The financial regulator on Monday extended the advisory period on loans by youths for another year as high-running unemployment in the age group exacerbates their debt loads from non-banking institutions that charge heavier interest rates.
The Financial Supervisory Service (FSS) in February last year had reined in on savings banks that provide loans to college students and other youths by requiring the lenders to inform the borrowers of alternatives from state-run institutions and to set the credit amount with scrutiny depending on the ability to pay back. The advisory, applied to people aged 29 and under, has been extended until May next year, the FSS said.
Financial Supervisory Service in Seoul (Yonhap)
"We had issued the advisory last year to minimize the damage from the high interest rates of non-bank lenders on the youths," an official at the regulator said. "But we see the problem as continuing and decided to extend the period."
A host of state statistics suggests that the financial health of youngsters in or fresh out of college is worsening from the narrow job market. February numbers from Statistics Korea said the unemployment rate for the 15-29 age group hit an all-time high of 12.5 percent, comparable to overall figure of 4.9 percent. The jobless rate for those in their 20s marked 11.9 percent.
According to the Credit Counseling & Recovery Service, the number of people who sought debt workout rose 17.7 percent to 9,519 last year from a year ago in the 20s age group. The "sunshine loans," provided by the service to people starting and operating a business or who need emergency money for their livelihood, to university students and youths leaped to 74.79 billion won ($63.79 million) last year from 14.66 billion won the year before.
Some point to the young generation's lack of information and interest in how the financial system works and how loans affect their personal credit ratings as an issue. A recent survey of 5,873 college students by the Korea Credit Bureau found that 85.1 percent do not know about their credit ratings.
Not having a substantial record of financial transactions, those in their 20s new to the system can easily hurt their credit standings with just a few months of defaults in loan or credit card payments or even utilities, financial officials say.
"Building one's credit is like building one's physical strength," Sohn Seung-ho at the bureau said. "People need to take interest in building their financial transactions. This way, they can safeguard their credit ratings even with a couple of mistakes." (Yonhap)