CANDY FROM A BABY
The rise of debt among the young
Young People and Debt
Introduction This short report looks at Consumer Credit Counselling Service clients in 2005 who are under 25 and have problem debt. While the most common clients to seek help from CCCS are mid thirties with a job, a mortgage, children and £28,700 worth of debt, CCCS is increasingly counselling people under 25. They have lower debts than borrowers who are older. Few under-25s have a mortgage, most are renting and are heavy users of personal loans and credit cards.
The amount of money borrowed by under-25s is rising: the average owed by under 25s seeking help from CCCS has risen by around a quarter in two years, from £11,833 in 2003 to £14,984 in 2005.
Background
The aim of CCCS as Britain’s leading debt charity is to help anyone who gets in to debt regardless of age, status or financial situation. In order to help clients it is important for CCCS to know as much as possible about their debt, their financial situation and their lifestyle so counsellors can give tailored advice. New methods of data capture have allowed CCCS to analyse its client base in more detail. The aim is that it will yield a greater understanding of people in debt.
Young people are now embracing credit from the age of eighteen as a way of life. This generation is the first to be born to those who have had credit fairly freely available for all their adult life. The explosion in the availability of consumer credit in the 90s and 00s has allowed the UK economy to remain buoyant and show little of the downturn which has affected the other major European Union economies in the past few years.
If the under 25s are compared to the CCCS population as a whole, they are not as indebted as older clients. They have lower debts and fewer creditors. However, those in the 25-39 and 40-59 age groups tend to have children and assets, and their debt is
often associated with these. There may a bleak picture ahead for the under 25s who have spent their credit on conspicuous consumption and find themselves with no means to pay the debts.
Statistics from the DTI for the first quarter of 2005 showed record numbers of bankruptcies. An investigation from PKF accountants earlier this year showed that the under 30s made up 60 percent of bankruptcies. The young are getting more accepting of the fact that much of their lives will be spent owing money. For the empowered consumer, this may be rational; for many it will be a path to misery.
CCCS is counselling more young people to bankruptcy than ever before. With little or no spare income in young people’s salaries to attempt a debt management plan or any other form of repayment, and with few tangible assets, counsellors often find that bankruptcy may be their most suitable option.
CCCS is able to help the over-indebted sort out their financial situation but the road back to a positive financial situation can be long and hard whether through debt repayment or bankruptcy.
Data has been sourced from 104,000 clients who received in depth counselling in 2003, 2004 and 2005 from the Consumer Credit Counselling Service.
Numbers of clients
CCCS call volumes grew thirty percent in 2004 compared to 2003, and is on course for a fifty percent rise in the number of calls received in 2005, so all age groups have seen an increase in the numbers of clients being counselled. Of clients counselled in 2004, 15.2 percent were under 25, compared with fewer than six percent in 2001-2. In 2005, this fell back slightly to 12.6 percent of CCCS clients1. For each age between 18 and 25, except for 19, the number of women being counselled by CCCS is significantly higher than the number of men.
1
Data for 2005 is incomplete, and should not be understood to be a definitive statistic.
2002 (%) Under 25 25 – 39 40 – 59 60 and over 5.9 52.1 37.8 4.3
2003 (%) 10.3 48.7 36.0 5.0
2004 (%) 15.2 46.7 33.5 4.6
20052 (%) 12.6 46.3 36.3 4.9
Unemployed
In the past decade the economic climate has been relatively benign. Over the past six years, the ILO unemployment rate has fallen from six percent to 4.7 percent. While it is more likely that CCCS will see more of those who are economically inactive, or have recently become so, there has been a worrying trend of young people coming for counselling having been made redundant, or who have been unable to find a job following graduation, and hence unable to make repayments on their debt. Almost eight percent of under-25 year olds consulting CCCS describe themselves as unemployed. The national unemployment rate for 18 to 24 year olds is 5.8 percent. The unemployed are slightly over-represented in the CCCS population.
Sex and debt
CCCS data shows that the debts of both young men and women have been rising (both nominally and in real terms) in recent years.
2003 Average debt female aged 18-24 Average debt male aged 1824 £12,740 £10,953
2004
2005
£12,219
£14,202
£13,852
£15,118
2
These figures are only indicative – since the 2003 and 2004 figures use full year averages, 2005’s figure has to be looked at as potentially in line with the previous figures – perhaps clients coming to CCCS in the second part of the year will average out the statistics.
Females in the 18 to 25 age group owe less than their male counterparts:
2003 18 Female Male 19 Female Male 20 Female Male 21 Female Male 22 Female Male 23 Female Male 24 Female Male £5,667 £6,481 £5,948 £6,763 £7,446 £10,073 £10,337 £11,067 £11,376 £12,486 £12,084 £13,488 £13,436 £15,029
2004 £5,685 £5,628 £7,327 £9,163 £8,652 £9,269 £11,422 £12,645 £11,908 £14,056 £14,010 £14,883 £15,291 £16,923
2005 £6,550 £13,702 £12,279 £11,298 £12,654 £13,422 £10,996 £13,493 £15,628 £17,397 £18,207 £18,243 £20,965
Since CCCS began, our statistics have shown that men owe more than women, and this applies to all age groups. 2005 so far has slightly bucked this trend. In 2005, average debt increased for clients in the above age categories and has also seen women outspending men in some of the age categories examined above.3
Research looking at clients in 1997-1999 shows that the mean debt of an under 25 year old was £7,667. In 2004, this was £13,215.4
3 4
Again, 2005 figures are only indicative Only £1,196 of this rise is owing to inflation. If average debt had stayed the same for the under-25s in real terms, nominal debt would have stood at £8,863 at the end of 2004. Instead in 2004 we see an average debt of £13,215, a nominal difference of £4,352.
Number of debts
The previous section showed that in general, young men owe more than women. Despite this, it is women who have the larger number of debts:
2003 Av. Number of debts (female) Av. Number of debts (male) 5.90 6.72
2004
2005
6.75
7.62
6.03
6.89
Men have higher but fewer debts, compared to women who have many, smaller debts.
2003 18 Female Male 19 Female Male 20 Female Male 21 Female Male 22 Female Male 23 Female Male 24 Female Male 6.5 4.5 6.2 5.1 6.3 5.2 6.7 5.7 7.0 6.0 6.8 5.9 6.8 6.5
2004 5.2 4.2 6.1 6.1 6 5.4 6.5 5.9 6.8 6.2 7 6.1 7.3 6.2
2005 4.5 6.4 5.0 7.3 5.9 7.1 5.5 6.9 7.0 8.2 6.6 7.6 6.9
Women tend to owe smaller debts to store card, credit card and catalogue providers. Men tend to have fewer store card and catalogue debts, but more credit card and personal loan debts – which have larger balances. The older clients in the age group
have a higher number of debts than the younger – a trend which carries on throughout the CCCS population. However, clients in the 60 plus age group have fewer debts than those aged 40-59.
Housing
CCCS has found that ten percent of clients under the age of 25 have mortgage commitments, despite the reported difficulties of first time buyers in the present housing market, and the average age of a first time buyer being thirty-four5. The other 90 percent of clients either rent or live with their parents. No clients who were eighteen when they consulted CCCS have a mortgage, but from nineteen onwards, the numbers steadily increase. CCCS counselled 99 twenty-four year olds who had mortgage commitments in 2004. In 2005 so far, CCCS has counselled five nineteen year olds who have a mortgage.
Children
In examining the young in the CCCS client base, those with children are found to have higher debts than those without children. Rationally, this would be expected, but the difference in debt was quite small until 2005:
Av. Debt under 25, no children Av. Debt for under 25, children % increase £10,438 £10,601 2 2003 £12,523 £13,351 7 2004 £13,964 £16,446 18 2005 Obviously children will impact on household incomes: there are the actual costs of providing for the child as well as the effect on earnings if one partner, or the lone parent chooses to stay home to look after the child or the childcare costs if they do not. Given the extra expenditure a child causes, it is surprising that the difference in average debt between under 25s with and without children was so small.
5
Figure from Halifax research, March 2005.
Students
The number of young people who describe themselves as students contacting CCCS is growing too. In 2002, no calls from students under 25 were taken. In 2003, 1.4 percent of young people counselled were students, in 2004 it was 1.5 percent of young people and up until May in 2005 students were 0.8 percent of young people counselled.
Most students get in to debt to finance their time at university. Over thirty percent of young people are now going to higher education, and students (of all ages) make up 7.3 percent of the population. Barclays’ student survey has estimated the debt of students graduating in 2005 as £12,500. The low numbers of students contacting CCCS about their debt suggests that students are able to handle the debt that they take on.
CCCS populations year after year show students to be under-represented. Census figures put the proportion of the population who are students at 7.3 percent. CCCS populations have less than 1.5 percent of students – the Student Loans Company accept deferred payments on their loans, so students have few immediate debt repayments to make. For many, perhaps, it is only at the end of their course that they realise that they have taken on too much debt, and that their salary will not pay off as much of their credit card debt and student overdraft as they had hoped, which is when they will seek advice.
Types of credit
Typically clients aged 18 to 25 have an overdraft, two or three credit cards and a personal loan (or two). In this age bracket, credit cards are more popular than personal loans, but most clients will have both. Personal loans account for much higher balances than credit cards. Older clients with CCCS tend to have more debt on credit cards than on personal loans, often due to them having higher credit limits than young people. The table below shows the make up of debt for the under-25s.
% of total balances held by under-25s Personal loan Credit Card Overdraft Collection Agency Store card Catalogue Other 57.1% 24.6% 5.7% 5.5% 2.9% 1.6% 2.6%
Average number of debt type held per under-25 1.91 2.43 1.29 2.32 1.59 1.68 1.70
Average balance on debt type for under 25s £10,464 £4,348 £1,206 £3,206 £850 £859 £1,002
Conclusions
The average debt of a client aged 18-24 in 2005 is £14,984 Real levels of debt are increasing year on year for CCCS clients, especially the young Under 25s have more debt held on personal loans than on credit cards. Over 25s hold more debt on credit cards CCCS is counselling an increasing proportion of young people Young women have more individual debts than young men but owe less in total. Unemployment amongst CCCS clients is higher than the national average – about eight percent of clients under 25s are unemployed.