Why the Korean MZ Generation is Flocking to the Investment Market
"working [but] not being able to buy a house."
Korea's MZ generation has developed a strong interest in the investment market. The MZ generation refers to young people in their 20s and 30s, which encompasses millennials born in the early 1980s and early 2000s, as well as members of the Z generation born in the early 2000s.
Young Koreans are spending more than twice as much money on stocks as they did in 2020. These young, ambitious Koreans are even pioneering a new investment market called Resell. They do not hesitate to invest in debt.
Why have Korea’s young people collectively entered the investment market in recent years? It is not because young people are simply interested in investing. This recent phenomenon is complicated by significant socioeconomic factors in Korean society, including income gaps between jobs, rising housing prices, and inequality.
Korea’s MZ Generation Investing in Stocks, Sneakers, and Cryptocurrency
Until quite recently in Korea, stock investors evoked an image reminiscent of a desperate loser. Today, if you don't invest in stocks, you're considered a fool in some circles. The entry rate of young Koreans into the investment market has increased significantly in recent years. Investment stocks are diversified into domestic stocks, U.S. stocks, and cryptocurrencies.
According to the "Status of Private Investors' holdings in December 2020," announced in April 2021 by the Korea Securities Department (KSD), Korea's only deposit agency, 3 million Koreans began investing in stocks in 2020, accounting for 53.5% of investors under 30. Additionally, 64% of investors in their 20s and younger who are currently investing in stocks started investing in 2020. Among investors in their 30s and younger who are currently investing in stocks, 41% started investing in 2020.
Investors in their 30s had 33.6 trillion won ($308.57 million) in stock holdings, 98% higher than in 2019, representing a significant increase compared to other age groups. Data from six securities firms, including Mirae Asset Daewoo, KB Securities, NH Investment & Securities, Korea Investment & Securities, Kiwoom Securities and Yuanta Securities, also showed that many Koreans in their 20s and 30s opened securities accounts in 2020. The account opening rate for those in their 30s topped the list at 27.6%, followed by those in their 20s, at a rate of 26.6%.
The MZ generation's entry into the cryptocurrency investment market is also noteworthy. According to a "virtual currency app market analysis report" released in March 2021 by big data platform company Igaworks, people in their 20s and 30s accounted for more than 59% of the app users of Crypto Exchange as of February 2021.
Members of Generation MZ have not only recently entered existing investment markets, but have also pioneered a new investment market called 'Resell.' Resell is a new financial technology firm that buys limited edition sneakers, limited edition luxury goods, Legos, and stars' goods at high prices. Ninety Percent of users of South Korea's limited edition sneaker exchange, "Out of Stock," are in their 20s and 30s. Why have young Koreans collectively turned to the investment market?
Behind Their Investment Is the Income Gap between Jobs
The investment craze among young Koreans began with the despair of "working [but] not being able to buy a house." Typically in Korea, young wage earners bought a house with money saved from earned income as a natural way of life. However, the income gap between jobs in Korea has widened day by day, and it is becoming increasingly difficult for most young people who have not secured good jobs to raise money through labor in order to purchase a home.
According to a report published by the Korea Small Business Institute (KOSBI) in March 2021, the average monthly wage of small and medium-sized companies (SMEs) with 5-499 full-time workers was 3.377 million won in 2019, which represents 59.4% of the average wage of 5.69 million won for large companies with 500 or more workers. Twenty years ago, in 1999, SMEs workers received 71.7% of the wages of large companies.
The opportunity for quality jobs is limited in Korea, and this piece of the pie is growing smaller with each passing year. According to Statistics Korea (KOSTAT) data, in 2018, 17.1 million workers in small and medium-sized enterprises experienced low wages and poor treatment in Korea. On the other hand, only 3.48 million workers, or 20% of small and medium-sized companies, are employed by large companies.
As of March 2021, Korea's youth unemployment rate stood at 10%. This is due to the widening wage gap between jobs and fierce competition to secure well-paying jobs. More young people have prepared for recruitment tests to obtain high-quality jobs, such as large companies and state-run companies, or have given up their job search due to firms’ narrowly focused recruitment efforts.
Even if a young Korean manages to save a small amount of money from his or her salary, it is difficult to amass a lump sum sufficient to purchase a home because of the low interest rates. Consistent with the global low interest rate trend, the benchmark interest rate recently announced by the Bank of Korea, the central bank of Korea, stood at 0.5% annually, contrary to the 15-25% rates in the 1980s and 1990s, when parents of the current generation of MZs were saving.
Housing Prices Are Rising Much Faster than Incomes
The huge increase in housing prices has caused young Korean men to make a decisive decision to revise their typical life path: "Buy a house with money earned from work." Housing prices in Seoul, the capital of South Korea, have sharply risen by more than 20 to 40% in recent years. As a result, the gap between young people's low earned incomes and housing prices has widened substantially.
According to the "Monthly Housing Price Trends" data released by KB Kookmin Bank in April 2021, the average price of small apartments under 60㎡ was ₩767.89 million (approximately $687,149) as of March 2021. This is up 22% from ₩625.97 million ($560,152) a year ago. It is important to note that the average price in 2021 has doubled from ₩382.02 million ($341,852) in May 2017, about four years ago.
As apartment prices rose steeply, the period of time young people had to prepare to buy a house increased rapidly. As of the fourth quarter of 2020, the price-to-income ratio (PIR) amounts to 12.8 years. PIR is data calculated using borrower data received from KB Kookmin Bank. It represents the time it takes for middle-income earners to save money in order to buy a median house without spending a penny. Considering the fact that the PIR in the second quarter of 2017 was only 8.8 years, and stood at 7.4 years in the first quarter of 2008, when the statistics were first calculated, it is obvious that this figure has increased significantly in recent years.
Since the 12.8 years mentioned above were calculated on the premise that middle-income earners would not spend any salary, it would take much more time to buy a house than 12.8 years, assuming that they would actually spend it on living expenses. In summary, the scenario of working hard to save money and buy a house for young Koreans has deteriorated into an old story that is becoming increasingly out of reach.
Young People Desperate for Reality, Seeking Hope through Investments
Young people in despair have turned their eyes toward the investment market. Recently, the stock market has been booming due to the global liquidity supply, and Korea's MZ generation is looking with hope to the investment market.
Due to the investment craze of young people, two new terms have been coined: "Youngkkeul," which means buying a house by lending souls, and "bit too," which means I also invest in debt. According to data received by Jang Hye-young, a member of the National Assembly's Strategy and Finance Committee, the balance of credit loans of Koreans in their 20s was 379.8 billion won as of August 2020, more than double (133.8%) the figure of 162.4 billion won in August 2019.
In response, lawmaker Jang Hye-young said, "A lot of money flowed into the stock market as stock prices soared in 2020, but many people in their 20s flowed into the stock market to the point where it was difficult to express that there were many." Jang Hye-young added, "The cause is not hantangism, but anxiety about consolidated inequality and [the] widening asset gap."
[by Sejin Kim]
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