Breaking the Student-Debt Chain: Parental Interest Is the First Step for the Children’s Independence Fund

A South Korean policy proposal envisions a child reaching adulthood with about 45 million won, without needing a student loan to begin independent life. In the example, the government deposits 1.2 million won each year from birth, while a parent with limited income adds small amounts when possible. The projection assumes an average annual return of 6% over 18 years.

The government formally announced the Children’s Independence Fund on May 28 and is now refining its design. The fund would hold investments in the child’s name from birth until age 18, with contributions from both the government and parents. A Financial Services Commission official said the central aim is to help young people from low-income households build enough assets to attend university without student loans.

Support would vary by household income. Families above 150% of median income would receive no government contribution. Those between 50% and 150% would receive one or two times the parents’ contribution, up to 1 million won a year. Families below 50% of median income would receive 1.2 million won annually even if parents contribute nothing, preventing children from being excluded because their parents cannot afford to make deposits.

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We are currently refining the fund’s detailed design.

Once children become adults, they could use the money for university tuition, language study or starting a business. The government is considering financial education to help them manage the funds and a system to move mature accounts into an individual savings account. That would encourage young people to keep using the money as a foundation for building assets rather than spending the entire sum at once.

The government considered automatically opening accounts for the lowest-income families at birth registration, but chose to require parents to apply. Officials pointed to Britain’s Child Trust Fund, which gave seed money to children born between 2002 and 2010. Many later did not know they held accounts. As of April 2024, 670,000 matured accounts remained unclaimed, worth a combined 1.4 billion pounds. Direct applications are intended to create interest from the start and encourage families to manage the accounts over time.

The fund’s investment design remains unresolved. Reaching the government’s illustrative 6% annual return, based on the KOSPI’s average return over the past 20 years, may require broad investment options. Yet the fund’s purpose as a child’s independence capital makes it difficult to raise risky assets without limit. Whether overseas assets, including U.S. stocks, will be allowed is also under consideration.

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Its greatest significance is creating enough assets for young people from low-income families to attend university without student loans.