“We don’t need no education” – or do we?

Posted: 6th Oct 2015

A look at the growing level of unsecured debt in 15-24 year olds.


by Nicola Crothers


If I were to tell you that the biggest increase in unsecured debt over the last 6 years came from young people between 15-24 years old, what would you think? What debt could a 15 year old possibly have? How many 20 year olds really worry about their income and expenditure levels?

Well, according to a report recently released by Citizen’s Advice, this is exactly the case; with the average total unsecured debt of 15-24 year olds growing 10 times quicker than any other age bracket between 2006 and 2012. When we consider that only 45% of this debt growth can be attributed to student loans, what else has caused this huge increase and what is the wider impact?

One of the major after effects of the global recession has been the impact it had upon people’s ability to borrow from banks and other major lenders. Lenders were almost afraid to offer credit amidst such economic instability, which left those who relied on these mainstream forms of credit to tide them over in times of hardship having to look elsewhere – enter the payday loan boom.

In 2014, 62% of all high interest credit taken by under 25s came from payday loan companies – 62%! And this was before recent regulations capping the interest and repayment amounts were introduced. This is a staggering figure and when we consider the interest rate on some of these loans, one well known lender had a rate in 2011 was 4,214% APR, it is very easy to see how this can have a massive negative effect on growing debt levels amongst young people.

The above mentioned regulations were brought in by the Financial Conduct Authority (FCA) and seem to have been very well received, as they have effectively strangled the hold that payday loan companies had over their customers. What’s more, they have been responsible for more than halving the amount of payday loan issues that Citizen’s Advice are now dealing with. As expected, a number of high interest lenders have exited the market since these caps have been introduced.

However, given the dramatic increase in high interest borrowing from young people, surely we must address the issue of why there seems to be the need to turn to this kind of borrowing? Could it be that people simply are not educated enough about money management, borrowing, interest rates and mortgages? This is something the government should be more actively addressing; teaching young people the importance of money, the impact of risky borrowing, budgeting and how to prepare themselves for their financial futures, especially when it comes to mortgages and pensions.

While there are courses available in schools such as the ‘Learning for Life and Work’ from the Council for the Curriculum, Examinations and Assessment (CCEA), this is only compulsory in some schools and in others is not available at all.

Failing to properly teach people the importance of managing their finances and living within their means is contributing to the growing change in attitude to borrowing, with those in debt being linked to a more tolerant attitude to credit in general. Research has shown a direct correlation between debt stress and mental and physical wellbeing. Citizen’s Advice has reported that 78% of their clients struggling with debt have felt anxious or depressed as a result of their financial issues.

The average amount of unsecured debt held by young people now is £12,215, treble its average in 2006 and if the general trend in unsecured lending among all age brackets continues on the path it is going, the level of unsecured lending will surpass what it was pre-crisis by 2020.

With the impact of debt stress on mental and physical wellbeing and the predicted trend in increasing personal debt, it appears that we could be facing a whole different kind of financial crisis in the future.

Bringing in stricter regulations and implementing more stringent processes for credit applications has worked well up to now, however these are more cures than preventative measures. The buck doesn’t stop only with government, the onus is on individuals to be able to manage their own finances and budget their spend to fit within their means. While obtaining credit may be necessary for most people at some point, having the knowledge and capability to manage finances, take out credit sensibly and understand the consequences of mismanaging money, could have a great impact on the attitude to borrowing and debt levels in the future.



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