Shopping madness
South Korea's mind-boggling credit card debt problem is not just an economic woe. It is true, of course, that credit card companies and financial regulators should be blamed first for the financial mess that threatens to undermine an already weak economy.
But much of the blame should perhaps go to the irresponsible younger generation which has indulged in a crazed spending spree, with little thought about how to pay back the money. This short-sighted approach casts heavy clouds over the future of not only the economy, but society as a whole.
The problem started at the turn of the millennium when the government tried to revive the economy by encouraging consumer spending. Officials urged credit card companies to expand their business and as a result, they went all out to recruit new customers.
The government also had another objective. It believed that an increase in credit card use would shrink the nation's vast underground cash-based economy, which was often used to evade tax payments.
Credit card companies targeted young consumers, realising they are more susceptible to material temptations. Taking advantage of lax regulations, they tried every marketing ploy. At college campuses and shopping centres, people received approval to become card-holders without thorough checks on their financial status. As a result, credit cards became something that anyone could have, regardless of their credit status. The average South Korean now holds four different cards.
Armed with their plastic, youngsters began to spend like crazy. They bought designer fashion brands and fast sports cars, drank 18-year-old scotch and made frequent trips overseas.
South Korea became one of the most profitable markets for consumer-product manufacturers. The 2000 internet bubble, triggered by the explosion of the Kosdaq stock exchange, added to the spending spree. Everyone dreamed of becoming a millionaire, and no one watched their spending, particularly the carefree young.
Older consumers, however, who remembered the hard times of the Asian financial crisis, were more cautious.
Now the bubble has burst, and it is payback time. Suddenly, internet and information technology companies, rather than hiring workers, began laying off existing staff.
The unemployment rate among college graduates soared to levels only seen during the financial crisis. Those who ran up huge credit card bills now find themselves in dire straits.
About 3.6 million South Koreans are behind on their debt payments, mostly on credit cards. The figure represents a staggering 10 per cent of the population over the age of 15. Credit card companies began to sink under the growing weight of non-performing assets. LG Card, the largest in terms of membership, avoided bankruptcy recently only after an injection of US$1.7 billion in emergency loans from banks. It, and many other credit card companies, have announced painfully sweeping restructuring measures.
In recent years, South Korea's youngsters have been the driving force behind the nation's democratic progress. They fought against the police and authoritarian rulers on the streets and, as a result, brought democracy to the country. With the election of their mentor, Roh Moo-hyun, to the presidency last December, they have become a new power group, involved in bold social and political reforms.
Their economic track record, however, leaves much to be desired. In fact, the credit card debt crisis makes one question whether they are responsible enough to become the pillar of society.
