When I first started working full-time my parents knew that I would have trouble saving without a rigid plan in place. And so they asked me to join a kye.
The Korean kye, which means contract or bond, is a credit rotating system built on trust and honesty. It dates back hundreds of years when it was first used to pay official grain loans and military taxes. Since then, the kye has been transformed to finance small businesses, weddings, and funerals. These days, the kye is not only a financial function but a social one as well, where members meet every month to socialize, choose the winner, and celebrate.
A typical kye has fifteen members who contribute $500 every month. The winner of the jackpot (in this case, $500 x 15 = $7,500) may be determined by lottery or a group vote. The kye will continue until every member has won once, at which the group can choose to disband or start a new kye.
So what happens if someone wins the first one and runs off with the money? This very rarely happens, for two reasons: 1.) you only join kye‘s with people who you trust, and 2.) if you do, you will be a social outcast for the rest of your life. Everyone knows how much Koreans talk and gossip, and we all have families all over the world. Or we know someone who knows someone – unless you run away to remote place with no contact with your previous life, you will get caught and there will be consequences.
I’ve heard of million-dollar kye‘s in LA where people try to run off with the money and get caught. I’ve also heard of $50 kye‘s in Korea among high school girls who pool the money for plastic surgery.
What is in it for the last person to win? Being the last person to win is no different than just saving that money, right? Well, you can do it for social reasons. Or you can change the rules a bit so that the first person to win gets the least money, with the jackpot going up just a bit more each month (similar to an interest-based savings system). This is beneficial to those who need a quick loan (without credit checks or anything added into your credit history), as well as to those who want to earn some interest without the aid of a financial institution.
The kye that I’ve joined will enable me to accumulate enough money over time to pay for a down payment on a house or an apartment. I trust my parents and their friends, and without the money sitting in an account that is easily accessible, I really do think that this is a good financial plan for me, at least in the short run.