June 2007 - UK - While a generation ago bankruptcy was the preserve of the failing business, many of today's young adults see declaring bankruptcy or opting for Independent Voluntary Arrangements (IVA) as an acceptable solution to their financial difficulties.
Latest research from MINTEL finds that as many as one in five (22%) or almost 3 million 18 - 34 year olds would consider bankruptcy or taking out an IVA, if their situation became serious enough. This compares to half this (11%) amongst those of their parents' and grandparents' generation (55+ years old).
But while bankruptcy and IVAs seem like a viable get-out clause for these young adults, this has done little to alleviate their stress about debt. The dual struggle of paying off student loans and getting a foot on the property ladder is really starting to take its toll, as around one in five (23%) 18 to 34 year olds are worried about debt, compared to just 17% amongst the public as a whole. And as many as one in ten (11%) of these young adults are actually choosing to ignore their debts, preferring instead not to think about how much they owe.
"Student loans and the endless stream of credit card offers, overdraft extensions and hire purchase means that there is no longer the stigma of going into debt that there once was. But the fact that it is now more accepted has done little to alleviate the stress of accumulating high amounts of debt," comments Todd Davis, senior finance analyst at MINTEL.
"Bankruptcy is now widely accepted amongst young adults mainly because it is the natural follow on from rising debt but also because the government has made the conditions of bankruptcy less painful. Today, the restrictions put on people's lives after declaring bankruptcy are seen as the lesser of two evils, when compared to paying back heavy debt," he adds.
Money for nothing
The 18 - 34 year olds are the most likely of any age group (60%) to have unsecured debt. Today, the average 18 - 34 year-old is carrying more than £3200 in unsecured debt, 40% more than the average adult and four times that of the over 55 year-old group. But what is particularly worrying is that amongst those in their late teens and early twenties the main reason for borrowing money is frivolous spending, with 25% of 18 - 24 year olds admitting that they borrowed money to buy things that they didn't really need. Amongst the older 25 - 34 year olds buying a house is the number one reason for borrowing money.
But not only are these young adults running up very high levels of unsecured debt, rising house prices has meant that their mortgages are now some £20,000 higher than the national average. The average mortgage for 18 - 34 year olds is almost £111,500, compared to the national figure of around £92,000.
"Many young adults have clearly adopted an easy-debt lifestyle, fuelled by cheap borrowing costs and willing lenders. But they have not necessarily ever been through the rough part of an economic cycle and have not been required to learn that a little bit of financial prudence, can pay dividends. If the economy does start to turn any time soon, they really will feel the sharp end of being in debt," comments Todd Davis.
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