A stock market correction does not usually lead a government to introduce a nationwide debt counselling service.
But that is exactly what South Korea is preparing to do after a sharp market sell-off left thousands of retail investors grappling with heavy losses from leveraged stock market investments. The government has announced that it will launch the 1375 debt consultation hotline in October to assist people facing financial distress, saying the initiative is aimed at preventing financial problems from escalating into a wider social crisis.
The move follows a dramatic reversal in South Korea's stock market that wiped out billions of won in investor wealth, triggered hundreds of thousands of forced liquidations and highlighted the dangers of investing with borrowed money.
The episode has underscored how excessive leverage, combined with market volatility, can have consequences extending beyond financial markets and into people's savings, homes and long-term financial security.
WHEN YEARS OF SAVINGS VANISH
The scale of the losses is reflected in accounts shared by retail investors on social media.
Several South Korean investors described losing savings earmarked for apartments, weddings and other major life goals after the market turned sharply lower. While these accounts have not been independently verified, they illustrate the human cost of the correction.
One investor, using the X handle "fintechgirl", said 300 million won set aside for an apartment instalment was lost after speculative stock market investments went wrong.
The investor explained that the family had spent 15 years saving enough money to buy a home in Dongtan and had already paid the down payment. Encouraged by stories of quick profits in Samsung Electronics, they invested the remaining funds meant for the next instalment in the stock market. Although the investments initially generated substantial gains, the rally soon reversed.
"I blew away 300 million KRW of hard-earned money meant for my apartment installment payment. I feel like dying," the investor wrote, describing how fear of missing out eventually led to increasingly risky investments before the market collapsed.
Another investor, posting under the name "Jack & Jong", described the downturn as the biggest financial setback of a lifetime.
"I've experienced the biggest loss of my life. Two-thirds of my assets, including profits and principal, went up in smoke. Years of saved earnings and even loan money vanished," the investor wrote, while encouraging others not to lose hope despite the losses.
A third investor said nearly 60 million won had disappeared within a month after failing to trigger a stop-loss despite having several years of trading experience. The investor said the losses wiped out years of accumulated gains and shattered confidence in returning to the market.
These personal accounts help explain why South Korean authorities are treating the issue as more than just a market correction.
HOW A MARKET RALLY BECAME A DEBT CRISIS
South Korea's benchmark KOSPI index had rallied strongly over the past year, driven by optimism surrounding artificial intelligence and semiconductor companies.
As stock prices climbed, borrowing to invest also surged. Outstanding margin loans reached a record 38.63 trillion won in late June, according to market data cited by analysts.
However, when the market reversed, leverage that had previously magnified profits rapidly amplified losses.
Investors who purchase shares using borrowed money must maintain a minimum level of equity in their trading accounts. If the value of their holdings falls below the required threshold, brokerages issue margin calls asking investors to deposit additional funds. If they fail to do so, brokers automatically liquidate their positions to recover outstanding loans.
This process triggered widespread forced selling during the recent correction.
Market estimates indicate that retail investors suffered leverage-related losses of around 2.15 trillion won within a month. More than 320,000 trading accounts were reportedly liquidated, with investors in their 20s and 30s accounting for nearly 62% of those affected.
The forced liquidations also accelerated the market decline. As brokerages sold investors' holdings, additional selling pressure pushed prices even lower, triggering fresh margin calls and another round of forced sales.
Analysts at Goldman Sachs estimated that retail ETF rebalancing contributed as much as 62% of institutional net selling on certain trading days during the correction, illustrating how leveraged positions can intensify market volatility once prices begin falling.
WHY THE GOVERNMENT IS INTERVENING
Rather than viewing the episode solely as a financial market event, South Korean authorities have focused on its broader impact on households.
The government has announced that the nationwide 1375 debt consultation hotline will begin operations in October to provide financial counselling and debt support for people facing financial difficulties. Officials said the objective is to prevent financial distress from evolving into wider social problems.
Authorities are also expected to introduce additional restrictions on leveraged investment products following the recent market turbulence.
The government's response reflects growing concerns that excessive borrowing by retail investors can create risks extending well beyond the stock market.
THE KEY LESSON FOR INVESTORS
South Korea's experience serves as a reminder that leverage can significantly magnify both profits and losses.
During rising markets, borrowed money can boost returns. However, when markets decline, those same leveraged positions can quickly become liabilities, forcing investors to sell assets at the worst possible time.
For policymakers, the recent turmoil has demonstrated that excessive leverage is no longer just a market concern. When large numbers of households are affected, it can evolve into a broader financial stability issue requiring government intervention.
For investors, the takeaway is straightforward: market corrections are temporary, but excessive borrowing to chase rising markets can leave financial scars that last far longer.
