A 27-year-old surnamed A, who recently joined his first company, decided he needed to start managing his assets but felt lost about where to begin. With savings account rates disappointing and his investment experience limited, he found it difficult to decide which financial products to choose.
On June 22, the government launched the Youth Future Savings program to support wealth building among young people. It is a policy-driven financial product designed for the state and financial institutions to jointly help young people build a lump sum.
Eligible applicants are aged 19 to 34. For those who have completed military service, their service period is excluded from the age calculation for up to six years. The product is a three-year flexible installment savings plan that allows monthly deposits of up to 500,000 won.
Subscribers are divided into standard and preferential types based on income and qualification requirements. The standard type applies to those with total annual salary of 60 million won or less or comprehensive income of 48 million won or less, and to small business owners with annual revenue of 300 million won or less. The preferential type applies to young people working at small and medium-sized enterprises with total annual salary of 36 million won or less or comprehensive income of 26 million won or less, as well as small business owners with annual revenue of 100 million won or less. Detailed income criteria, such as those for new hires at SMEs, may differ by type, so confirmation is needed before applying.
Even those who do not fall into either type can receive only the interest income tax exemption benefit, without government contributions, if their total annual salary is 75 million won (or comprehensive income of 63 million won) or less.
However, to apply, applicants must meet not only their own income requirements but also household income standards. The standard type targets households at 200 percent or less of the median income, while the preferential type targets those at 150 percent or less.
The base rate is 5 percent annually, and adding each financial institution's preferential rate brings the rate to as high as 7 to 8 percent annually. Adding government contributions and the interest income tax exemption, standard-type subscribers can expect an effect similar to enrolling in a simple-interest savings product yielding 13.2 to 14.4 percent annually, while preferential-type subscribers can expect 18.2 to 19.4 percent annually. By steadily depositing the maximum monthly limit of 500,000 won over three years, standard-type subscribers are expected to be able to accumulate about 21.1 million to 21.38 million won, and preferential-type subscribers about 22.27 million to 22.55 million won, depending on the rate level.
The size of government contributions and the conditions for preferential rates may vary by subscription type, income requirements, and the financial institution used. Rather than simply looking at the highest rate, it is advisable to confirm whether the conditions are actually attainable for oneself.
In addition, existing Youth Leap Account subscribers now have a temporary path to convert to the Youth Future Savings program. However, the two products are somewhat different in nature. While the Youth Future Savings program focuses on building a lump sum over three years, the Youth Leap Account is closer to a product that supports wealth building over a longer period. Since the advantages and disadvantages may differ depending on the current deposit period, expected payout amount, and future financial plans, it is best to compare and find the option suited to oneself.
The value of the Youth Future Savings program lies in how the first lump sum accumulated at maturity is used. This is because building a lump sum is not the end but can be the starting point for subsequent asset management. New members of society often agonize over where to place their funds after building a first lump sum. Running funds mainly through deposits may limit opportunities to grow returns further, while jumping recklessly into investing without experience can also be burdensome. At this point, one method is to use an ISA (Individual Savings Account), which allows people to experience both tax savings and various investments together.
An ISA allows deposits of up to 20 million won per year, with a mandatory subscription period of three years. For operating returns generated within the account, a tax exemption applies up to 2 million won for the standard type and up to 4 million won for preferential types such as the low-income and farmer-fisher types. Returns exceeding the tax-exempt limit are also subject to 9.9 percent separate taxation after offsetting gains and losses, offering tax-saving effects.
If the matured funds from the Youth Future Savings program are diversified through an ISA into various assets such as deposits and installment savings, bonds, and ETFs, an advantage is that asset allocation matched to one's investment disposition is possible along with tax-saving benefits.
If surplus funds arise or one considers year-end tax settlement savings benefits, using an IRP together is also a good method. Since the tax deduction for IRP deposits can be received immediately from the year of deposit, starting early from the new-member-of-society stage can yield long-term tax-saving effects. If asset management that begins with the Youth Future Savings program extends to the use of tax-saving accounts such as the ISA and IRP, it can become an occasion to lay the foundation for wealth building.
