Poll Shows Credit Knowledge Disparity

Personal credit has become as important as money these days, but many people in lower income brackets still don’t understand how credit works and are having a difficult time adapting to today’s credit-oriented society, a recent survey revealed.

Just like the “digital divide,” which refers to gap between those who are able to use information and communications technology effectively and those who aren’t due to differing literacy and income levels, the term, “credit divide” is now emerging as well.

Given that the “credit divide” could aggravate Korea’s income disparity problem in the future, social measures need to be taken.

Dong-A Ilbo conducted a joint survey with the Korea Credit Bureau (KCB), a private credit rating agency, of 1,011 males and females 20-59 years old to find out how well they understand financial terms and credit. The results showed that there is a large gap in credit knowledge according to one’s academic background and income.

Finance companies share customer information and will leave a negative record even if a small amount of money is more than five days overdue. Customers are rated based on whether they borrow or not, and at what interest rate.

But according to the results of the survey, only 63.0 percent of people who earn less than two million won per month, and 69.7 percent of people who hold a middle school degree or less said, ‘I leave enough money in a bank account in order not to pay bills late.” A total of 87.4 percent of those who have a monthly income of more than four million won and 83.0 percent with at least a university degree responded that they did so.

People in the low-income bracket and from lower academic backgrounds rarely answered “yes” to the questions: “When I spend money, I have a plan in advance,” and “I have specific goals to make a set amount of money over a specific period of time.”

“People who are unable to make a living should improve their credit rating by taking out loans,” said a KCB head manager. “What is a problem is that they do not manage their credit ratings well.”

The “credit divide” trend, which began in the United States and Japan as they each moved toward a credit-oriented society, is appearing in South Korea.

This problem comes to the fore when we see people who aggressively use financial technology and are rich in credit knowledge.

Among the total number of respondents, 43 people who had a monthly income of more than four million won (35.7 percent) and 16 people who had a monthly income of less and two million won (13.5 percent) responded “yes” to all of the following questions: “I know that finance companies share my credit information”; “I think that sharing information is helpful for me,” and “I intend to invest my money in other areas after borrowing money from banks.”