Financial Vulnerability: Insights from Economic Migrants in South Korea

The previous post highlighted the case of migrant workers falling under the category of economic migration, as defined by the World Bank. Economic migrants, as defined by the World Bank, often migrate in pursuit of higher income opportunities compared to the average income levels in their home countries. This disparity is a significant motivator for migration, providing new financial possibilities but also exposing migrants to unique risks and vulnerabilities.

Financial Growth and the Risks of Rapid Change

Studies consistently show that higher income levels encourage individuals to use financial tools to manage their income. For example, the OECD/INFE 2020 International Survey of Adult Financial Literacy highlights that individuals with higher incomes are more likely to engage with financial products, such as savings and investments, due to increased capacity and awareness. Similarly, the Global Findex Database 2021 by the World Bank emphasizes the role of higher income levels in fostering the adoption of digital payment systems and other financial tools.

For migrants, however, this shift often introduces unfamiliar financial landscapes. While their financial activities may have previously focused on earning and spending, increased earnings bring more complex decisions. These might include saving in checking or savings accounts, sending money to family, or even lending funds to relatives. Such transitions, while opening financial opportunities, also expose migrants to risks inherent in the financial system, particularly without adequate protection or education.

Understanding Migrant Vulnerability

The finance sector is inherently risky, necessitating robust financial consumer protection policies. Such policies address risks that are unlikely to be mitigated through the voluntary actions of financial institutions. Moreover, the ongoing digital transformation in finance has introduced new considerations for consumer protection, particularly for vulnerable groups like migrant workers.

Migrants are often deemed vulnerable in socio-economic contexts, and their vulnerability can be defined across several dimensions. A recent study explores these complexities through four aspects of vulnerability—risk, capacity, autonomy, and dependency:

Risk: Migrants face heightened exposure to hazards such as discrimination, violence, and human rights violations due to their marginalized or displaced positions. These risks are shaped by systemic inequalities and legal frameworks.
Capacity: Migrants' vulnerabilities stem from limited capacity to cope with or recover from harm. These limitations are influenced by broader societal and structural conditions.
Autonomy: Vulnerability often implies diminished autonomy, where socio-political hierarchies constrain migrants' ability to participate equally in society.
Dependency: While dependency is often viewed negatively, it reflects the relational nature of vulnerability. Structural and situational factors exacerbate migrants' dependency but can also enable collective agency and resistance.

These vulnerabilities can be categorized further into innate, situational, and structural frameworks, emphasizing the complexity of challenges faced by economic migrants.

Innate Vulnerability: Defined by inherent characteristics such as age, gender, disability, or chronic medical conditions, innate vulnerability positions certain groups as naturally more vulnerable. While this framework often informs protective policies, it risks oversimplifying migrants' experiences by ignoring dynamic and relational factors.
Situational Vulnerability: This framework views vulnerability as resulting from specific circumstances or experiences. Migrants may face situational vulnerability due to unsafe migration processes, irregular migration statuses, and exclusion in destination countries. It highlights the dynamic nature of vulnerability and the importance of contextual interventions.
Structural Vulnerability: Structural vulnerability focuses on systemic factors that perpetuate inequality. Migrants often face structural barriers such as legal exclusion, economic exploitation, and systemic racism. Addressing these vulnerabilities requires targeting the underlying power dynamics and inequalities.

Recent Case Studies in South Korea

Recent news coverage on migrant workers in South Korea has revealed compelling insights into their financial vulnerabilities. By examining specific cases, we can illuminate the complex challenges faced by economic migrants, particularly through the lens of financial exclusion and systemic barriers.

Case 1: Financial Autonomy Challenges Among Migrant Workers

Summary: In Jeonnam Province, 4 out of 10 migrant workers have their salary accounts managed by their employers. Many workers are unaware of the existence of these accounts, highlighting significant gaps in financial autonomy. According to the 2024 Survey on Migrant Workers in Jeonnam conducted by the Gwangju Human Rights Office and the Jeonnam Labor Rights Center, the average monthly wage for migrant workers was about 2,598,000 KRW, with accommodation costs being the largest expense. Approximately 20.5% of workers were unaware of deductions, and 71.1% experienced wage delays of 1 to 3 months. Discrimination from Korean workers (77.3%) and communication barriers were also noted as critical issues. This calls for institutional and legal measures to address these violations. (Source: "4 out of 10 Migrant Workers Have Their Salary Accounts Managed by Their Employers" - Gwangju Ilbo)

The 2024 survey in Jeonnam Province revealed that 4 out of 10 migrant workers have their salary accounts controlled by their employers, often without the workers' full understanding or consent. These findings, published by Gwangju Ilbo, highlight severe gaps in financial autonomy and regulatory protections.

Figure 1. Salary Account Management Among Migrant Workers in Jeonnam Province, South Korea (2024)

Source: Gwangju Ilbo

Key Vulnerabilities Exposed:

Structural Vulnerability: The legal framework allows employers to exert unprecedented control over workers' financial resources. This systemic power imbalance creates an environment where wage theft, unfair deductions, and financial manipulation become possible. The lack of robust regulatory protections transforms employment relationships into mechanisms of economic control.
Situational Vulnerability: Migrants' dependence on employers for housing, visa sponsorship, and job security forces them into a precarious position. Language barriers and limited awareness of their rights further entrench their vulnerability, making them susceptible to exploitative practices. Their situational context fundamentally limits their ability to challenge unfair treatment.
Autonomy Compromise: With employers managing salary accounts, workers lose basic financial agency. They are stripped of the fundamental right to independently manage their earnings, creating a dependency that extends beyond the workplace and into their most personal financial decisions.

Case 2: Financial Invisibility and Systemic Neglect

Summary: Despite the foreign population in South Korea exceeding 2.6 million, financial authorities do not track loan statistics for migrant workers. The Yoon administration has established an inclusive finance body, but no concrete policies have been proposed for foreign residents. Financial institutions report a steady increase in foreign customers, but the precise size of the foreign loan market remains unclear. Critics argue that this oversight highlights systemic neglect, as migrants’ financial behaviors and needs are not accounted for in official data. This lack of monitoring leaves migrant workers reliant on informal lending options, exposing them to greater risks of exploitation and economic instability. (Source: The statistics for loans for migrant workers are not being tracked… The Yoon government’s inclusive finance is just words" [260,000 low-income finance] - E-Today)

Despite South Korea’s foreign population exceeding 2.6 million, financial authorities lack comprehensive data on loans for migrant workers. As reported by the article, this oversight leaves migrants reliant on informal lending, exposing them to higher risks of exploitation and economic instability.

Figure 2. New Foreign Customers in 5 Major Banks in South Korea (2021-2023)

Source: E-Today

Figure 3. Proportion of Foreign and Korean Borrowers and Loan Balances (2020)

Source: E-Today

Key Vulnerabilities Revealed:

Structural Vulnerability: The complete absence of loan statistics for migrant workers represents a profound institutional failure. The Yoon administration's inclusive finance body appears more performative than substantive, with no concrete policies addressing the financial needs of foreign residents. This systemic neglect effectively renders migrant workers invisible within the financial infrastructure.
Situational Vulnerability: Denied access to formal credit systems, migrants are forced into precarious financial arrangements. The lack of tracked loan data means they cannot build credit histories, create financial stability, or access traditional financial products. This situational constraint pushes them towards informal, potentially exploitative lending networks.
Risk and Capacity Vulnerability: Without formal financial recognition, migrants face significantly higher risks of economic exploitation. Their capacity to recover from financial shocks is dramatically reduced, creating a cycle of economic marginalization that extends beyond individual experiences.

The implications are deeply consequential. Financial institutions report increasing numbers of foreign customers, yet the precise characteristics of the migrant loan market remain unknown. This invisibility is not merely an administrative oversight but a systemic mechanism of economic exclusion.

Migrants find themselves in a paradoxical position – contributing significantly to the economy while simultaneously being pushed to its margins. Their financial identity is systematically erased, limiting their ability to build economic resilience, save for the future, or invest in long-term stability.

Further Considerations for Public Policy and Financial Institutions

To foster a healthier financial status among economic migrants who earn higher incomes, further measures must be considered. Both policymakers and financial service providers in markets have critical roles to play, particularly in three interconnected areas:

Financial Consumer Protection: Economic migrants often face exploitative practices, such as employer-controlled salary accounts and unclear wage deductions. Policymakers must enforce robust regulations to eliminate such practices and establish accessible grievance mechanisms, ensuring that workers have the means to report and resolve financial abuses. For financial service providers, adopting transparent practices is key. Tailored customer support that caters to the specific needs of migrants, coupled with fairness in the design and operation of digital financial services, will build trust and safeguard the financial autonomy of this vulnerable group.
Financial Education: With higher incomes, economic migrants encounter new financial opportunities and risks. Policymakers can support their financial well-being by implementing multilingual financial literacy programs and partnering with NGOs to deliver targeted educational initiatives. These efforts should aim to equip migrants with the knowledge to navigate complex financial systems, make informed decisions, and avoid exploitation. Financial service providers, on the other hand, can play a pivotal role by collaborating on educational campaigns. These campaigns should emphasize the safe use of financial products and highlight the advantages of formal banking systems, empowering migrants to better manage their growing financial resources.
Financial Inclusion: Financial inclusion is essential for enabling economic migrants to achieve long-term stability and security. Policymakers should prioritize the design of financial products that address the unique needs of this group, including low-cost remittance services, microloans, and savings plans tailored to their circumstances. Financial service providers must innovate flexible products that accommodate the specific realities of migrant life, such as irregular income patterns and cross-border financial needs. Expanding outreach efforts to build trust and engagement within migrant communities will further ensure that financial services are accessible and meaningful.

Migrant workers encounter complex financial vulnerabilities, shaped by their unique circumstances and systemic challenges. Addressing these issues demands a collaborative and multi-faceted approach involving robust policy measures, tailored financial products, and systemic reforms. By prioritizing financial consumer protection, education, and inclusion, we can empower economic migrants to achieve resilience and equity in financial systems.

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