Drowning in debt

By Stephen Armstrong

New Statesman
Published 29 May 2008

Today's twentysomethings were brought up to spend today and forget about tomorrow. But now the loans have run out and the banks want their money back.

Two different lives - same looming crisis. Damien Core, 20, is a student from Kent, studying biology. Lisa Rice, 22, works for a technology company in Yorkshire and has done since leaving school. Damien plays in an indie band, drinks at the student union and has a steady girlfriend. Lisa is single, likes to go clubbing and spends her Saturdays in Leeds, shopping with mates. Last month both faced the same problem: they'd been bouncing their increasing debts from one zero per cent credit card offer to the next.

In April, the credit crunch hit home. No zero per cent offers came through the door. Suddenly, each had to start paying interest on debts that had been growing for years. With their income spent on rent, bills and food, neither had spare money to meet the credit card companies' demands.

Damien and Lisa are far from alone. According to a YouGov survey commissioned by the charity Rainer and published in May, 90 per cent of the 4,000 young people polled were in debt by the age of 21. Almost half of the 18- to 24-year-olds have owed more than £2,000 and one in five have owed more than £10,000. One in five young people said they were left with less than £50 per month after bills and debt repayments. One in ten were left with nothing. Some use loan sharks to fund pub crawls and new clothes.

Although student loans formed a significant part of higher debt levels, credit cards, store cards and catalogues were widely used. Unlike their parents, this generation has been borrowing heavily for the past five or six years simply to finance everyday expenses. While tabloid headlines scream about the effect the credit crunch is having on mortgage owners, many of these young people find themselves blacklisted before their lives have really begun.

"There used to be a sort of social stigma attached to being heavily in debt," explains David Chater, head of policy for Rainer. "In the past five years I've seen that stigma vanish. Young people are sold the idea of borrowing so heavily these days - on TV, online, on the high street and even by their mates - that they think nothing of it. In part, student loans are to blame. Students themselves think: 'I owe so much, what does another grand matter?' Even those who are not in higher education know someone who is, so they see the £2,000 they owe as nothing compared to their mate or cousin."

Linda Jack, youth adviser and head of the Financial Services Authority's working group on young adults, reinforces this: "I've worked with youth for over 20 years and I've seen young people's attitudes change more and more into passive consumerism - I want it, I want it now and I can get it now.

"The link between effort and reward has disturbingly been lost for a lot of young people. Trying to get through to them that if you put the effort in and save, you have that sense of achievement, as opposed to paying more for it in the long run by putting it on your credit card because you wanted it now . . . There is a cultural issue here: we have changed culturally in terms of expectations."

Rainer, which works with socially excluded young people such as those who are dependent on benefits, are homeless or are otherwise struggling to get by, warns that the hardest-hit are, inevitably, the poorest. Two-thirds of the young people it works with are in debt - rising to 83 per cent among those living in supported hostels.

"I suppose you'd call this the sub-prime market," Chater says. "They wouldn't have been able to borrow such large sums a few years ago, but now you have stores and loans with cripplingly high interest rates which are prepared to lend money with no credit checks or proof of employment. Often we find kids who've had to borrow from their mum or dad to cover loan payments, then having huge rows within their family over these supposedly friendly loans. When you think that it's family conflict that causes most teenage homelessness, this is literally driving young people on to the streets."

And yet the inability to recognise the downside of borrowing isn't restricted to any single social class. "With this age group it's almost as if a white mist descends when you start talking to them about things like APR," says Neil Almond at the youth charity Kikass. "I've even talked to kids who think that the higher the APR, the better the deal. This is the most internet-savvy, clued-in generation when it comes to online, but none of them have online bank accounts. It's as if there's a missing part of their profile where money and debt is concerned. These are smart kids. They know that they don't know, and they literally don't want to know."

The New Statesman conducted a straw poll of 18- to 24-year-olds to test Almond's thesis and found it depressingly accurate. "I despair at how much attention my dad pays to these things, because it's very dull to me," grumbles Phil Teach, a 24-year-old from London. "He keeps saying you should take your money out of here, or watch out for that. I'm like 'OK, Dad, can you sort it for me?' It's a hassle when you haven't got time."

"The thing is, if I lived on the money that I got from my job, I wouldn't even be able to go out," explains Jim Davis from Carlisle. "I'm 22 years old and I should be having fun. If someone wants to lend me money to do that, why shouldn't I?"

Sense of entitlement

The research company Synovate surveyed 18- to 24-year-olds' attitudes to debt and money at the end of 2007 and found a generation used to easily available credit, with a live-for-the-moment attitude and the belief that money is to be spent for pleasure. "The majority of 18-24s spend automatically and frequently, fuelled by a sense of entitlement to their standard of living," explains Becky Connell, who conducted the research. "The problem is that social and peer group pressure makes it harder for young people to curb spending. As well as the cheap credit and glossy lifestyles marketed to them by a celebrity-dominated culture, there is the feeling of being 'left out' if you miss even one night out. So something as simple as socialising is driven by compulsion as well as enthusiasm."

Disturbingly, Connell describes a conversation between a group of twentysomethings in Leeds who were considering taking out loans to pay for plastic surgery. One 24-year-old had borrowed to fund his wife's "boob job" and another was considering liposuction, while Amanda, 23, told the startled interviewer: "You can get plastic surgery on credit; you can pay monthly for it now. With Transform you can get liposuction for £60 a month. When I saw that I was like, 'Ooohh'."
"You have so many kids who want to look like Jordan and Peter or Posh and Becks," warns Jasmine Birtles, author of The Money Book: Control Your Money, Control Your Life. "They take store cards to buy the clothes they see in magazines, they spend on sunbeds and cosmetic surgery and they're constantly opening up new credit cards to pay off the old ones. There's simply no sense of the debt that's gradually being accrued. It's as if this is just free money."

And there is little sense of the future offering any great threat: "There was a recent survey that suggested young people aren't saving for a pension because they're relying on buying a property and hoping that the value of the property will rise," explains Andrew Oxlade, editor of the financial web-site www.thisismoney.co.uk. "Inflation paid off their parents' mortgages, but we are in a low-inflation environment. Not only do we have bigger debts, we also have this economic kick in the teeth that you have to pay off every bean yourself."

With unemployment rising for the third month in a row in April and Mervyn King, the governor of the Bank of England, warning that the full effects of banks' credit problems have yet to reach the consumer, this may prove to be the first recession that hits the young - a group that usually survives tough times because its salaries are as low as its expenditure.

Birtles has already encountered students who are considering declaring themselves bankrupt the moment they graduate. "That can mean they will be unable to get a mortgage or even a current account years later," she warns.

"The only kids from this generation who have absolutely nothing to worry about are those with very rich parents who don't mind paying off everything their children owe. For the others, I shudder to think how they're going to cope over the next 12 months. The banks are tightening things because they've lent money to the wrong people, so they're going to face very hard times indeed."

According to Chater: “There are already 1.5 million 18- to 24-year-olds in poverty in England and Wales. Initiatives such as the working tax credits have helped families and children but, by design, have had little impact on this age group. Fuel poverty measures have understandably targeted older people but rising fuel prices also appear to be having a significant impact on young adults living independently for the first time. This group falls between policy agendas: too old for initiatives targeting under-18s and unaffected by those for parents.”

Ignored by the government, seduced with cheap credit into taking on debt, and facing the same price inflation as higher-earning late-twentysomethings and thirtysomethings, an entire generation of Britons runs the real risk that bad debts could write it off – young, gifted and broke.