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He was told that people who earn less than 50 million won ($47,390) a year can use the fund, which would save him up to 2.4 million won in taxes at the end of the year.
Park, who makes about 1.7 million won a month, was interested in creating an account because such programs have become rare since the government overhauled its tax code last year.
But he lost interest when he found out that in order to get the tax deduction he would have to pay into the account for the next five years.
“Since I have no idle money and I need to spend money to prepare for marriage, I can’t put aside money for such a long period,” Park said.
The account was created last month to help young people and low-income earners save money while breathing life into the stagnant capital market.
But the public has had a lukewarm response to the fund.
According to the Korea Financial Investment Association, in the first week after the fund was launched, 55,702 people opened accounts. In the second week, the number fell to 42,585. Data by the National Tax Service shows that about 7.8 million people nationwide earn less than 50 million annually, accounting for 74 percent of the population.
Before the launch, the association predicted that about two million people would subscribe to the fund.
The popularity of the so-called “property accumulation savings” account is also waning. The account, which is tax exempt if it is kept open for seven years with a designated cash deposit requirement, was reintroduced by the government last year. After aggressive marketing efforts by banks, the number of subscribers to the savings account hit 1.82 million in August, but the number fell by 10,000 each month. In February, 1.73 million people had signed up for the account.
The fund created by the government last month, called the “property accumulation fund,” faces the same fate. The government is being blamed for failing to realize that the financial situations of young Koreans changed significantly after the 2008 global financial crisis.
Due to low interest rates, young people are now saving an average of around 3.5 percent of their income per year. As stock prices remain sluggish, stock-based funds have dropped an average of 9 percent in the past three years. The market structure has changed, and consumers can’t expect high yields like in the late 1990s.
Young Koreans of the so-called “Ikea generation” have values different to those of their parents.
The Ikea generation label is a reflection on the Swedish furniture brand’s fast fashion that’s cheap and easy to replace. Young Koreans now tend to spend rather than save.
Due to unstable conditions in the labor market, Koreans in their 20s and 30s are making less money than what they had expected. They are irritated because although they grew up in an affluent household while their parents enjoyed a boom in the late 90s, they can’t continue their consumption habits once they leave home.
“There is not much room for young people to build savings while spending on increasing housing and mobile fees out of less than 50 million won,” said Kim Jae-cheol, a researcher at Capital Market Institute. “Such five-year or seven-year funds do not appeal to them in their current situation.”
He added that if long-term savings funds are going to work, the government needs to raise the income ceiling or decrease the number of subscription years to make them more appealing.
“To regain the interest of potential investors, financial institutions need to develop stable funds and customized services for young people,” said Kim Eun-mi, a researcher at Korea Investors Protection Foundation.
BY CHO MIN-GEUN, SONG SU-HYUN [ssh@joongang.co.kr]
