::A Geek in Korea::

My wife and I went out to a new restaurant in the neighborhood now that our old standby restaurant, Nolboo, has had their service and quality go down tremendously quickly in the past few months. We judge the new restaurant to be acceptable by peering inside. We saw a ton of people eating, and they were all chowing down on a ton of vegetables and side dishes. We went inside and got a semi-private table. We sat on the floor and were separated by a sliding door from the main room, but our room was subdivided by half-walls that blocked us watching people, but didn’t block any of their noise.

The loudest noise was coming from a group of people that were in a sort of Korean investment "club". The group would pay a membership fee to a person each month, then use the money they pool together to go on big nights out. The problem was that each time they elected someone to hold the money for people from month to month that they hadn’t yet spent, the person would run off with the money. The group was arguing about how much each person owed, or who was going to hold the money next time.

My wife’s mother does a similar sort of collective money scheme. 10 people choose to put money into a collective bank account each month. Perhaps they put 100,000 won into the account each month. Then, in a predetermined order, they remove the entire amount when it’s their month. Thus, one month, you remove 900,000 won. The remaining time you pay back into the pot. So, if you had the first month, you’d pull everyone’s money, then spend the next nine month’s paying back the money you got. If you go last, you pay for nine months, then remove that 900,000 won and a bit more for waiting. It’s supposed to compensate you for waiting. The idea is that if you needed money home quickly, say to buy a car right away, but didn’t want to pay interest to a bank, this is a "better" option. It relies on the connections between people in the group to keep people honest and paying each month.

Seeing as how there are perfectly reputable places that do this exact same sort of thing (BANKS) that do the same sort of transactions, I was wondering why people would go to the hassle of doing something that could easily turn into a debacle. It seems that people here are really big into liquidity, and don’t like investment in banks. Perhaps this has something to do with the 1997 financial crisis and a deep suspicion of financial institutions. I’m not sure, but I spent the rest of the evening trying to explain to my wife about what I learned way back in my college finance classes. Phrases like, "The purchasing power of money", and "Risk vs. Reward" were used.

At the time, I thought that Finance was useless, but once I got thinking about the Korean lending/borrowing system, there was a lot of potential to make money and abuse the fact that people don’t know or understand the power of investment. I don’t know if the people setting up these loaning rings are trying to get rich off people that know less than they do, or what.

There is an expression that, "Many hands makes all work light" that is applied to Asian cultures. Collectivism is part of this culture that is very alien to me, coming from an individualistic and independent country. However, I don’t think I’ll let our money go anywhere near a non-insured loaning agent. We’ve heard about people we know getting burned by these plans as well. There is risk, reward, and just plain stupid.