[Free Speech Forum] Take a Close Look at the “Youth Leap Account” Aimed at Helping Young People Become Economically Independent

The “Youth Leap Account” has been launched. As a key youth campaign pledge of the Yoon Suk Yeol administration, this product was created to support asset formation among young people, with the aim of giving them an opportunity to build a substantial sum of money at a time when wealth is increasingly inherited and the ladder of social mobility has broken down. By saving for five years, young people can accumulate up to 50 million won, including government contributions and tax-exempt benefits.

At first glance, it appears to be a product with far greater advantages. In fact, it has proven highly popular, with well over 250,000 young people having signed up as of early August. However, it is necessary to soberly consider whether this product, created to help young people achieve economic independence, can ultimately fulfill that purpose.

Let us look at some of the product’s limitations. First, the subsidies provided to young people come from taxpayers’ money. The Youth Leap Account requires a budget of 7.56 trillion won in just one year. That figure could rise further, and it is not a one-time expense. As 2023 has seen the lowest tax revenue collection progress rate since 2000, it is clear that this will place a strain on the national treasury.

Furthermore, it cannot escape criticism as a form of “government-directed finance.” During the product’s launch process, the government pressured banks under the banner of “social contribution.” As a result, banks concerned about negative margins raised interest rates on unsecured loans, producing a balloon effect. There is a need to minimize government restrictions and controls and to guarantee private-sector freedom.

There is also a burden associated with the payment amount and payment period. For young people, whose lives are full of change, five years until maturity may include marriage or buying a home, and because their incomes are low, paying 400,000 to 700,000 won every month may be difficult. This is an era in which securing even a jeonse rental home, let alone one’s own house, is difficult. In fact, the early termination rate of the Youth Hope Savings, launched by the previous administration, reached nearly 24%.

Nevertheless, the Youth Leap Account appears likely to contribute to establishing a desirable economic mindset among young people and helping launch their economic independence. Therefore, a range of policies is needed to compensate for its limitations. The most important is to prepare a reinvestment policy. If the product’s purpose is to help young people build a substantial lump sum, then there must also be policy consideration for the next step—such as deposit products or other measures that help young people continue managing and growing their assets after they have accumulated that money five years later.

Recently, it has become a major social issue that people in their 20s and 30s are even going into debt to join the investment frenzy in stocks and virtual currencies. In such circumstances, if one can simply make steady payments, the Youth Leap Account can serve as a major stepping stone for asset building.

There is no doubt that young people in urgent need of initial asset formation need support. But it is more important to teach them how to fish than to catch fish for them. Young people must not become accustomed to receiving subsidies and turn into dependent members of society.

Policymakers should take the problems of the Youth Hope Savings as a lesson, regularly review the product, and operate it systematically so that it can help young people struggling with livelihood and housing stability to achieve meaningful mid- to long-term asset formation. Young people as well should carefully examine the details of the product before signing up and think seriously about whether it is truly a beneficial choice in light of their current circumstances and roadmap.

Sunho Ha, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대]청년의 경제적 자립 돕는 ‘청년도약계좌’ 잘 따져봐야

Author: Seon-ho Ha

Date: 2023-11-17

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=5&idx=26141