Debt’s just the way it is

Written by Rebecca O'Connor on 13th July 2016

The country has just set in motion a monumental shift in its economic and political structure.

Yet it appears we have not yet recovered from the last shift: the credit crunch, back in 2008.

And the people that are still bearing the brunt of THAT one are young people.

How are they bearing the brunt?

By being in almost permanent debt.

Why is that the credit crunch’s fault?

While older generations spurned debt and frowned upon credit, their grandchildren are being forced to accept it as normal and essential to their lives. That’s to do with its availability, but also because the cost of everything now builds into it an expectation that debt will be taken out to afford it: buying a house (mortgages), for instance, or going to university (student loans).

This enforced debt is one of the consequences of the reduced borrowing rates and quantitative easing unleashed in the aftermath of 2008 – both policies we are now pursuing again, after the Brexit vote.

And the cracks are beginning to show.

Almost a third of 16 to 34 year olds rely on credit to get through the month, according to the Momentum UK Household Financial Wellness Index, raising concerns that the millennial generation face financial difficulty and a dependency on debt that they cannot afford to repay.

Young people are more likely to miss repayments. Researchers found that two in five young people who rely on credit had been unable to meet their minimum repayments on credit commitments at least once in the last year, leaving them at risk of poor credit scores or high interest charges.

butterfly icon small You can check your own financial wellness score at yourwealth.co.uk/financial-wellness.

The Index, commissioned by Momentum UK and conducted by the University of Bristol’s Personal Finance Research Centre, is the first research of its kind to look at the overarching financial wellness of the UK. Momentum cited financial difficulties as one reason that young people tended to vote to Remain in the EU.

Van Heerden_ferdi head shot

Ferdi Van Heerden, CEO, Momentum UK, said: “We have entered a period of economic uncertainty following the vote to leave the EU – in which 73 per cent of young people planned to vote for Remain. The split between old and young on this issue, is perhaps much clearer when we consider the financial difficulty already faced by the younger generation.”

“The overreliance on credit among millennials is a real cause for concern, particularly when you consider the punishing rates often imposed on younger people accessing credit. We must ensure that young people know the dangers of using these methods and that they know how to do so responsibly, or we run the risk of yet another generation feeling the consequences of living beyond its means.”

Nearly 2 in 3 young adults have no dedicated savings or investments (63 per cent) and a further 28 per cent have less than £100 set aside.  These dire circumstances have had a marked effect on the attitude of younger people with nearly one in five (18 per cent) having no confidence in either their short term or long term finances

Ferdi Van Heerden, continued: “The Government’s ongoing investigation into ‘intergenerational fairness’ underscores the concerns that the UK’s current financial system greatly privileges older consumers and that younger working people are struggling financially – this is certainly borne out by our research findings. The Financial Wellness Index demonstrates that financial wellness of the older generations are much stronger than younger ones, showing an improvement of 0.1 Index points with each year of increased age. It is imperative that we address this disparity and give the next generation a real chance to build their finances in aid of their future.”