Young workers ‘hardest hit’ by debt in last 5 years

Young workers in the UK are "bearing the brunt" of debt increases. 

Some 55 per cent of 18 to 24-year-olds admitted their arrears have increased in the last five years, while 48 per cent of 25 to 34-year-olds also owe more, a new study by Demos has found.

Over-65s are faring much better, with only 13 per cent of respondents reporting a hike in their arrears.

However, extravagant spending or running up massive credit card debts are not behind the situation, as unexpected expenses (35 per cent), not being able to afford the basics (28 per cent) and one-off purchases (27 per cent) were cited as the three main reasons. 

This means many young workers are simply not earning enough to facilitate their current lifestyle and this highlights how important debt management is when it comes to avoiding these types of situations. 

When asked to calculate debts, consumers were asked to factor in credit cards, rent and bill arrears, and any combination of bank, student or payday loans.

Debt levels rising

While the majority of young people owe around £2,000, 19 per cent of 18 to 24-year-olds and 22 per cent of 25 to 34-year-olds have debts in excess of £10,000. This will obviously put pressure on their monthly finances, as they still have to meet their existing bills on top of this outgoing. 

When coupled with the current squeeze of finances and below inflation pay increases, many youngsters will struggle to finance their debts in the short and long term.

Jo Salter, a researcher at Demos who led the project, said it is clear people in their 20s and 30s are "bearing the brunt" of rising debt levels. "This is a time in their lives when previous generations would be thinking about starting a family or trying to get on the property ladder. Instead of saving for the future, they are being dragged into debt just to meet the costs of living," she added.

Ms Salter pointed out that debt is not "equally bad for all people", as some may have a more emotional reaction, while financial distress will be the overriding concern for others. Because of this, she is calling for the creation of tailored debt advice that takes individual circumstances into consideration.

Housing price rises take effect

The situation has been compounded by the fact house prices have risen at an astronomical rate over the past 17 years. Analysis by Shelter has discovered wages have gone up by an average of only 50 per cent since 1997 – but house prices have soared by more than 200 per cent.

This means consumers are being forced to commit more of their disposable income to service their mortgages and housing bills, which puts further pressure on their finances. If this situation is not addressed, people will either not be able to get onto the housing ladder in the future, or be left facing a situation where they will be forced to spend the majority of their money on essential purchases. 

By Joe White