payment of up to KRW 700,000 (USD 543) for a five-year term. Third, the annual yield will be higher for registrants in the lower-income band.³

Implementation

In the case of the Youth Hope Savings Product, the Financial Services Committee (FSC) recruited and concluded agreements with thirteen commercial banks interested in participating in the program. The banks offer interest rates of around 5 percent (the specific rate can slightly differ by bank). The total yield of 9~10 percent is rendered by adding:

1. the government subsidies given proportionately to the registrants’ savings (3~4 percent of savings), and
2. exemption on interest tax (around 1 percent of savings).

To secure full benefits, the registrant should not withdraw their savings for two years, but there are no limits on how the registrant should spend the money after the two-year term ends.⁴

Cost

The policy is tax-financed, with a budget of KRW 360 billion (USD 0.28 billion) for the Youth Hope Savings Product in 2022. The 2023 budget is over KRW 700 billion (USD 0.54 billion), for both the Youth Hope Savings Product and the Youth Leap Account. ⁵

Assessment

Since the policy has only recently been adopted and is undergoing significant changes it has yet to be evaluated. However, it is worth noting that the Youth Hope Savings Product enjoyed great popularity among youths in Korea. The government initially expected 380,000 registrants, and had set the budget accordingly, but over two million people applied within two days of the launch. This led the government to increase the budget to cover all eligible applicants. In the end, over 2.9 million people registered for the product.⁶  The fact that the new government plans to launch a similar program also shows the policy’s political sustainability.

The policy is not without doubts and concerns. Some youths seem to struggle to submit their share, with living expenses soaring due to inflation. In January 2023, seven months after the program started, it was reported that almost 300,000 people had closed their accounts.⁷ This could mean that youths in worse economic situations cannot afford to benefit from this program. The long term-time also adds to this dilemma, since the registrants cannot freely use their savings in the account for multiple years. Some commentators have raised concerns about the large budget for this program, predicting a maximum annual budget of KRW 7.56 trillion, given that the demand for the program is high.⁸

Additional Information

Example of the Youth Hope Savings Product:

If the registrant saves KRW 12 million (USD 9,309), they will receive KRW 13 million (USD 10,085, total yield 9.3 percent) after two years. The yield includes the bank interest of KRW 625,000 (USD 484) and government subsidy KRW 360,000 (USD 280), all tax exempt.

More details on application and eligibility-checking

The government and commercial banks advertised the product mostly through online banking apps and social media, considering the youths’ familiarity with these types of media. Each bank took applications from the individuals wishing to participate; then the government checked the eligibility and confirmed whether the applicant can register for the product.

Tags

• Asia & Pacific
• Children & Youth
• High-Income Country
• Income & Wealth
• Low-Income Groups
• Redistribution
• Republic of Korea