Credit Cards & Loans
‘Soaring debts’ trapping young generations
The number of young adults seeking guidance over debt issues has increased by over a fifth year-on-year, Citizens Advice data shows.
The debt charity received 102,296 visits from 17-24 year olds in the last year, 21 per cent more than the year. It attributes this increase to “exploding” unsecured borrowing among young people, which risks trapping a new generation in problem debt.
Office for National Statistics (ONS) data indicates average total debts of young people grew by over 200 per cent between 2006 and 2012, and the average young person has an unsecured debt of £12,215 – a threefold increase on the average amount (£3,988) held in 2006-2008, prior to the financial crisis.
In addition to increasing volumes of debt, there have been changes in the types of loans taken out by young people. Some 45 per cent of this debt rise is attributed to student loans, but the majority of this increase has been driven by ‘formal loans’ (e.g. bank and payday loans) and informal borrowing from friends and family.
The charity’s analysis shows a fivefold increase in the average formal loan, from £969 to £4,577 over the same period. Loans from friends and family rose from an average of £30 to more than £1000.
Citizens Advice also note shifting patterns in debt – five years ago, credit cards were the primary debt issue referred to Citizens Advice by consumers. Today, council tax arrears top the list.
Young people have an average debt to income ratio of nearly 70 per cent, compared to 34 per cent for 25-29 year olds and 11 per cent for 60-64 year olds, the report adds.
The charity also helps a higher proportion of young people than older groups with Debt Relief Orders, which allow indebted borrowers on low incomes to file for bankruptcy.
The report adds UK households already owe £170bn in unsecured debt and forecasts suggest this could hit £350bn by 2020, as unsecured debt is growing faster than secured debt and incomes.
“A new generation of young people are starting out with stifling levels of debt,” said Gillian Guy, chief executive of Citizens Advice.
“Our research shows student loans account for less than half the debt rise amongst young people, so it is crucial we understand why so many are turning to other forms of unsecured borrowing. Many young people already face challenges getting on the career and housing ladders – doing this while saddled with huge unsecured debts make it an uphill struggle.
“As well as looking for a longer term solutions, it’s important people can get independent advice, guidance and support about how they can manage their finances.”
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